“Made in China” Got a New Rival

Photo by jurvetson (Flickr.com)

WSJ reported on Sunday that the increasing salary of the Chinese labors has reduced the advantage of producing and assembling goods in China. The countries in Southeast Asia have joined together as a new manufacturing union to compete China, the largest manufacturing country in the world.

Leaders in the region are pressing ahead with plans to stitch together the patchwork of nations into a common market and production platform by 2015. If fully realized, the project will include fewer restrictions on the movement of skilled labor from country to country and streamlined customs procedures.

Southeast Asian countries are also making headway on road and rail investments. Efforts funded by the Asian Development Bank and others have created three major overland trade corridors, with improved highway connections across Cambodia, Thailand, Vietnam and Laos.

Many companies are pursuing the same goals on their own. In the garment industry, more than a dozen Southeast Asian suppliers have reached agreements recently to more-closely integrate their supply chains by linking stitching companies in places such as Cambodia with raw-material makers in Thailand or other nearby countries. The companies effectively agree to market goods jointly so that they appear similar to suppliers in China, which often offer all the steps needed to make a whole garment, including access to yarns, fabrics, buttons and sewing, in the same area.

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Call for Economy Transformation

Now that China has been buffeted by global financial crisis for more than a year, it is time for China to start economy transformation, urged the Editorial Board of the People’s Daily, the official newspaper of the Communist Party of China in an editorial.

The article argued that China is depended too much on international trade, which leads to economy prosperous, but also makes the whole system fragile. China should improve the production capabilities and technical skills of its own industries, rather than taking advantage of the cheap labor market.

I like this article because it gets the point of China’s weakness. China has been focusing too much on the GDP growing, and it really does a good job on it. But if China still relies on the cheap labor to produce the raw materials, without developing its own high-technology and high-end manufacturing industries, its economy cannot be considered as healthy.

The raw products like billet, rolled steel, refined oil and plastic are closely depended on the global climate. If the global market is manipulated by the industry giants or international speculators, China could do nothing but bear it.

An article called “Problems of China’s steel industry” tells what happened to China’s steel industry last year:

In 2009, industrial capacity exceeded 700 million tons while the domestic market could only consume about 560 million. The excess capacity is estimated at over 100 million tons. The situation may worsen this year as analysts predict demand will continue to lag behind supply.

China’s steel overcapacity is also a bad news for the environment. An article published on Chinastakes described its environmental problem:

China has overtaken the US as the largest emitter of greenhouse gases (GHG), to which steel industry contributes no small part.

Just before the Copenhagen climate conference, China promised to lower emissions per unit of GDP by 40 to 45 percent by 2020. As many countries, developed and developing, pointed out, this is the promise of merely a slowdown and not a cut of emissions, and pressure on China to get serious is increasing. The US Congress is even now considering levying penalties against imported products from high emission processes, and also including in climate change legislation additional tariffs on imported steel and other energy-intensive products to offset alleged competitive harm to domestic industries, should other countries not commit to equivalent GHG reductions. China is the key target, and he steel issue threatens to pass currency valuation as the most contentious trade issue between it and the United States.

It is an urgent need for China to transform from low-technology and polluting manufacturing to high-technology and eco-friendly industries. Being the fastest economy growing country is good, but China should also realize that GDP is not everything.

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