Tuesday, July 05, 2016

China's transition to higher value manufacturing

I'm skeptical that China's government(s) will manage this transition successfully (WSJ):

At the same time, however, China is pushing its companies to automate, boost research budgets and make more higher-value products. It has also encouraged companies to acquire European and U.S. rivals with advanced technology. Beijing has targeted 7% annual growth for manufacturing and a 15% jump in corporate investment to support industrial upgrades between now and 2018.

Its success so far in moving upmarket is seen in its machinery and transport-equipment exports, which grew to 46% of the nation’s total exports from 21% between 1995 and 2015, even while its share of lower-value exports declined, says HSBC.

If China succeeds at encouraging more-advanced industries, it could subject companies in developed countries to growing competition in once-secure markets. But the strategy carries risks. If China fails to shift from basic industry to high-end manufacturing and its costs continue to rise, it could get stuck in what some economists refer to as the “middle income trap.” That in turn could fan social tension in a one-party system that has staked its legitimacy on rapid growth and upward mobility.

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