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| Is the sweatshopped China of today soon going to be its past? |
A few days ago I featured a post on how low-cost manufacturing is migrating to even lower-cost locations than China such as
Vietnam. So, even authoritarian China is not immune to upward pressures on wages as firms keen on the cheapest manufacturing possible head elsewhere. Now we receive news that even China is aware of these pressures and is adjusting accordingly. Instead of trying to remain the lowest-cost producer in perpetuity, which is impossible, it too is seeking value-added industries where productivity gains from
capital and labor can help ensure that it remains the world's largest producer. From
Caixin Online:
China’s State Council has unveiled a 10-year plan for upgrading the
nation’s manufacturing capacity so it can catch up with production
powerhouses like Germany and fend off competition from other developing
countries. The Ministry of Industry and Telecommunication Technology (MIIT),
which led the creation of the “Made in China 2025” plan, said the
strategy is intended to give China an edge in innovation, green
development and quality goods.
The MIIT put the focus on 10
sectors, including high-end computerized machinery and robotics,
aerospace equipment, renewable-energy cars and biological medicine. Sha
Nansheng, vice director of the MIIT’s Department of Science and
Technology, said the country’s manufacturing industries are facing
pressure on two fronts: competition from other developing countries
where labor costs are lower, and a renewed push by developed nations of
the West seeking an advantage in industrial manufacturing.
“If we
cannot make products with good quality and brands, China cannot become a
manufacturing powerhouse as we hope,” he said. “China might have also
to cede its title as a large manufacturer due to competition from other
(developing) countries.”
The model for this upgrading, as you may suspect, is Germany:
Germany has been pioneering smart
manufacturing, which utilizes information technologies. This so-called
fourth industrial revolution — after steam, electricity and information —
connects machines to a network where production processes and speeds
are automatically adjusted to minimize problems and costs.
Upgrading
of manufacturing industries has become urgent in China, as its status
as “the world’s factory” is undermined by developing countries, and it
seeks a new engine of growth amid a slowing economy. The “Made in
China 2025” plan will embrace the fourth industrial revolution concept —
what some call Industry 4.0 — while opening itself to advanced ideas
from countries such as the United States and Britain, the MIIT said.
Li
Beiguang, vice director of the MIIT’s Department of Planning, recently
told journalists that the government will lead the plan but leave
implementation primarily to the market by protecting equal access and
competition.
You wish China luck, but you do have to wonder if government fiat is the right way to encourage the sort of innovation necessary to bring China to the manufacturing frontier.
