There is no doubt that China's economy is facing unprecedented challenges, as slower growth persists and turbulence in the country's capital and foreign exchange markets shows no sign of receding. But the real danger for China comes from underestimating the weight of the manufacturing sector in China's economy during its economic rebalancing.
The manufacturing industry is still a pillar of China's economy and is the future battleground of world economic powers. Chinese policymakers are facing a daunting task of upgrading the country's manufacturing sector without eroding its global competitiveness. The foremost priority in maintaining China's manufacturing competitiveness worldwide is to create a sound environment to allow capital and talent to flow into the country's manufacturing industry. It is high time for China to make sure that will happen sooner rather than later.
The urgency of maintaining China's manufacturing competitiveness was raised by a recent report suggesting that the US is set to eclipse China as the most competitive manufacturing nation by 2020. China still tops the manufacturing competitiveness list this year due to cost advantages but will slip to second place by 2020 due to its weaknesses in talent, innovation policy, energy policy, infrastructure and its legal and regulatory environment, according to research released by consulting firm Deloitte and Chinese think tank Chinainfo100 over the weekend. The research ranked "talent" as the most critical driver of global manufacturing competitiveness.
The research's findings sounded a real alarm to Chinese policymakers. A historical shift in China's economic structure occurred in 2013 when the country's services sector overtook the manufacturing sector to become the biggest contributor to the economy. Such a situation led some observers to believe that China has passed the era of the industrial economy to enter a service economy era. This perception is actually dangerous, because manufacturing is still a key driver of a nation's economy, and the real competitiveness of a nation lies in its manufacturing industry. China must clearly establish that manufacturing is the foundation of an economy.
Underestimating the impact of the manufacturing industry on the economy will force China to lose ground in the global manufacturing landscape. There are too many lessons that China can learn from the other countries' experiences in developing their manufacturing sector. The US, for example, moved its labor-intensive industries to developing countries, hollowing out its own manufacturing industry. Now, years of economic decline and heavy job cuts have made American policymakers realize the importance of the manufacturing industry, pushing them to shift toward supporting reindustrialization and manufacturing resurgence. China should avoid falling into the same trap as the US.
China has spent the past several decades building a relatively complete industrial support system with preferential industrial policies, infrastructure, cheaper labor and facilities to support its manufacturing industry. But this does not mean that China can rest at ease. The new round of industrial revolution calls for progress and upgrading of the manufacturing industry, which will give rise to the restructuring and reorganization of technology, talent, capital and other resources.
China has talked about industrial upgrading for years, but progress has been slow. Chinese products have remained cost-effective among their peers, but the added value of a product comes from its core technology, intricacy, fine detail and craftsmanship, which most Chinese products still need to improve.
One of the key obstacles is the manufacturing industry's difficulty attracting highly skilled workers. Due to low salaries and conventional disregard for blue collar workers, few college graduates are attracted to the sector. A recent survey by Beijing-based data provider MyCOS showed that employment of new graduates dropped most precipitously in sectors such as the mechanical and hardware manufacturing sectors in 2016.
Many manufacturing firms and investors are also shortsighted and are unwilling to invest more in research and development to improve products because the returns are small and slow. They are instead attracted to sectors such as real estate, which can bring instant profits. The upgrading of China's manufacturing requires adequate investment in capital and human power, which calls for the improvement of systems to attract capital to the manufacturing industry and to train and retain talent. Most of all, China needs a sound capital market to provide reliable and sustainable capital support to the upgrading of the manufacturing industry.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn