Challenges ahead in shift to a powerful industrial country

China will face some major challenges when shifting from a large industrial country to a powerful one, as the world's second-largest economy has entered the later phase of industrialization, experts said on Friday.

"Shortage of resources and growing environmental pressure will increase the cost of China's economic growth in the next decade," said Chen Jiagui, director of the economic department at the Chinese Academy of Social Sciences.

"The rising cost of industrial activities will severely challenge the country's transformation to a powerful industrial country, along with a growing income gap and weakening driving force from the reform and opening-up," Chen said.

China's import of energy and mineral products accounted for 10.7 percent of the world market in 2009, up 4.3 percentage points from 2005, according to the book National Conditions of the Large Industrial Country and Strategy of the Powerful Industrial Country published by CASS.

"The loss of the cheap-labor cost advantage will bring about wide and fundamental shock to the country's industrial economic development," Chen said.

Between 2006 and 2009, the wages of China's migrant workers increased by 3.6 percent annually. The country is also losing the advantage of an infinite labor supply, which will push up the labor cost of enterprises, according to Chen.

A study from the Institute of Industrial Economics of CASS showed that China has entered the later phase of industrialization with an industrialization index of 66 points in 2010, compared with 55 points in 2005.

"The later phase of industrialization is the key stage of China's industrialization because we need to upgrade the current industries while developing strategic emerging industries. It's necessary and urgent for the government to put forward a strategy to transform China into a powerful industrial country because the transformation of industrial development is the core for China to change its economic development mode," said Huang Qunhui, vice-director of the institute.

Huang Libin, deputy director of the bureau of operation monitoring and coordination at the Ministry of Industry and Information Technology, said that China's manufacturing is still at the middle and lower end of global industrial chains.

"The re-shoring of manufacturing in developed economies brought about pressure to China. And China needs to accelerate the pace of industrialization as well as enhance the level of industrialization. Increasing the quality and efficiency of China's industry is the key for the country to move toward a powerful industrial country, and the government will make more efforts to improve the quality and structure of the industrial products in the next five years," Huang said.

Jin Bei, director of the Institute of Industrial Economics of CASS, said that China still retains a competitive edge of labor supply at present and it is still necessary to combine the labor advantage with foreign investment to promote export and improve industrial structure.