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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.
But with first quarter figures in, this
role is getting harder and harder to sustain
with the economy growing at its slowest
rate in six years - not helped by a global
economy that has been slowing since 2011.
China remains 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.
"We expected the fall in economic
growth," said National Bureau of Statistics
spokesman Sheng Laiyun as the first quarter
results showing seven per cent growth were
announced.
"As the economy enters the 'new
normal' the drop in growth rate is good
for structural adjustment and transformation,"
he told London's Financial Times.
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.
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