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OVER
the past two decades, China has been the
factory of the world, providing consumers
in Europe and North America, in particular,
with access to a wide array of low-cost
goods.
Additionally,
this resulted in a massive increase in world
trade volumes and it also had a major impact
on China as well. It has made the country
what it is today, one of the fastest growing
economies in the world.
It
is today the world's second largest economy.
At the turn of the century it was just the
sixth largest, trailing the United States,
Japan, Germany, Britain and France, according
to CNN Money.
Between
2003 and 2007 the country consistently posted
double-digit growth year are year, even
growing by as much as 14.2 per cent in 2007.
This is remarkable growth.
For
every year from 2001 through to 2007 it
was either the fastest growing economy in
the world or the second fastest.
In
2008 it slipped to the third fastest growing
economy and by last year it had fallen further
to the ninth place, according to the International
Monetary Fund, which puts its growth at
7.83 per cent.
Clearly,
China is experiencing strong growth still;
however, its growth rate is slowing, a sign
of a maturing market.
Ever
since the extraordinary rise of China the
question has been asked for how long the
"China factor" will last, and
what will become of the nation and world
trade once it matures and the rapid growth
levels out.
The
debate over the China factor and its longevity
has intensified in recent years as the country's
growth has led to high wages and greater
prosperity throughout. Yet with this increasing
prosperity the low costs that made China
such a desirable place initially was seen
as coming under threat.
Analysts
then looked at the possibility of China
losing out to other regional up-and-comers
like Vietnam, Cambodia and Thailand. Could
these countries eat into China's market
share of low-cost sourcing for consumer
products?
According
to a recent paper by BCA Research, China
is in no danger of losing its market share
in low-cost manufacturing and exports. Nevertheless,
the group seems to believe that the heyday,
in terms of growth in this area, is now
over.
"It
will be very hard for China to further boost
its global market share in low-end manufacturing
goods.
"The
old developmental model of gaining market
share in low-end manufactured goods has
probably already exhausted itself, especially
with labour costs rising and the government
paying more attention to hidden costs of
development, such as pollution," the
report said.
So
what is to become of China now as it stands
at the crossroads? If it continues to rely
on its strength and dominance in the low-value
manufacturing and export sector, it will
stagnate. Yes it will keep its market share,
but the strong growth that we saw previously
will be no more.
So
the solution, the BCA authors argue, is
to now begin looking at how to move up the
value chain and "grab market share
in more sophisticated products".
This
is the challenge that the country now faces.
BCA
Research argues that if successful the country
will see an increase in the country's income,
which will boost overall government revenues.
The
report points out that in tackling the challenge
of moving China up the value chain there
are a few issues to look at first.
One
of these issues is the fact that China currently
ranks rather low in terms of the level of
value-added services offered in its manufacturing
sector. In fact it ranks below a number
of other emerging economies including Brazil,
Turkey and Mexico.
"This
confirms that China's advance along the
value-added chain is still in its early
stages," BCA Research says.
However,
it must also be noted that China is increasingly
investing in Research and Development (R&D),
according to the report. Spending on this
now accounts for almost two per cent of
the country's GDP.
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