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CHINA: "A More Level Playing Field Means More Growth Ahead for M&A in China"

CHINA: "A More Level Playing Field Means More Growth Ahead for M&A in China". Article by Deloitte.

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back to index backCHINAtalk April,  2017


Economic Watch: China's manufacturers sharpen competitive edge

Despite rising labor, land and logistics costs, Chinese manufacturers face a moment of opportunity.

Average wages in China's manufacturing sector have soared above those in most Latin American countries and are at around 70 percent of those in weaker eurozone countries, according to data from Euromonitor International, a research group.

Companies in China also have higher logistics costs, which amount to about 30 percent of manufacturers' overall production costs -- much higher than the 10 to 15 percent in developed countries.

China's manufacturing sector is under pressure, with factories shifting labor-intensive production to low-cost countries and developed economies keen to upgrade their industries, said Xu Zhaoyuan, a researcher with the Research Development Center of the State Council.

And yet, it would be a mistake to underestimate the advantages of China's manufacturing sector.

Despite high production and transportation costs, manufacturers in China benefit from the country's growing appetite for high-end products and government efforts to reduce fees and taxes.

"Beyond cost, competition in the manufacturing sector is also about human capital, infrastructure development and market size," Xu said.

Gone are the days when manufacturers could thrive by offering low-priced mediocre products. China's increasingly affluent consumers are interested in high-end goods like smart toilets and new energy cars.

Though manufacturing is often stereotyped as outdated, the sector is pursuing advanced technology and growth through innovation, according to a survey released by Deloitte last year.

Two years ago, China announced its "Made in China 2025" plan to move the country's manufacturing sector up the value chain, promoting development in 10 key sectors such as medical devices and robotics.

Accordingly, the government rolled out plans last week to develop the skilled workforce to serve the sector's growth.

China's industrial value added in the manufacturing sector expanded 6.8 percent year on year in 2016, with high-tech and equipment manufacturing posting about 10-percent year-on-year growth.

Boosting the real economy, especially the manufacturing sector, is high on the government's economic work agenda for 2017.

China's central leadership stressed quality in reviving the manufacturing sector Tuesday, saying the sector should shift from expanding quantity to improved quality.

Meanwhile, China will channel more energy into reducing prices and administrative fees in monopolized sectors, and strive to lower business burdens.

Since 2013, the central government has eliminated or reduced about 500 administrative fees on enterprises. In 2016 alone, the reform to replace business tax with value-added tax has reduced taxes for businesses by over 500 billion yuan (72.7 billion U.S. dollars).

Meanwhile, more free trade zones with less red tape and more preferential policies for domestic and foreign companies are in the pipeline.

The country's top economic planner reassured last month that China will continue to encourage foreign investment in manufacturing in the country by offering more land for industrial use at lower prices.

Thanks to strong demand, talented professionals and continuous government support, China is well positioned to become one of the world's most advanced manufacturers by 2049, Xu added.

Source: Xinhuanet - GAI



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