Economy

China top competitor for how long?

By Liu Yiyu (China Daily)
Updated: 2010-06-29 11:34

BEIJING - Despite the many challenges facing China's manufacturing industry, the country will remain king of manufacturing competitiveness over the next five years, consulting firm Deloitte said in a recent report.

Backed by a relatively abundant pool of unskilled and skilled talent, China is still among the top drivers of competitiveness including talent-driven innovation, cost of labor and materials, energy costs and policies, said the report.

China's manufacturing industry however faces many challenges such as rising labor costs and a possible appreciation of the yuan, according to Rosa Yang, manufacturing industry leader of Deloitte China.

"No doubt, the appreciation of the yuan will dent China's export-oriented manufacturing industry, especially low-end manufacturing," Yang said.

"The country's manufacturing industry will move up the value chain ladder, meaning China will switch to high-end and value-added products," said Hans Roehm, global managing partner of Deloitte Global Manufacturing Industry Group.

"International companies are moving their research and development centers into China," Roehm added.

Government support for science and innovation is a shot in the arm for China's manufacturing competitiveness, said the report.

Government policies in support of science, technology and innovation are at the top of the list of policy advantages identified by nearly 70 percent of the Chinese executives participating in the study.

According to the guidelines on medium- and long-term programs for science and technology development (2006-2020), China's investment in research and development is expected to reach 2.5 percent of its GDP by 2020, while science and technology will contribute 60 percent or more to the country's development. Meanwhile, the country's reliance on foreign technology is expected to drop to 30 percent or below.

Related readings:  Cheap labor has limits in manufacturing industry  Global manufacturing slows in May  China's May manufacturing expands at slower pace

Healthcare and immigration policies are considered two of the largest factors limiting the country's competitiveness in attracting talent.

The "epicenter" for manufacturing continues to shift to emerging markets - Asia, in particular, said Craig Giffi, the report's research-team leader.

In addition to China, Asian giants like India and South Korea are also projected to dominate the index in five years time, according to the report.

"Another challenge for China is to maintain its position as the most competitive manufacturing nation because other countries are pretty close now," cautioned Hans Roehm.

Vietnam, India and Indonesia are the prime candidates for taking production away from China, with some companies contemplating shifting to less-developed regions within the nation.

But high-end manufacturing sectors in China are unlikely to be threatened in the short term because of more sophisticated infrastructure and supply chain networks.