China's Inland Provinces Respond to the Drive for Exports

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China’s export industry ten years ago was largely made up of low-wage, low-technology manufacturing companies making products such as textiles, foot-ware and toys. They were overwhelmingly based in the coastal regions, with access to seaports for the import of raw materials and export of finished goods. The hinterland in China was a mixture of old Soviet-style heavy industry and farming.

As a result, the evolution of China as a gradually higher-tech heavy machinery and capital goods manufacturing center has favored the central and western areas over the previously wealthy and vibrant coastal zones. Lavish government incentives, much improved infrastructure and low wages have made the center and west very attractive for domestic manufacturers for whom proximity to seaports and English was not as much of an issue as it was for Western firms looking to invest in China.

As a result, while the coastal zones still enjoy the highest standard of living and highest per capita incomes, the inland regions now account for an increasingly significant percentage of output in certain high-growth industries. For example, boilers are 43.7 percent of total Chinese output, metal-cutting equipment is 44.9 percent, while mining, metallurgical and construction equipment is 53.5 percent of a 320 billion RMB gross output across the whole of China.

No longer are the inland regions backward and playing catch-up with the coast; they are becoming the center of a spreading web of commercial activity with rail, pipeline and air links spreading west, north, and south into neighboring countries. For example, Sichuan’s largest export market (after Hong Kong, which is southern China’s transit hub for all exports) is India. Road and rail infrastructure projects are linking Guangxi with other ASEAN countries and there is even talk of a pan-ASEAN highway and high-speed railways running, like the old silk road, all the way to Europe. Maybe not for a while, but the aspirations and determination are there to take China up the value chain and out into the world.

At the same time, domestic firms are on a rising trajectory, driving exports and foreign-owned or invested firms are increasingly focusing just on the domestic market. Over the coming year, the current 48 percent of exports met by domestic firms will increase to over 50 percent, making Chinese-owned firms the dominant player in China’s export markets.

To say that ten years from now it will be a different global balance of production and consumption is an overly obvious statement, but in what ways it will be different is only just becoming clear. We have been focused on China’s exports to the US and Europe of certain key products, against which Western countries have raised tariff barriers or countervailing duties in an effort to protect domestic firms and employment. Our exporters have been our success stories, certainly post-2008 financial crash. That act will be increasingly difficult to follow in a world where heavily supported Chinese manufacturers are intent on taking an ever-larger share. It is in the developing world where we will face the greatest economic threat from China in the years to come — not at home.

–Stuart Burns

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