China's New Export Champions – Part Two

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Continued from Part One.

In order of global market export value, the shipbuilding sector comes in highest. In just three years, China has doubled its market share from 14.4 percent in 2007 to 28.4 percent in 2010. Other key sectors are electrical switching equipment, refrigerators, freezers and refrigeration equipment, motorcycles, harvesting and threshing equipment, silicon wafers, steel tube & pipe fittings and cranes, derricks, and handling equipment.

Can They Compete on Cars?

So far, construction and mining equipment does not even feature in the hot zone, but growth in this sector is strong, as it is in forklift trucks, pumps, and boring equipment to list but a few. True, so far the $553-billion car export market has remained beyond Chinese manufacturers to make any meaningful impact, but that will change. With the world’s largest car market on their doorstep and a very fragmented manufacturing base, Beijing needs to create national champions before they will be ready to take on Western manufacturers in other developing countries. But as the EIU points out, China has managed it in other tech industries like the microchip market, so it is just a matter of time.

Nor (as some have suggested) is it a matter of complexity. If China can manufacture a competitive piece of building or earth-moving equipment, then they can manufacture a car. As the report points out, a global ranking of construction equipment producers released in 2011 by KHL, an industry magazine, lists three Chinese firms in the top ten (by sales revenue). This compares with only one in the 2010 list and none in 2009 — when change comes, it comes fast.

Heavy Machinery Magic

China’s prowess in heavy machinery comes from its Soviet-style centrally planned past. An overwhelming emphasis on heavy machinery meant that when many state-owned industries were privatized in the 1990s, China had an excess of engineers, machinists and metallurgists with skills in these areas. It was natural that they would create private enterprises that, with a thriving domestic market investing in infrastructure at breakneck speed, would grow rapidly.

Although Western firms in high-tech manufacturing areas like machinery may not be seeing any competition in their OECD markets, they must already be feeling the heat in the only markets that are growing: the developing or non-OECD markets. In 2008, the report advises, 71.5 percent of all machinery imports into South Africa and the BRIC countries (excluding China) came from OECD markets. This fell to 61.5 percent by 2010, whereas China’s share increased from 17.5 percent to 21.8 percent over the same period. Non-OECD markets accounted for 36 percent of the world’s imports in 2010 and the number is rising fast — back in 2001 it was just 25 percent, with capital goods rather than consumer goods leading the way.

So much for China’s expansion in overseas export markets — what has been happening domestically? Looking at the manner in which the domestic manufacturing sector is responding to these external opportunities will be the basis for a separate post to follow.

–Stuart Burns

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