Tue, Nov 18, 2003 page8

• China, the world's processing plant

  • By Tung Chen-yuan and Yao Symin 童振源, 姚思敏
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  In a 2001 white paper, Japan's Ministry of International Trade and Industry (MITI) for the first time used the phrase "factory to the world" to describe China.

  In July of the same year, the Japanese newspaper Sankei Shimbun published a series of articles proposing that "in the manufacturing industries, China has already become a factory to the world." From then on, the media have made frequent use of the phrase "factory to the world" to describe the large market share held by China's manufacturing industry in the world market. So is China really a factory to the world?

  According to Chinese customs statistics, Chinese production volumes are the world's highest for over 100 products. These products span more than 10 industries, including electronic home appliances, IT equipment, textiles, pharmaceuticals, mechanical equipment and chemicals.

  Within these industries, the production volume for tractors and containers in the machine equipment industry is 85 percent of total world production.

  The figure is 70 percent for textiles, while telephones and monitors in the IT equipment industry make up 50 percent and 42 percent of total world production, respectively, and the production of television sets represents 29 percent of total world production.

  According to research by the UN, the main reason the global market share of Chinese products increased from 1.6 percent in 1985 to 6.1 percent in 2000 was that the global market share of China's non-resource oriented industries saw a massive increase from 1.5 percent in 1985 to 7.8 percent in 2000.

  The global market share of Chinese non-resource oriented low-tech products increased from 4.5 percent in 1985 to 18.7 percent in 2000. The global market share of mid-tech products increased from 0.4 percent to 3.6 percent, and the global market share of high-tech products increased from 0.4 percent to 6 percent.

  This shows that China's low-tech products are quite competitive, and the competitiveness of mid- and high-tech products does not lag very far behind.

  From the perspective of export structure, the proportion of low-level products and resource-oriented products in exports fell sharply. By comparison, the proportion of non-resource-oriented products saw a massive increase, from 50 percent in 1985 to 87.1 percent in 2000.

  A more detailed look reveals that the proportion of low- and mid-tech products in exports increased rapidly prior to the 1990s, but stagnated or declined after 1990. The proportion of high-tech products, however, leapt from 2.6 percent in 1985 to 22.4 percent in 2000. Going on the 10 biggest export products, we find that although low-tech products remain China's biggest export category, communications equipment, automatic data processing equipment and computer parts have already squeezed in among the top six export products. This once again highlights the fact that China's high-tech products are fully competitive, and that they are already leading Chinese exports in a rapid attack aimed at winning global market share.

  However, the competitiveness of Chinese products in global markets is basically built on trading and processing, and a major part of it is due to product processing by foreign manufacturers in China.

  China mainly offers cheap labor for this kind of processing, and has become a link in the global division of labor between multinational companies. It is not the case that China's own industries possess such advanced technologies and strong research and development capabilities. Last year, 55.3 percent of China's exports were made up of export-oriented product processing, while foreign-invested enterprises (including those from Taiwan, Hong Kong and Macau) made up 52.2 percent of China's exports.

  In particular, the contributions of exports of processed products and foreign-invested enterprises to the development of China's high-tech industries are even more obvious. High-tech industry added value tripled from 1995 to 2001, at an average annual rate of 19.3 percent.

  At the same time, the value of high-tech product exports increased from US$10.1 billion in 1995 to US$67.9 billion last year, and the proportion of high-tech products in exports increased from 6.8 percent in 1995 to 20.9 percent last year. However, the absolute majority of high-tech exports was made up of processed products. In 1993, processed products made up 70.2 percent of high-tech exports, and by last year this figure had increased to 89.6 percent. What's more, foreign companies contribute quite a high proportion of high-tech exports. In 1996, the figure was 71.5 percent, and last year it was 82.2 percent.

  The director of the Development Research Center of China's State Council, Wang Mengkui (王夢奎), has stressed that China is merely "a production workshop in the global processing plant" and not a "factory to the world." Chinese scholars are as a rule also unwilling to call China a factory to the world, and feel that it should rather be called "the world's processing plant."

  Tung Chen-yuan is director of China Economic Analysis at the Prospect Foundation. Yao Symin is a post-graduate student in the Graduate Institute of East-Asia Studies at National Chengchi University.

  Translated by Perry Svensson
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