China’s Specialized Manufacturing Goes from Strength to Strength

Overview

China has started to focus on trying to add value to their manufacturing sector, and recent news within the last few weeks have suggested that this process is making serious moves forward.

Article Highlights

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While in recent months China’s manufacturing sector has begun to stagnate, not all sectors are experiencing this effect. June saw across industries that the level of manufacturing remained steady over the whole of the month, an on-going trend that was in line with expectations. The entire economy of China has been expecting a slow changeover from the previously export dominated economy to a more service based one, which is a trend that is gradually taking effect as the service industry saw a rise in activity levels in the same period.

One key change expected to arise from this changeover is the focus moving away from cheaply produced manufactured goods to a more specialised and technical nature. China is well known globally for their ability to offer cheap exports; however, this advantage has become threatened by other Asian countries like India or Vietnam, who can often undercut prices in China. For this reason, China has started to focus on trying to add value to their manufacturing sector, and recent news within the last few weeks have suggested that this process is making serious moves forward.

The integrated circuits (IC) sector is an industry that requires a quite high technological level, which China is making serious progress in. In 2010, the industry was valued at $21.03billion in China, while this figure has risen year on year, and in 2015, the production value had reached $57.97billion with another predicted increase of 15% again in 2016, hitting $66.64billion. Despite that the smartphone industry is starting to stall, a current key sector that heavily relies on IC’s, the Chinese government is still investing heavily into this area because ICs are seen as a strategic industry for many products in the future. Therefore, it announced the development of a state-level integrated circuit base project in March. The government is committing serious sums of money, with the goal of reaching the technological level of other international leaders in this sector.

While the IC industry in China is an area seeing heavy investment from their own government, that is not to say there are no foreign investors who believe in the upcoming manufacturing sector of the country. For instance, Apple already trusts Chinese manufacturer Foxconn to produce their iPhone despite of comparatively high assembly costs, and more recently, innovative car manufacturer Tesla appears to be setting to base one of their major production lines in the city of Shanghai.

While nothing has been confirmed yet, there has been whispers that Tesla is ready to enter into a joint venture with Jinqiao Group – a huge deal that would see each company commit $4.5billion to the project. The investment would not only create the mentioned production line, but also includes nationwide Tesla dealerships being created, a more importantly in this context a large research and development centre as well as the elaboration of charging platforms for the vehicles.

A partnership of this type would allow Tesla to enter into the Chinese market avoiding import levies, and is a traditional route for car manufacturers previously being taken by most major companies like Ford and Volkswagen, who produce most of their cars for the Chinese market in China now. In turn, it would give China’s Tesla suppliers a lot of know-how.

Summary

While the Tesla joint venture has yet not been confirmed, all recent developments are indicating to a growing trust in the capabilities of production in China. While manufacturing as a whole appears to be stagnating or only growing slightly, this continuous move towards specialised production should allow the country to compete on the world stage. All signs point towards a commitment by the government, as well as outside foreign firms to investing and helping grow China’s manufacturing industry into being a world player, and shedding the maligned opinion that only cheap and poor quality goods are made there.

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