Made in China, should it be appreciated or blamed?

SJTU ParisTech Review / Editors / 2015-05-31

To many people, a handy and direct way to comment on “Made in China” is: advanced countries became loyal buyers of cheap Chinese products and gave rise to its consistent and powerful growth. However, if one only understands this issue from a manufacturing, consumption, export or import point of view, they are almost certain to miss some facts and even get bogged down by complaints or trade disputes. The good news is, an increasing number of people are willing to think outside the box and understand “Made in China” and innovation within the global economic regime as a whole.

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After a one-week stay in Berlin,New York Timescolumnist Thomas L. Friedmansaid that “Germany today deserves a Nobel Peace Prize.” His reason was simple:what the Germans have done in converting almost 30 percent of their electric grid to renewable energy from nearly zero in about 15 years has been a great contribution to the stability of our planet and its climate.

“In my view the greatest success of the German energy transition was giving a boost to the Chinese solar panel industry,” said Ralf Fücks, president of Heinrich-Böll-Stiftung, the German Green Party’s political foundation. “We created the mass market, and that led to the increased productivity and dramatic decrease in cost.”

The Nobel Peace Prize, from this perspective, should be awarded to Germany. The country not only saved the planet, but also the panel industry of a country.

It’s not the first time we’ve heard a statement like this. A handy and direct way to comment on “Made in China” is: advanced countries became loyal buyers of cheap Chinese products and gave rise to its consistent and powerful growth.

It is true to some extent. If one only understands this issue from a manufacturing, consumption, export or import point of view, they are almost certain to miss some facts and even get bogged down by complaints or trade disputes. “Made in China” provided affordable quality modern consumption goods to low income countries and helped rein in inflation for developed countries. Nevertheless, it is China that’s suffering from the environmental and labor cost pressure in the aftermath of such mass production. Meanwhile, China is still stuck at the lower part of the supply chain. Western countries constantly blamed China, whose industrial structure skewed to exports, for disturbing the market order, breaking the global economy balance, and disabling domestic manufacturing. These facts irked the diligent Chinese people.

The good news is that we are seeing changes. An increasing number of people are willing to think outside the box and understand “Made in China” and innovation within the global economic regime as a whole. When they are addressing or writing on topics about the breakthrough or tipping point an industry has reached, they are likely to start with a sentence like, “Thanks to ‘Made in China’, which has led to a significant drop in manufacturing costs…”

What they saw was clear. From one side, China has provided the necessary means and materials to lift productivity and efficiency worldwide while controlling its own cost and spearheading the innovation process. From the other side, countries with a manufacturing early-start can no longer enjoy any cost advantage from the low added-value manufacturing sector. Now they are investing capital and talent in exploration and innovation at the higher end of the industrial chain and bringing human beings to a higher technological level.

Take the solar industry as an example. Western countries were responsible for this energy revolution that revolted against traditions and scaled up the solar industry. China’s photovoltaic (PV) industry investment exploded, resulting from an unprecedentedly rosy market outlook and powerful government support. The mass productivity arose from these factors and continuously pushed down the price. Today, 70%of global PV products are made in China, with most of them being shipped to Western countries.

Photovoltaic modules and inverters are key parts of the PV System. A great number of these key parts are produced in Mainland China and Taiwan. A recent report titled The Future of Solar Energy by MTI pointed out that “Prices for PV systems in the United States have fallen between 50% and 70% over the last half-dozen years. Almost this entire decline is attributable to falling prices for modules and inverters.”

Ups and downs in China’s PV industry directly impact the scale and speed of the usage of solar energy in different countries. China’s PV industry focuses on the processing and assembly of solar panels, while raw material R&D and downstream system design and management are still dominated by developed countries. German solar energy giant Conergy recently announced its retreat from PV parts manufacturing and a pivot to downstream marketing services, including power station development, financing, engineering, procurement, construction, operation and maintenance. The solar battery developed by the American company Tesla is a good example for exploring unchartered territory at the high end of the industrial chain.

Solar power will grow to become a vital resource in the global energy supply by the middle of this century. PV products made in China are expected to rule more markets through massive productivity and lower cost with this round of the green revolution initiated from Western countries. China itself is the largest user in terms of volume. The Global PV market installed 47Gw of capacity in 2014 and raised the overall capacity to 188.8Gw. China, as the biggest contributor, is responsible for one fourth of that. Other countries from Asia, Latin America and Africa are benefiting from China’s PV industry in this transition to clean energy.

The Global Economic Governance Initiative (GEGI) of Boston University recently published a survey report titledChina in Latin America: Lessons for South-South Cooperation and Sustainable Development. It stated that Latin American countries are using a larger proportion of renewable energy, thanks to affordable solar panels from China.

Aside from PV, semiconductor and electronic products also exemplify significant contributions that China has made to global innovation.

The Wall Street Journal once reported that Shenzhen alone produced 45% of the world’s tablets in 2014. There is a cluster of OEMs, ODMs, IHVs and IDHs, which have formed an irreplaceable highly-efficient eco-system. The coastal city has supported the innovation and upgrade of home appliances, computers and mobile phones around the world for the past two decades and met the demands of different places and customers.

Those manufacturing factories and Shanzhai (copycat) companies that have been lying at the bottom of the industrial chain are now ushering into the core area of innovation with the skill and swift market response learned over many years. They are now strategic partners with startups at Silicon Valley and global IT giants. They are also capable of scaling up lab products at rapid speed and inspiring low-cost and local long-tail design.

“There are two required conditions for global innovation in the area of ICT: great ideas and an excellent risk return rate,” Lin Cheng, Director of Strategy and Business Development at ZTE Group told Shanghai JiaotongParisTech Review. “We are on the cutting edge of the latter. China boasts an R&D and production environment with remarkable competitiveness. The market is simple, for it speaks the same language, hosts the same culture and runs under the same set of policies. These factors lowered the cost for R&D and marketing, and more importantly, the risks. On top of that, China’s electronic manufacturing business has now integrated into a large industrial cluster. Such scale further thinned down the cost for R&D and ensured a high return on investment.The U.S. is perhaps the only country in the world that enjoys all three of these favorable factors. In fact, the U.S. does not have absolute advantages in R&D and costs for manufacturing, but this is somehow compensated for by its vibrant funding environment.”

Chinese authorities recently promulgated the Made in China 2025 strategy to move up to the middle and high end of the industrial chain and embrace the trend of the Internet of Things (IoT). Manufacturing enterprises are turning to automation for the sake of higher efficiency and lower labor costs. The Economist believes that a more prosperous “Made in China” and the arrival of Factory Asia will continue to create development for other emerging markets (Latin America, Africa and India).

There is no need to worry about this with a review of how “Made in China” has affected the global economy in the past 35 years. “The very existence of ‘Made in China’ is not in any way affecting the existence of others,” Lin Cheng added.“It’s the same as the how the elephant is co-existing with other smaller animals. The key is to find your own strengths and fit into what’s good for you.”

China no longer only ships shoes, garments, toys or Christmas ornaments. It is also exporting “tools” and “fuel” for global innovation. This driving force will only grow to be stronger and accompany the higher level of domestic consumption and more open market in China.