Is‘Made in China’Bust?

By+Mei+Xinyu

China is facing challenges in its economic horizon. The sharp fluctuations of its stock and foreign exchange markets in January have cast a gloomy light on its financial situation， and George Soros prediction of a China crash has aggravated the predicament. Top priority should therefore be given to stabilize the financial market as well as rectify investors misinterpretations. Chinas manufacturing industry is even more misunderstood than its financial market. Quite a few market participants and spectators have greatly underestimated the adaptability of Chinas manufacturing industry and its capacity to absorb shocks. That has shaken their confidence in the stability and growth potential of Chinas financial system and macro economy.

Transition period

Indeed， the “Made in China” concept， which has underpinned Chinas economy for decades， is undergoing a difficult transition period as it goes through the throes of capacity reduction. On one hand， some labor-intensive manufacturing industries， say textile and garment for example， have moved their production bases to other developing countries where labor costs are lower. This has caused an estimated 3-percentagepoint dip in Chinese-made products share of the U.S. textile and garment market. On the other hand， the rise of “Industry 4.0，” put forward by Germany， may herald the bankruptcy of Made in China in the eyes of some people， since Industry 4.0 aims to increase productivity through the use of automation and information technology.

Rumors that Chinas manufacturing industry will experience all-encompassing failure have spread like a wildfire. The current overcapacity of traditional sectors such as building materials， and iron and steel， are deemed as the beginning of the end of Chinas manufacturing boom， and even its economy.

Does that reflect the actual situation， though？ From the perspective of people who have carried out long-term investigations and know more about the true state of Chinas manufacturing industry， the answer is no. As a matter of fact， what Chinas manufacturing is undergoing is not a crash， but a disruptive yet simultaneously creative period.

While some traditional industries face pressures to cut overcapacity， competent enterprises have begun to stand out and new emerging industries are also sprouting. In 2015， hi-tech industries value-added output， which accounted for 11.8 percent of the total industrial value-added output in that year， went up by 10.2 percent， which was higher than the 6.1-percent growth of the entire industry. Last year， investment in coal mining and iron and steel witnessed a slump of more than 14 percent and 11 percent respectively. In contrast， investment in the computer， electronics and telecommunication equipment manufacturing and pharmaceutical industry climbed 13.3 percent and 12 percent， respectively. Even in traditional industries that have been dragged down by overcapacity， competent enterprises have come on top by cutting excess capacity.

The Industry 4.0 movement will give incentive for the proponents of Made in China to turn a new leaf， rather than diving into allencompassing failure. Since 1978， when the reform and opening-up policies were adopted， many manufacturing sectors have been hit by several rounds of technological improvements. Despite temporary hardships， the whole manufacturing industry has always benefited from significant technological progress and an expanding market share. While companies that fixed their eyes on short-term profits are eliminated， forward-looking， persevering and steadfast manufacturers will survive. Why are we anxious about such a “crash”？ Historical experience and reality have given us good reasons to believe in Made in China.

A case study

Lets have a look at the color television sector， which sits at the pinnacle of Chinas success story. In 1978， the output of color televisions was a mere 3，800 sets. But in 2010， its output reached 118 million sets， accounting for 50 percent of the worlds total output. In the following years， even though the global economy was volatile and capricious， Chinas television industry kept forging ahead steadily， with its output climbing year by year. Even amidst the sharp fluctuations of emerging markets and an economic slowdown in the past two years， the television sector has maintained a good momentum， with both output growth and sales-output ratio at a high level. According to a report released by WitsView under Trend Force， an electronics market research institute， in 2015， global sales of liquid crystal display （LCD） televisions shrunk by 0.6 percent. Meanwhile， the output of color televisions in China reached 162.07 million sets the same year， up 7.1 percent year-onyear. Furthermore， in the first three quarters of 2015， the sales-output ratio of color televisions in China hit 100 percent， up 0.4 percentage points year-on-year. During the same period， the sales ratio of industrial products in China stood at 97.5 percent， down 0.1 percentage point year-on-year.

In any case， Chinese color television companies no longer serve as the foundries of foreign brands， and some of them have grown into world-class giants and have seen their status ascending in the global market. According to a report by Trend Force， the top five LCD television brands in 2015 were Samsung， LG， TCL， Hisense and Sony， of which， three Japanese and South Korean brands had seen a decrease in sales， while two Chinese brands were on the rise. Experts have predicted that one more Chinese manufacturer will nudge into the top five list in 2016.

Chinese manufacturers are not an assembly shop for their foreign counterparts any longer， since they are now capable of producing most of the components on their own， and related research and development have reached a high level as well. Without a doubt， China has become a manufacturing power for advanced generation LCD panels. TCLs China Star Optoelectronics Technology Co.s （CSOTs） phase II project on the Gen 8.5 TV production line， which came into production in April 2015， is the largest and most lucrative in the world. By the end of June 2015， CSOT had maintained its global lead in operating profit ratio， product cycle and overall yield for nine quarters in a row. As the Economy， Trade and Information Commission of Shenzhen Municipality recently pointed out， CSOTs phase III on the Gen 11 TV line is going smoothly， and is the most advanced LCD panel production line in the world—as opposed to the fact that Chinese manufacturers were entirely dependent on TV imports several years ago.

Nonetheless， the color television industry was once severely impacted by the replacement of the kinescope with the modern digital flat panel. TCL， which is at present Chinas largest as well as the worlds third largest LCD television brand， almost bit the dust because it had misread global trends in this regard. Taking a fancy to its sales network， market influence and technology accumulation， TCL acquired Thomson SA of France in 2004.

At that time， the rapid popularization of LCD technology weeded out the kinescope， plasma and micro display rear projection technologies within a few years， which made the kinescope obsolete. TCL and its boss Li Dongsheng went through a tough time dealing with the fallout. The man， who was cited as one of the 25 most influential global business leaders by CNN and Time magazine， and commended as the Annual Economic Character in Asia， 2003 by Fortune， was subsequently rated as one of the “worst bosses” of Chinas listed companies of 2006.

Despite all that， Chinas color television industry has managed to recover. TCL now ranks third in LCD television shipment and fifth in LCD panel output worldwide.

TCL is not alone in reemerging from market opening and technological improvement. The same is true of Chinas mobile phone and telecommunications industries. Therefore， it seems hasty to claim that Chinese brands will collapse in the face of Industry 4.0.

Of course， some Chinese companies will suffer losses and will be shut down during this round of restructuring. Wouldnt it be good to eliminate reckless market players to make room for strong and competitive ones？