China moves up the value chain
Commentary: Chinese businesses competing directly with Europe’s
by:http://www.marketwatch.com/story/china-moves-up-the-value-chain
Indeed, look back at other economies’ dollar-equivalent size in 2000 and you’ll find that China has since effectively created more than 10 Swedens, nearly 10 new Australias, five new Canadas, more than two new Frances or U.K.s, or about seven Indias.
Individual wealth has soared too, and the growth in Chinese retail sales since 2007 has more than compensated for the decline seen in the U.S. as crunched consumers pulled in their horns.
No wonder then that all those high-level trade delegations flock to Beijing, eager in many cases to let historical bygones be bygones and focus on a future of joint prosperity.
For many Western corporations, exporting to China transcends mere opportunity and becomes instead a matter of survival. It is, after all, a very long time since similar growth rates were seen, or even imagined, in their home economies.
However, this street is becoming increasingly two-way. China doesn’t stand still and so is not content to be the low-cost, low-value-added capital of the world.
So, as Goldman Sachs puts it: “While opportunities for European companies in China remain strong, China is itself quickly moving up the value chain.” As it does so, it may increasingly be seen as less of a competitive opportunity and more a potential threat. Its corporate sector has got domestic markets growing at a clip we can only dream of in the West, increasing research capabilities, government support and an accelerating appetite to merge and acquire beyond its own borders.
Now, ironically, said Goldman, Chinese companies are increasingly emerging as international competitors to Europe in many of the same industries that have benefited from growth in Chinese demand over the last 10 years.
Some sectors, the likes of commodities and specialty chemicals, solar cells and telecoms are already facing intense competition from newer Chinese peers.
However, this is just the start.
Others, such as telecom handsets, low-end power transmission technology, high-speed rail, wind-power generation, smart-grid technology, civil aircraft and solar equipment may be expected to face competition now, or within the next few years.
It looks as though a bridgehead in China won’t be sufficient in future as Western corporates have to deal with more direct competition. Given China’s cost advantages, their best hope may lie in the free float of the yuan, but there Beijing has shown no sign of any desperate hurry to change.
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