China strives to regain manufacturing competitiveness

Promising entrepreneurs, manufacturing delegates and experts gathered at the 2012 Summer Davos Forum to discuss the reinvigoration of China's once-booming manufacturing sector.

Shrinking exports, halted production and an outflow of foreign funding have made the sector an area of focus at the forum, which is being held from Sept. 11 to 13 in north China's port city of Tianjin.

Data from the Ministry of Commerce showed that China approved the establishment of 13,677 foreign-funded companies in the first seven months of 2012, down 12.3 percent from a year earlier.

Foreign direct investment (FDI) inflow for the first seven months of the year totaled 66.67 billion U.S. dollars, down 3.6 percent year on year, as global economic woes have continued to weigh heavily on China.

With the impact of the lingering economic crisis and rising global costs, China is gradually losing its international competitiveness in manufacturing, participants at the forum said.

A survey of labor costs in emerging Asian markets revealed that China's labor costs ranked third among other Asian countries, following Malaysia and Thailand. China's minimum wage is equal to two to three times that of India, the survey said.

"We should learn what we have lost in the process of the global manufacturing transformation," said Xu Heyi, chairman of China's fifth-largest automotive group, the Beijing Automotive Group (BAIC Group).

Participants at the forum said rising labor costs may cause foreign-funded enterprises to pull out of the Chinese market. However, the phenomenon will likely be restricted to low-end manufacturers, said Lu Haiqing, senior vice president of corporate affairs at Tesco China.

"Generally speaking, China still has advantages in manufacturing," said Huang Mengfu, vice chairman of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Huang, who is also president of the All-China Federation of Industry and Commerce (ACFIC), explained that China's low-end manufacturers may also suffer from difficulties brought about by increasing labor costs, adding that it is normal to see the withdrawal of some manufacturing enterprises, including foreign-funded companies.

China has laid a solid foundation and created a favorable environment for the development of manufacturing since the 1970s, said Tong Jiadong, vice president of Tianjin-based Nankai University.

Other emerging economies still have a long way to go to surpass China as the "world's factory," as the country has several irreplaceable advantages, including experienced personnel and relatively sound infrastructure, Tong said.

Chinese manufacturers are suffering from a lack of technological support, according to Vice Minister of Industry and Information Technology Su Bo, adding that China's manufacturing remains in the middle and lower reaches of the global value chain.

Chinese manufacturers should foster their core competitiveness through innovation, said Li Dongsheng, chairman of manufacturer TCL Corp.

Technology- and talent-intensive manufacturers have seen rapid growth in comparison to low-end manufacturing companies, according to Wang Hongyan, executive chairwoman of the Organizing Committee of China Manufacturing Management International Forum.

Bhaskar Chakravorti, senior associate dean of the Fletcher School at Tufts University, said China should refrain from giving up on the manufacturing sector, adding that China should maintain its current advantages while transforming the industry to foster innovation.

Xu said that Chinese manufacturers should focus not only on high-end products, but also on developing a high-end industrial system that will allow it to regain its competitiveness.