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Print Edition> Business
UPDATED: October 10, 2011 NO. 41 OCTOBER 13, 2011
Tending to Internal Pressure

UPGRADING MANUFACTURING: Workers waste no time producing toys at a factory in Binzhou, Shandong Province. Economists call for greater efforts to upgrade low-end manufacturing businesses and create more added value (LI RONGXIN)

Manufacturing strength

Huo Jianguo, President of the Chinese Academy of International Trade and Economic Cooperation

China's economic competitiveness mainly stems from its advantages in the manufacturing industry, exports and foreign exchange reserves. But even the competitive manufacturing industry and foreign trade sector are struggling with many deep-rooted ailments.

China is currently in the middle and later stage of industrialization, and its manufacturing industry is likely to overtake that of the United States as the world's largest. However, many industries of the country are still engaged in lower-end production. The country suffers from the weak ability to produce some key components and parts, and relies on imports to meet the needs of most higher-end equipment.

In China, foreign companies have dominated the middle and high-end manufacturing sector. That means core technologies and innovations are not in the hands of China.

In terms of foreign trade, Chinese companies are large in size and boast big market shares, but their weakness lies in the capability for value creation. China seems to have been caught in a "manufacturing trap." Upgrading the manufacturing industry and moving up the value chain have become a top priority for the national economy during the 12th Five-Year Plan (2011-15) period.

Governments at all levels in China are supposed to take swift and solid actions to propel economic rebalancing. The current world economic situation has provided a sound opportunity for China to adjust its economy toward more sustainable growth.

A significant step is to attach great importance to the strategic emerging industries including those engaged in new energies, environment protection and bio-pharmaceutics. If China had pumped heavier investments in those industries in 2008, it would have been easier for the country to push forward industrial restructuring. Better late than never. China still has an opportunity to sharpen the core competitive edge of the manufacturers.

The country could increase imports of advanced equipment or lower import tariffs for Chinese companies to lay a solid foundation for a boom in strategic emerging industries. Moreover, increased imports would also help cure the acute problem of trade imbalance.

Meanwhile, it is necessary to encourage Chinese firms to broaden their footprint overseas. The country is supposed to smooth the way for private firms to go global. Efforts are also needed to heighten financing support for state-owned enterprises' overseas mergers and acquisitions. But these companies must keep alert over possible risks.

Generally, multinationals are defined as those firms sourcing at least 40 percent of profits from overseas markets. So China has very few real multinationals. The country needs to support Chinese firms building overseas sales networks. Only when China owns a number of multinationals can it become a powerful economy.

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