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Issue 39, October 2011

This newsletter is a monthly supplement to ChinaAnalysis.Com, a new website that aims to promote knowledge sharing in China-related analysis. This newsletter contains original content and may not be reproduced without exclusive written permission. If you have any questions, comments and suggestions, please email support@chinaanalysis.com.

ChinaCompass - New competitors from China's hinterland

For a long time, the image of China's high-tech exports has been linked with consumer electronics assembled in the country's export processing zones. Within a global production network controlled by multinationals, components made by US, Japanese and Korean companies gathered in China's coastal cities have been processed, assembled, and exported to the world market. This system is exemplified by the famous iPod model, "designed in California" and assembled in China. Today China continues to assemble iPods, but the overall pattern of China's high-value-added export has vastly changed in the past few years.

According to a white paper produced by Economist Intelligence Unit (EIU), a consultancy, China is rapidly expanding the exports of technology- and capital-intensive products. In particular, the Chinese are invading the capital equipment export market, the traditional stronghold of US, Japanese and Korean multinationals. Between 2007 and 2010, China’s share of global export increased from 14.4% to 28.4% in shipbuilding, from 18.6% to 26.3% in motorcycles, and from 16.9% to 22.4% in derricks and cranes. As the Chinese export lower costs and higher quality products, they have become even more competitive in the markets of the developing world. In sectors like electric trains, tractors, and construction equipment, virtually all Chinese exports are going to non-OECD countries where the market shares of incumbent multinationals are shrinking rapidly.

While China's share of world manufactured exports is steadily increasing, the share of China's exports produced by foreign-invested manufacturers is declining after reaching its peak of around 60% in 2005. Thus, it is the indigenous Chinese companies that are making inroads into the mid- and high-end export market. More surprisingly, the new competitors are increasingly coming from China's inland provinces instead of the developed coastlines. Take the construction equipment segment as an example. Formidable Chinese competition comes from three companies, Sany, Zoomlion, and Xugong. While the long-running national champion Xugong from coastal Jiangsu province was the first to enter the global top ten in 2009, the private company Sany and Zoomlion from inland Hunan province both leapfrogged Xugong to become the world’s 7th and 9 thlargest in 2010. The domestic leader, Sany is now not only ramping up its production bases in Brazil and India, but also tapping into the German engineering talent pool to produce in the heartland of Europe.

Compared with the electronic assembly lines in the coastal provinces, new competitors in the capital goods segments have developed entire supply chains. Their strong growth is rooted in abundant skills and industrial infrastructure developed in the Mao era. From the 1950s to the 1970s before the economic reform, China's central planners overwhelmingly favored investment in heavy industry, particularly in inland China. Though most of the state-owned enterprises created at that time ran into difficulties with subsequent mass lay-offs in the 1990s, the significant improvement in business management and the abundant supply of machinists and metallurgists has transformed the industry. As inland China has gained access to the world market by the improvement of transportation infrastructure in the last decade, these indigenous firms quickly took advantage of the demand opportunities provided by first the booming domestic market, and now the whole developing world.

The rapid growth of these new competitive firms is now contributing to an economic boom in China’s hinterland. And indeed, the prosperity of the Chinese economy will be ultimately dependent on the innovativeness of these companies.

Top News of Last Month
Sep 02 China announces science funding program
Sep 06 Full text: China's peaceful development
Sep 10 China hits foreigners with new social benefits tax
Sep 13 China to invest US$154 billion in cloud computing
Sep 16 China services sector growth weakest on record
Sep 16 Number of cars in China hits 100 mln due to rapid growth of private ownership: ministry
Sep 20 China growth forecasts trimmed by IMF as export demand softens
Sep 23 China to reevaluate, revise environmental quality standards in next five years
Sep 25 China to invest 2 trn yuan in low-carbon economy
Sep 29 China launches first module for space station
New Books
Deng Xiaoping and the Transformation of China

By Ezra F. Vogel

“Perhaps no one in the twentieth century had a greater long-term impact on world history than Deng Xiaoping. And no scholar of contemporary East Asian history and culture is better qualified than Ezra Vogel to disentangle the many contradictions embodied in the life and legacy of China’s boldest strategist.” – from Harvard University Press, September 2011


By Charles Wolf, Jr., Siddhartha Dalal, Julie DaVanzo, Eric V. Larson, Alisher Akhmedjonov, Harun Dogo, Meilinda Huang, and Silvia Montoya

"China and India, the world’s two most populous countries, will exercise increasing influence in international affairs in the coming decades, and each country’s role on the world stage will be affected by the progress that it makes and by the competition and cooperation that develop between them. This monograph focuses on the progress China and India seem likely to achieve from 2010 through 2025 in four domains: demography, macroeconomics, science and technology, and defense spending and procurement. In each domain, the authors seek answers to these questions: Who is ahead? By how much? and Why? The authors find that India has distinct advantages over China in terms of demographics; that the two countries are surprisingly close in terms of forecasted economic growth, although China’s overall economic output is likely to remain significantly higher than India’s; and that, for both science and technology and defense spending and procurement, China’s current substantial margins over India are likely to rise but by amounts that will vary widely depending on several alternative scenarios. The monograph concludes with implications for policy and for further research."– from RAND Corporation, September 2011
Large Research Infrastructures Development in China: A Roadmap to 2050

Edited by Hesheng Chen

"As one of the eighteen field-specific reports comprising the comprehensive scope of the strategic general report of the Chinese Academy of Sciences, this sub-report addresses long-range planning for development of large research infrastructures in China. They each craft a roadmap for their sphere of development to 2050. In their entirety, the general and sub-group reports analyze the evolution and laws governing the development of science and technology, describe the decisive impact of science and technology on the modernization process, predict that the world is on the eve of an impending S&T revolution, and call for China to be fully prepared for this new round of S&T advancement. Based on the detailed study of the demands on S&T innovation in China’s modernization, the reports draw a framework for eight basic and strategic systems of socio-economic development with the support of science and technology, work out China’s S&T roadmaps for the relevant eight basic and strategic systems in line with China’s reality, further detail S&T initiatives of strategic importance to China’s modernization, and provide S&T decision-makers with comprehensive consultations for the development of S&T innovation consistent with China’s reality. Supported by illustrations and tables of data, the reports provide researchers, government officials and entrepreneurs with guidance concerning research directions, the planning process, and investment. " – from Springer, September 2011
Upcoming Events
Oct 06 - Oct 07 Workshop on “Chinese Ways of Innovation”
Oct 14 - Oct 15 International Conference on Social Sciences and Society
Oct 15 - Nov 04 The 110th China Import & Export Fair
Oct 30 - Nov 02 4th International Conference on World-Class Universities
Nov 05 - Nov 08 International Workshop on Innovation and Commercialization of Micro & Nanotechnology

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