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UPDATED: February 1, 2010 NO. 5 FEBRUARY 4, 2010
Urgent Adjustment
It is fair to say that adjustment of the economic structure cannot be achieved without considering both domestic and international factors


TOY WORLD: A toy factory worker in Shantou, Guangdong Province, packs a toy truck into a box. China's exports mainly consist of labor-intensive products like toys (MA KA) 

Since China's economic growth abated as a result of the global financial crisis, the adjustment ofthe country's economic structure was given more attention than ever before. Besides various internal measures, the country's painful economic adjustment could certainly be made more successful by looking at the world economy from a different perspective. Ma Xiaohe, Vice President of the Academy of Macroeconomic Research under the National Development and Reform Commission, offered his view on Caijing.com. The edited excerpts follow:

Since China's economy has been integrated into the world economy, depending solely on domestic striving as a way to govern economic structure may not be a reliable means for the country to hit its desired target. It is fair to say that adjustment of the economic structure cannot be achieved without considering both domestic and international factors.

We are reminded repeatedly that China's integration into the global economy has made its economic issues more complicated than ever before. Even more serious, any external factor may produce some sort of influence on the Chinese economy.

Take China's industrial structure as an example. A major part of its production capacity was set to meet foreign demand prior to the financial crisis. In 2008, China produced 580 million tons of iron and steel, 1.4 billion tons of cement, 20.6 billion garments, 6 billion pairs of shoes and 137 million computers. What should not be neglected is that these products were largely made for foreign companies. For example, China made 560 million cell phones in 2008, most of which were labeled with international brands, including Siemens, Motorola, Apple and NEC. Obviously, China's massive production capacity belongs to the whole world since an overwhelming number of made-in-China products are made for foreign brands and distributed globally. As a matter of fact, the whole process of production in China, including research and development, design, parts imports, manufacturing and sales, is closely linked to the outside world.

Owing to its low labor costs, China has been mainly engaged in the labor-intensive sectors of the global industrial chain. As Shi Zhenrong, President of Taiwan-based Acer Group, said, industrial division is just like a U-shaped smile in the two upper ends, namely research and development, design and product standards on one end and branding, sales and other services on the other end, make much more profit than the lower part, which stands for processing and production. It has been widely acknowledged that technology is the core indicator of modern enterprise competitiveness and comprehensive national power. Possession of technology always comes hand in hand with high profits in the global industrial chain.

Unfortunately, major developing countries, including China and India, fall into the lower part of labor intensiveness and less profitability, whereas advanced countries occupy the two upper ends of high profits and technology intensiveness. For example, a Logitech wireless mouse sells for $40 in the United States, while China only earns $3 by manufacturing it. Likewise, Barbie dolls sell for $9.9 each in the United States, but China earns $0.99 per doll.

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