Making China out of the woods is a long way to go

Chinese private entrepreneurs who have achieved initial accumulation in the real economy are increasingly turning their attention to virtual economy industries with higher returns. In a market environment with increasing costs, overcapacity, and increasingly fierce competition, funds are being transferred from the real economy to the real estate, securities, and financial industries, and short-term speculation has continued.

The "Made in China" that once made the country proud is facing the hidden worries that no one sticks to. At the Boao Forum for Asia, the participating economists and industry professionals also focused their attention on the hidden real economy in China.

"It's better to buy a house than to buy a house, investment is not as good as speculation?"

At the private entrepreneurs roundtable meeting held at the Boao Forum for Asia, the financial services industry and real estate industry were seen by many participating private entrepreneurs as a promising investment direction for the next five years. It is not accidental that such a choice occurs. In the past ten years, China's housing prices have soared. At the same time, rising labor costs and raw material prices in the manufacturing industry are rising. In this drastic drop, more and more companies and entrepreneurs have begun to choose from the funds accumulated in the real economy to real estate and capital markets.

“The real estate industry is fast-moving, with a period of 3 to 5 years, tens of millions of yuan, and a few hundred million yuan in capital, which is what we call “quick money.” Industrialization is done by a few cents.” Wang Rong, general manager of Quanzhou Textile Printing and Dyeing Co., Ltd. in Jingzhou City, Hubei Province, told reporters.

In his view, more and more real economy enterprises are becoming "shells" that serve "quick money." “Because manufacturing companies are financing fast, real estate comes in fast, and the money from corporate financing comes to make real estate, make money and then invest in entities, and entities refinance, and then cycle back and forth, has become a more popular model now.” Wang Rong said.

In fact, investing the funds obtained from the real economy into real estate is a relatively “rational” behavior in the current China. Some private capital, even under the temptation of short-term interests, has flown into speculative fields such as underground money houses and speculative agricultural products, which are extremely high in risk but have extremely fast returns. As a result, a peculiar phenomenon began to appear in the Chinese market. On the one hand, a large number of manufacturing companies fell into the dilemma of shortage of funds and insufficient investment; on the other hand, the seemingly ridiculous phenomenon of speculation such as “your garlic” and “beans you play” appeared. One after another.

Will the ongoing asset bubble and "de-industrialization" pose a fundamental threat to the long-term development of the real economy?

Luo Ge Dasen, a guest of the Boao Forum and a managing director of Deloitte Global, believes that this trend poses a risk to the real economy. On the one hand, no one can predict how long the high income of the financial industry and real estate can prosper. On the other hand, if companies want to strengthen their international competitiveness and become bigger and stronger, they must seek innovation in the industry for a long time.

Behind the dilemma of the real economy is the need for transformation. “The fabric industry that I do now, with the cheaper labor in Southeast Asia, the volume of exports has dropped sharply. It has also led directly to the reduction of corporate orders and the decline in profit margins.” Talking about what they are doing Wang Rong is not optimistic about the prospect of the industry.

Similar Wang Rong’s concerns are widespread among many manufacturing companies in China, especially small and medium-sized manufacturing companies. Under the traditional export-oriented development model, the low-end, low-quality, and large-market Chinese low-end manufacturing industries are all looking for new ways.

“In the financial crisis period, there have been a lot of corporate relocations. Dongguan, Guangdong, is the most obvious. The main reason is that these companies are all engaged in low-end OEM and lack of core competitiveness. Losing orders is equivalent to losing business.” Gree Electric Co., Ltd. shares Dong Mingzhu, chairman of the company, said at the Boao Forum.

Regrettably, in the process of finding new outlets, more companies choose virtual industries or speculative markets with high returns and rapid results, instead of investing the accumulated funds in technological innovation and the development of the domestic market.

“The world cannot provide an unlimited market for China to meet the needs of Chinese companies’ exports.” According to Zhu Ning, dean of the Shanghai Advanced Finance Institute of Shanghai Jiao Tong University, hard work, transformation and upgrading are already a must for Chinese manufacturing companies. solved problem.

What does the establishment of the country require us to do?

Zhang Yansheng, secretary general of the Academic Committee of the National Development and Reform Commission, stated at the Boao Forum that the virtual economy is a high-level development stage of the real economy and should have been an effective boost for the real economy. However, the fictitious economy that has divorced from the real economy can only bring about a bubble. Not prosperity.

In fact, just when the “world factory” was facing manufacturing concerns, the United States on the other side of the ocean had set off a wave of “reindustrialization”. After the international financial crisis in 2008, the United States fully realized that it cannot rely solely on financial innovation and excessive credit consumption to stimulate the economy and began to pay attention to the development of domestic industries, especially advanced manufacturing.

This is not a simple regression of manufacturing. Lin Zuoming, chairman of China Aviation Industry Corporation, expressed at the Boao Forum that the United States left the core manufacturing industry intact in the process of global integration, and transferred the low-end manufacturing industry.

The vast majority of China’s manufacturing industries have long been at the low end of the international industrial chain. Some companies are actually only production workshops for foreign companies and are bound or controlled by developed countries. The level and capability of profitability are severely squeezed, and some industries are global. In the process of economic integration, "debris" has lost its core competitiveness.

Adhering to "Made in China" can no longer satisfy only the low end of the industry chain. Realizing a true industrial foundation requires Chinese companies to think more.

Zheng Chunying, chairman of the privately-held company Garan Group who has been deeply involved in the industry for many years, has been convinced that industry is the "root" of the capital market, and that capital investment from the industry is "a tree without roots." Zheng Chunying believes that technological innovation is the company’s core competitiveness and driving force for development. How to encourage Chinese companies that rely on manufacturing and the real economy to accumulate wealth to invest capital in technological innovation, industrial upgrading, and development of domestic demand, should now be the subject of serious policy-makers' research.

Industrialization still requires companies to work hard. The Chinese private-owned business owners who have achieved substantial growth in the real economy have increasingly turned their eyes to higher-return virtual economy industries. In the increasingly costly, overcapacity, and increasingly fierce market environment, the transfer of funds from the real economy has triggered a heated debate among experts and entrepreneurs at the Boao Forum for Asia. This aspect will have an impact on the real economy. On the other hand, it also reflects the lack of core competitiveness and technological innovation.

The trend of “de-industrialization” hits the real economy In recent years, companies in the real economy sector have become increasingly keen to invest in real estate and capital markets, and the “de-industrialization” phenomenon has spread. Will the ongoing asset bubble and "de-industrialization" pose a fundamental threat to the long-term development of the real economy?

Wang Rong, general manager of Quanzhou Textile Printing and Dyeing Co., Ltd., Jingzhou City, Hubei Province, told reporters: “The real estate industry has fast money, a cycle of 3-5 years, tens of millions, hundreds of millions of dollars, which is what we call fast. The money is made up of a few cents.”

"Therefore, a combination has been formed: corporate financing is fast, real estate comes in fast, and the money from corporate financing is used to make real estate to make money and then invest in the entity. The entity refinancing into the cycle has become a more popular model now." Wang Rong said.

At the private entrepreneurs' roundtable meeting held at the Boao Forum for Asia 2013 Annual Conference, the financial services industry was considered by many participating private entrepreneurs as one of the three industries that will look promising in the next 3-5 years. Although the financial industry is flourishing, private enterprises participating in the meeting believe that there is still much room for development.

In this regard, Deloitte Global Managing Director Roger Dassen said in an interview with reporters that this kind of “de-industrialization” trend poses a risk to the real economy.

On the one hand, no one can predict how long the high-yield financial industry and the real estate industry can prosper and whether it will be sustainable. On the other hand, if companies want to strengthen their international competitiveness and become bigger and stronger, they must seek innovation in the industry for a long time.

As a private enterprise with many years of intensive industrial development, Zheng Chunying, chairman of the Galan Group, believes that industry is the “root” of the capital market, and that capital investment out of industry is “there is no end”. "Through more than ten years of business operations, I believe that technological innovation is the company's core competitiveness and driving force for development."

The lack of core competitiveness is mainly due to the fact that capital is profitable. The fundamental reason for “de-industrialization” is, on the one hand, that the real economy is in a difficult position and it is not attractive to capital. On the other hand, companies are chasing short-term interests themselves, and it is difficult to break through the transition bottleneck.

When it comes to how to look at the prospects of enterprises, Wang Rong is not optimistic. He said: “The fabric industry that I am doing now has a sharp decline in exports as Southeast Asia’s labor becomes cheaper. It also leads directly to the reduction of corporate orders and profit margins. decline."

Dong Mingzhu, chairman of Gree Electric Co., Ltd., stated at the Boao Forum that during the financial crisis, many companies relocated. Dongguan, Guangdong, is more obvious, mainly because these companies are engaged in low-end OEM and lack of core competitiveness. Losing orders is equivalent to losing business.

It is necessary to focus on the long-term development of industrial development, especially if it is to become a competitive enterprise in this field, it needs to break through many development bottlenecks. According to Zhang Yansheng, academic committee of the National Development and Reform Commission, the urgent need for the development of China's real economy is manifested in five aspects: First, technological innovation is urgently needed; second, talent, which includes both senior technicians and financial foreign exchange and risks. Management talent. Third, orders, which need to open up new markets; Fourth, financing, global liquidity is rampant, but this liquidity is difficult to convert into investment in developed countries, but in China it is represented by foreign exchange, the central bank will tighten, resulting in The corporate financing environment has deteriorated; finally, China’s market economy should move from regulation to regulation.

Zheng Chunying believes that in times of economic slowdown, companies that have difficulties in their operations are mostly companies that rely excessively on resources and funds. The former is greatly influenced by policies and the overall macroeconomics, and the latter is prone to problems when the economy fluctuates.

Since the founding of the country requires the hard work of the enterprises and the transformation and upgrading of the financial crisis, the thinking of the economic development of the developed countries has changed, from the “industrial hollowing” to the “reindustrialization.” China should use technological innovation and extend its industrial chain to promote industrial upgrading and realize the reconstruction of the real economy. This is the fundamental driving force for sustainable development.

Zhang Yansheng stated that the virtual economy is the stage of advanced development of the real economy, and that the real estate bubble, asset bubbles, and excess production capacity that the Chinese economy has emerged are the problems brought about by the separation of the virtual economy from the real economy.

“The world cannot provide China with an infinite market to meet the needs of Chinese companies’ exports.” According to Zhu Ning, vice president of the Shanghai Advanced Finance Institute of Shanghai Jiao Tong University, hard work, transformation and upgrading are already a must for Chinese manufacturing companies. solved problem.

Roger Dassen predicted that the global economy will change faster in the next five years than in the past 20 years, and this change is driven by innovation. The United States has fully realized that it cannot rely on financial innovation and credit consumption to stimulate the economy and begin to pay attention to the development of domestic industries, especially advanced manufacturing. It is worth noting that the United States' re-industrialization strategy is not simply a return to manufacturing.

For this phenomenon, Lin Zuoming, Chairman of China Aviation Industry Corporation, stated at the Boao Forum that there is no phenomenon of “industrial hollowing out” in the United States. He explained: "In the process of global integration, the United States has left the core manufacturing industry intact and transferred low-end manufacturing."

He said that most of our manufacturing industries have long been at the low end of the international industrial chain. Some companies are actually only production workshops for foreign companies and are bound or controlled by developed countries. The level and ability of profitability have been severely squeezed. Some industries In the process of global economic integration, "fragmentation" has lost its core competitiveness.

In this process, the government should provide a more favorable market environment for the real economy. Private enterprises participating in the meeting called for the government to provide a fair competitive environment in the face of the impact of foreign companies and multinational companies. At present, many local governments are forced to apply for investment assessment requirements and are more inclined to provide preferential policies to foreign-funded enterprises.

Extending reading the “backflow” of US companies is hard to find China’s “world factory” status According to a recent report by the “Financial Times” in the UK, Google Glass, which represents the latest technology in the US Silicon Valley, will be labeled “made in the United States”. Google will partner with Hon Hai Precision of Taiwan, Foxconn’s parent company in the United States, to manufacture this product in the United States that uses the latest “wearable computing” technology.

This is easy to make people think. Last December, Apple CEO Cook stated that "for technical reasons, it intends to transfer some of its product lines in China back to the United States." Prior to this, General Electric of the United States also announced that it would relocate some production lines from Mexico and China to the United States. The U.S. manufacturing industry began to "return" from overseas.

Market factors promote U.S. manufacturing "backflow"

In February of this year, Obama reiterated in his first State of the Union address in his new term "We must place manufacturing at the core and make the United States the pole of new jobs and manufacturing." Therefore, the recent "backflow" actions of some U.S. companies are considered to respond to the Obama administration's call to "ensure that the next manufacturing revolution will take place in the United States."

In this regard, Wang Xihong, director of the Economic Research Office of the Institute of American Studies at the Chinese Academy of Social Sciences, believes that in the United States, which advocates a free economy, the phenomenon of “backflow” in manufacturing is limited by political factors, and more is due to market factors. Cost control, quality control, and proximity to the market are some of the major drivers of "backflow" in U.S. manufacturing.

It is an indisputable fact that the cost of labor in Asian countries has been rising in the past decade or so. Taking China as an example, data from the Boston Consulting Group shows that from 2000 to 2005, the wages of Chinese workers rose at an annual rate of 10%; from 2005 to 2010, the increase rate was as high as 19% per year. The Chinese government has recently set an average annual minimum wage growth rate of more than 13% by 2015.

At the same time, the wages of workers in developed countries have risen slowly. In the U.S. manufacturing sector, due to the economic crisis, real wages of workers have fallen by even 2.2% since 2005. In addition, transportation costs have risen and shale gas development has greatly reduced the price of energy needed for manufacturing in the United States. These factors have prompted US companies to take new considerations into cost control.

On the other hand, although outsourcing companies can make commodity prices cheaper, they are not conducive to the rapid renewal of products and technologies. As a result, some companies want to be closer to customers and respond more quickly to changes in customer demand. For some technically sophisticated high-tech products, timely and effective communication between designers and manufacturers is also very important.

Therefore, from these perspectives, it is understandable that Google Glass will choose to manufacture near Google’s Silicon Valley headquarters.

The "backflow" scale is only "a trickle"

The United States, which was once considered a “manufacturing recession,” has now become the focus of discussion because of “backflow.” However, some experts believe that the size of the “backflow” in U.S. manufacturing can at best be called “a trickle”. Whether or not it will form a large-scale “return boom” in the future is yet to be verified.

According to the data quoted in the magazine “The Economist”, the current “backflow” of American companies is not adding up to 100 companies.

It now appears that most of these “backflow” companies now only bring product lines back to the United States as their sales destination. Many large companies still have much larger production scale abroad than the “backflow” part.

Wang Shuhong pointed out that it is worth noting that the "backflow" of U.S. manufacturing industry is not a simple transfer of manufacturing bases, but a way to lead the revitalization of U.S. manufacturing through technological innovation. The success of Obama’s goal of “ensuring that the next manufacturing revolution took place in the United States” also depends on the extent to which technological innovation can achieve breakthroughs and truly drive the development of the manufacturing industry.

To this end, the United States has begun a new layout. In March 2012, the Obama administration announced a US$1 billion investment in establishing a nationwide manufacturing innovation network comprised of 15 manufacturing innovation institutes to drive manufacturing innovation and growth, boost the US economy, and create more jobs.

“Made in China” still has unique advantages According to the Boston Consulting Group’s estimates, in the areas of transportation, computers, synthetic metals and machinery, by 2020, 10% to 30% of US imports from China will achieve local production and can promote The annual US export value increased by 20 billion U.S. dollars to 55 billion U.S. dollars. This can not help but worry: China's "world factory" status will be shaken.

Some critics believe that this estimate is too exaggerated. At least for now, the “backflow” of U.S. manufacturing is still quite rational. Take Caterpillar, the world’s largest construction machinery company, for example, although it announced that it will open a new excavator manufacturing facility in Texas, it also announced that it will expand its R&D activities in China.

Some analysts believe that even if there is a phenomenon of "backflow" in the manufacturing industries in the United States and other developed countries, China still has a unique advantage as the world's largest manufacturing country.

China has the world's best industrial component supply chain, and China’s infrastructure conditions are undoubtedly superior to those of Southeast Asian countries with lower labor costs. At present, some Chinese companies have already started outsourcing some labor-intensive businesses to Southeast Asian countries to save manpower costs.

In terms of improving labor productivity, China also has great room for improvement. According to Japan's Nomura Securities, at present, China's digital equipment accounted for only 28%, and Japan's data is 83%. However, China's growth rate has far exceeded that of Japan at the same stage of development. The current automation revolution that China is advancing will greatly increase China’s labor productivity.

In terms of market access, China itself is a huge market for emerging economies. Therefore, some analysts believe that the single factor of rising labor costs alone will not encourage more companies to leave China.

However, developed countries have blew up the horn of "high-tech" and China should also be on the alert. Wang Yuhong believes that China's manufacturing industry should increase investment in technological innovation and accelerate its own industrial upgrading, which should be the solution to the challenges.