China’s once-mighty industrial heartland in the Northeast, or Dongbei, has fallen on hard times in recent years. Could the key to its revival lie in the American Rust Belt experience? As happened in the US Rust Belt, firms in Dongbei, almost all state-owned, started to struggle in the 1980s. They have been in decline ever since, leaving local governments with a cluster of problems, including heavy industry pollution and high debt levels, which would be instantly recognizable to policymakers in Gary, Indiana, or Pittsburgh, Pennsylvania. Now that its counterparts in the West have now largely transcended the phase, what can Dongbei learn from the American rust belt’s experience?
For decades, China has been a top destination for foreign firms to move their operations abroad, now the trend is reversing—Chinese firms, especially manufacturers, are now moving to the US, not only to lower the cost of production but also to build their brands in global market. Indeed, China is losing its old advantage of cheap labor and raw material, and in certain parts of the US, the land is much cheaper than in China. Meanwhile, the re-booming US economy, flexible financial system and beneficiary tax policies are also driving ambitious Chinese entrepreneurs, who are changing the “Made in China” to “Made in the US”.
“China is not known for greenness, but it is moving in that direction,” says Christian Haessler, Head of Innovation for Covestro in the Asia-Pacific region. An offshoot of the German pharmaceuticals and life sciences giant Bayer, Covestro was spun off in 2015 and today produces advanced raw materials for like the environmental friendly coatings and lightweight materials to be used in electric vehicles. In this interview with CKGSB Knowledge, Haessler explains what Covestro’s business is like in China as a behind-the-scenes firm and how it, with material technology, supports China’s sustainable development.
Under the banner industrial policy “Made in China 2025”, China seeks to replace the advanced foreign manufactured goods that it has long relied upon with domestically-produced goods. But the effort is spooking the foreign business community, and the plan may not address China’s most genuine needs. Precise details of the implementation of the grand policy are only now beginning to emerge. For Chinese companies, the real long-term impact of the plan is at best unclear. But for foreign companies, although there will be business opportunities in the short-term, the plan as a whole presents big challenges to their future in China.
In China, while state-owned enterprises dominate the monopoly industries like petroleum and telecom, the country’s private economy is still the major source for growth in production, employment and exports. Private companies are very sensitive to market changes: When profit margins shrink, they will jump out quickly. Expectations are low while the Chinese economy is under the ‘New Normal’, but the government is still concerned about private investment stagnation. The top economic agency has created a work team to look into the problem and made 60 proposals to solve the slow-down issue. But will top-down methods work?
China is exporting its high-speed rail to the world. In Turkey, China helped link the capital, Ankara, with the largest city, Istanbul. In Indonesia, construction on the Jakarta-Bandung high-speed railway line will begin this year. In 2016, the government also announced that it will build a high-speed railway to connect Singapore with the Malaysian capital of Kuala Lumpur. Domestically speaking, China has secured the leading position. Its network, already more than 20,000 km and still growing, is longer than the rest of the world’s high-speed rail tracks combined. Now China is targeting the overseas market for economic and political reasons.
Over the past 25 years, China has become the world’s preeminent manufacturer, churning out everything from running shoes to Apple products. Powering that ascent was heavy foreign direct investment combined with a seemingly inexhaustible pool of cheap labor. But now, as the Chinese economy slows, wages rise and the workforce atrophies, the decades-long manufacturing boom may be ending. To help deliver China from industrial decline, the Chinese leadership is betting on automation. However for Beijing to become the world’s robotic leader, there is an even more complex issue behind updating robotic technology: how to handle the displacement of large numbers of Chinese workers?
Having delayed serious structural reforms, China faces eye-watering overcapacity in heavy industries. Steel production volume is more than double that of the next four leading producers combined: Japan, India, the United States and Russia. Aluminum production capacity reached 40 million tons last year, exceeding global consumption by 9 million tons. Most remarkably, between 2011 and 2013 China produced more cement than the US did during the entire 20th century—6.6 gigatons, compared to the US’s 4.5. What can China possibly do about this excess capacity that is weighing on the balance sheets of debt-ridden firms reeling from China’s economic slowdown?
As China’s economy matures, the leaders are trying to move manufacturing up the value chain with the Made in China 2025 plan.
With the Made in China 2025 plan, the government is trying to give the manufacturing sector a major boost. A look at the sectors that will get a fillip.