International production cooperation - a new stage in China's globalization
- By John Ross
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E-mail China.org.cn, April 14, 2016
Globalization is therefore continuing to develop along the lines predicted by economic theory in increasing global division of labor. This is already highly developed in manufacturing. For example, the World Trade Organization found in a typical "U.S. car," only 37 percent of its value was added in the U.S. Of value added, 30 percent was from South Korea, 18 percent from Japan, 8 percent from Germany, 4 percent from Singapore and Taiwan. Non-U.S. economies therefore contributed 63 percent of the value of a "U.S." car.
China has long played a key role supplying components for globalized production with world leading companies such as BYD in batteries and Wanxiang in automotive components. Other countries, for policy reasons and to create employment, wish such Chinese companies to manufacture within their own economies.
But the situation is even more acute in many economic sectors where different parts of the productive process necessarily must be located in the same place, or close to each other, for insuperable technical reasons or due to huge cost benefits. This frequently applies in infrastructure and heavy industry. For example, different parts of a power generating plant cannot be in different places, a railway cannot be separated geographically into track, overhead power supply, stations, and marshalling yards, and a hydroelectric dam cannot be separated from the river that powers it.
In a significant number of such industries, Chinese companies have a leading world position in terms of the combination of technological and cost advantages. This is aided by the unequalled size of China's domestic fixed investment market. China's annual fixed investment is now 40 percent higher than the U.S. In 2014, according to the latest available internationally comparable data, China's fixed investment market was $4.6 trillion compared to the U.S.'s $3.2 trillion. This aids many sectors of China's infrastructure companies, for example, unparalleled experience or expertise. But for the technical or cost reasons, outlined trade cannot be an adequate means for many such leading Chinese companies to expand internationally.
"International industrial capacity cooperation" derives from the combination of this globalization process and China's specific place in the international value chain. As China is a "high medium" income economy by international standards, China's advantages are inevitably concentrated in "high medium" technological sectors. But other countries correspondingly possess advantages in other parts of the production chain. Advanced economies possess advantages in high technology fields, hence Chinese companies cooperate with French ones in power generation. Simultaneously, due to the rapidly increasing income of China's population, China can no longer compete in sectors depending on very low wages. Therefore, for example, Chinese shoe manufacturers are now using the expertise they previously acquired in China to finish products in Ethiopia, as advocated by one of China's leading economists Justin Yifu Lin. Chinese infrastructure companies are active in numerous African countries. In both cases, other parts of the production chain in these countries are filled by African companies.
"International industrial capacity cooperation" allows Chinese companies to use their specific advantages in cooperation with different parts of the supply chain in other countries - to mutual advantage.
The writer is a columnist with China.org.cn. For more information please visit:
http://www.china.org.cn/opinion/johnross.htm
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