Foreign media: China needs to develop a more sensible manufacturing strategy

As China's population ages and labor and capital accumulation gradually reach its limits, China's economic growth model will be more dependent on revolutionary technology and innovation. As we all know, there is a certain pressure on China's current economic growth model, and these pressures are becoming more and more obvious, including the decline in total factor productivity. Total factor productivity is an extremely important and difficult part of economic growth, mainly due to technological change and institutional efficiency. Transforming the growth model requires difficult political reforms and effective response to the competitive threat posed by advanced manufacturing technologies, a major factor in the US's renewed manufacturing advantage. China's attraction as a global manufacturing hub is still there, but some trends are gradually weakening this advantage. The domestic aspect includes rising labor costs and technology shortages, as well as the lack of extensive application of independent innovation policies and the need to enhance intellectual property rights. In contrast, the United States is clearly in the leading position in high-end manufacturing, creating smart companies, and complex touch screen technologies. More importantly, the United States has a competitive advantage in new shale oil and gas exploration technologies, as well as so-called rapid prototyping (or 3D printing). Rapid prototyping technology will change our mindset about manufacturing. Rapid prototyping enables companies to localize production and react quickly to changing demand without having to prepare large inventories. The importance of flexibility and proximity to markets and advanced technology centers may exceed the advantages of overseas production and large-scale manufacturing in the future. It is with this latter advantage that China has become a global manufacturing center, but this status of China is facing threats. Even if China can compete with developed economies in rapid prototyping, it is no longer reasonable for foreign companies to spend long-term input on raw materials and components and output products. Assembly lines, supply chains, and economies of scale in Chinese cities will be outdated; Silicon Valley's expertise, integration of R&D and production, and emphasis on marketing, sales, and value creation will become mainstream. China's competitive advantage in low labor costs is being eroded, and if the Chinese economy succeeds in rebalancing, due to financial liberalization, China's artificial capital and low-cost loans will end. a€?Reverse outsourcinga€? will become popular as rapid prototyping manufacturing technology reduces production costs, including capital, labor, and other inputs such as packaging and distribution. The company will want to produce near the design stage and the consumer. Quality control, intellectual property protection, and after-sales services such as consulting and maintenance will become even more important. These are not China's advantages. China must develop a more sensible manufacturing strategy. China's R&D investment accounts for 13% of the world's total, and is good at progressive process innovation, but in the future should pay special attention to product innovation, organizational management, and the integration of new information technology, biotechnology and materials technology. Overcoming these deficiencies can be difficult because they are rooted in a tradition in which good executives are more popular than innovators. This tradition also inhibits people's curiosity, critical spirit and cooperative attitude, which are the characteristics of high-end manufacturing. These issues will not always hinder China's innovation and technological competitiveness, but to adapt to changes in the situation, China needs to carry out extensive reforms. (Source: The Financial Times, the author is an economist and consultant at UBS Investment Bank)

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