“In the recent years, the global foreign direct investment (FDI) takes a new development trend. A new round of global industry adjustment, which characterized by the outsourcing of service industry, high-tech, high-end manufacturing with high value-added and the transfer of research and development (R&D) process, is in the rising. Grasping closely this important opportunity is especially important for developing countries to realize leaping-over development in their participation of economic globalization.” This is the important message sent by Ma Xiu hong, vice Ministry of Commerce in the 2nd International Investment Promotion Forum held in Tianjin recently.
In the face of new challenges and opportunities, high-ranking Chinese government officials stressed that the government will shift its investment biding work from that of inviting investments to selecting investments, strengthening the work of attracting new high-tech industries, service industry with high value-added and the R&D centers.
Take the manufacture of a Barbie doll as an example. When it is processed and manufactured in mainland China, the cost is 0.8 dollar; after such processes of transition and transport in Hong Kong, the cost rises by 1.3 dollar, and when it arrives at the US, consumers have to spend 10 dollars to buy one after such processes as advertising, publication, distribution. Therefore, the production process, which is the most time and energy -consuming, generates the least value, while services of high value-added, such as advertising, marketing and branding add most value to the product.
Meanwhile, though the rise of production material has soothed some pressure of low cost, China’s manufacturing industry has incessantly met with different international pressures because of some of its products of low value-added.
The Restriction of Waste Electrical and Electronic Equipment (WEEE), which officially came into effect last August in the European Union (EU) has already exerted significant influence to the export of China’s low value-added productions like traditional electrical home appliance and small test apparatus. The major reason is that the recycle cost of scrap products will result in the increase of enterprises’production and management cost, which will have great impact on the traditional electrical home appliances of low value-added. According to statistics, influenced by the WEEE, the increase speed of Zhejiang province’s export of designated ‘products in January to the EU countries is lower than those to US and Japan, and the export volume accounts 36.6 percent of the province’s gross export of designated product, dropping 7.3 percent over last year.
What’s more, the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, which was launched at the same time with the WEEE, will come into effect on July 1, 2006. Traditional home appliance and small test apparatus, which could not reach the standard will have to use new material and new crafts, and all these will increase enterprises’ production and management costs. However, most information, communication and digital products, which have high technology standard and generally use environment-friendly materials already met the standards of the EU. More importantly, with high value-added, these products will less succumbed to the influence than those products of low value-added, despite the increase of production and management cost.
China’s textile industry also met with the same condition. The EU had announced that by the end of 2005, it would lift the eneralized System of Preferences towards China’s textile industry, which means that the tariff rate of Chinese textile products and garments will rise from the present average of 9 percent to 12 percent. This will cost Chinese enterprises over 100 million dollars a year. And the most effective solution is to speed up the restructuring of China’s textile industry, increase the export of products of high value-added so as to impel China’s textile export to change the situation of “winning over by low price and huge quantity” as early as possible. Likewise, the export of China’s color TV, lobster and furniture manufacturing have been successively succumbed to the influences of the anti-dumping sanctions of the US Department of Commerce.
Presumably, foreign investors who seek to invest in production and processing bases which mainly involve such low value-added products as simple processing and manufacturing would met with obstacles. After all, China’s manufacturing industry, which is incessantly effected by anti-dumping measures, have never ceased to undertake the consequence brought about by its low-tech and low value added products. Every country wishes to transplant to its land the production phase with highest value-added, and China is no exception, whose government upholds it, and once the production phase with the highest value-added is set up in china, the value chain of related products will continuously grow in the country. That could not only further solve the employment question which has always been the governments’headache, add to the price negotiation capacity of Chinese enterprises in the international negotiation table—-which they barely have any so far—- but could evade sanctions of high pertinence in international trade as well.
It is believed by the author that when the government grants favorable policies to new high-tech industries and service industries with high value-added, it also gives the overseas investors a precious opportunity while leaving the industries which are still engaged in the production of low value-added products a room for reflection.
From CE.cn