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WORLD OF INDUSTRIES 03/2019

WORLD OF INDUSTRIES 03/2019

Slow but well-planned

Slow but well-planned growth seems to be China’s new mantra NEWS AND MARKETS With its economy in transition, gross domestic product (GDP) growth is no longer the most important indicator in China to judge performance. China knows it has to change its economic model – so slower growth is acceptable. They know that they can no longer rely on low-wage, low-value, polluting industries, and this transition process has started a few years ago. Compared to last two decades, 2018 was a tough year for China’s manufacturing industry as various regions struggled to hit their growth targets. Most notable are the Guangdong and Jiangsu provinces, the most important regions for manufacturing – but both failed to achieve their annual GDP growth targets. Zhejiang, another industrially vital province, managed to narrowly achieve its growth target. Nationally, China’s GDP grew by 6.6 %, but still the slowest growth since 1990, as the country felt the impacts of a decelerating exports and trade tensions with the US. Manufacturing regions struggle to make their mark Guangdong province and especially the Pearl river delta (PRD) was one of the first regions in China to open up to foreign industries and investments, and since then it has become the centre of the coun- Author: Sushen Doshi, International Correspondent for World of Industries try’s manufacturing sector. Guangdong’s four biggest contributors are Shenzhen, Guangzhou, Foshan, and Dongguan, all of them close to the border with Hong Kong. Similarly, the Yangtze River Delta (YRD) in eastern China has historically been a magnet for foreign investment. The YRD revolves around Shanghai, Suzhou, Wuxi, and Nanjing in Jiangsu province, and Hangzhou and Ningbo in Zhejiang province. At the provincial level, Guangdong grew by 6.8 % narrowly missing its target of 7 %, while Jiangsu registered 6.7 % growth, missing its target of greater than 7 %. Zhejiang, however, managed to narrowly hit its goal of 7 %, growing by 7.1 %. Although many of the cities in these regions failed to reach their targets, considering their already large base, these numbers are still phenomenal. Nevertheless, it is notable that so many regions are falling short of their targets, which clearly suggests that China’s economy is under-performing relative to expectations. After reporting 2018 statistics, most regions lowered their targets for 2019. Guangdong, Jiangsu and Zhejiang’s target are now down to 6–6.5 %. For few years now China’s growth has been slowing down, this shows where China’s economy is struggling and where it is evolving. The maturity and intricacy of these economies makes them bestpositioned regional economies in China to transition to the next stage of economic development –driven mainly by services sector, high end technology, and efficiency. In response to slowing growth, regional governments across China have introduced multiple policies to lower operating costs for businesses, such as energy cost subsidies, land cost subsidies, and industry-specific incentives. Cost, cash-flow and competition Several factors have converged to make China’ manufacturing struggle. One of the main reasons being, China’s export-oriented manufacturing economy, which has made it more vulnerable to the economic risks like the tariff dispute with the US that arose in 2018. 6 WORLD OF INDUSTRIES 3/2019

Apart from trade wars, manufacturing businesses have also struggled with financial funding and cash flow. In 2018, all banks have tightened their lending in response to the central government’s financial de-risking campaign. The squeeze on bank lending directly led to the breakdown of cash flow, and as a result many manufacturers were forced to suspend or cut short their production activities. At the same time manufacturers dealt with higher costs and increasing competition from emerging markets in Asia. Today other Southeast Asian countries like Vietnam, Philippines, and especially India are posing a serious competition in terms of manufacturing ability and capacity. A lot of investment in these countries is coming from China itself. Attracted by lower land and labor costs and being sheltered from the trade war, these countries are a suitable destinations for Chinese investments as well. Many Chinese businesses are embracing having operations in these emerging countries as a strategy to both lower costs and risk exposure to trade wars. Talking in terms of region-wise impact, Guangdong and Jiangsu has always been amongst the first provinces to face the brunt of economic difficulties given the export oriented nature of the region. But they has also been the first at engineering new ways around this. Encouraging for foreign investment in strategic industry sectors In the early part of 2019, Beijing has released the list of the industry sectors and sub-sectors that are considered high priority and where foreign knowhow and investment is welcome. In order to encourage foreign companies to invest in these sectors, Chinese government plans to offer special benefits, such as tax incentives, streamlined approval procedures, and discounted land prices to lower the overall project costs. The goal is to attract nationwide foreign investment but also promote investment in the less-prosperous central and western regions, northeastern old industrial base and southernmost Hainan Province. The government’s focus is particularly on the following industry sectors: Motion and drives: Manufacturing of high-end CNC machine tools and spare parts, manufacturing of gear transmission and bearings for CNC machine tools, high-speed railways, wind turbine generators and aircrafts. Manufacturing of precision transmission clutches. Fluid power sector: Design and manufacturing of high-pressure plunger pumps and engines, and low-speed large-torque engines, integrated hydraulic-pressure multiple unit valves, electrohydraulic servo elements, valve terminals, pneumatic solenoid valve of less than 0.35 W and high-frequency electrically-controlled gas valves, hydrostatic drive devices, non-contact gas film seals, dry gas seals. Machine vision sector: Development and manufacturing of digital cameras with million pixel or horizontal field of 120 ° or above, and other optical lenses and optical-electric modules, 2K and 4K digital film projectors, manufacturing of components of medical imaging equipment including high-field-strength superconducting MRI equipment, X-ray computed imaging equipment, and digital color diagnostic ultrasound equipment Automobile manufacturing: Manufacturing of automobile engines and establishment of engine research institutions, manufacturing of automobile parts and components like dualclutch transmission (DCT), continuously variable transmission (CVT), automated mechanical transmission (AMT), actuator for automatic transmission (electromagnetic valve), variable geometry turbocharging (VGT), variable nozzle turbocharging (VNT), engine emission control devices meeting China’s Phase V pollutant emission standards, intelligent torque management (ITM) systems, special-purpose axles for low-floor large buses, variable frequency air-conditioning system for large and medium buses etc. Automobile electronics manufacturing: Electronic control systems and components of engine and chassis, automobile information and navigation system, sensor and actuator components of electronic control system, electronic controllers for electric power steering system, embedded electronic integrated systems, electronically-controlled suspension system, electronic valve system devices, ABS systems, gearbox transmission control unit (TCU), tyre pressure monitoring system (TPMS), on-board diagnostics (OBD), engine anti-theft system. Power generation equipment: Manufacturing of large castings and forgings for coal-fired power station and hydropower station equipment, equipment for photovoltaic power generation, geothermal power generation, tidal power generation, garbage power generation, biogas power generation, and wind power generation with a capacity of 2.5 megawatts or more. Manufacturing of high-tech green batteries: nickel-metal hydride (Ni-MH) batteries, nickel-zinc batteries, silver-zinc batteries, lithium-ion batteries, solar batteries, etc. Electronics components and equipment: Manufacturing of largescale digital integrated circuits with a line width of 28 manometers or less, analog or digital-analog integrated circuits with a line width of 0.11 micron or less; computer digital signal processing system, image recognition and processing system. Manufacturing of 3-D CAD systems, electronic design automation (EDA), computeraided manufacturing (CAM), computer-aided engineering (CAE) systems. Manufacturing of chip components, frequency control and selection components, hybrid integrated circuits, power electronic devices, optoelectronic devices, new electromechanical components, polymer solid capacitors, super-capacitors, R&D and manufacturing of virtual reality (VR) and augmented reality (AR) equipment, R&D and manufacturing of key parts and components of 3D printing equipment. Large demand for technology transfers In conjunction with its ambitious ‘Made in China 2025’ strategy, China has a huge demand for high-end technology to be transferred from developed countries to its homeland. This is evident from the aggressive buy-outs, take overs and mergers of many technology driven European and North American companies. This has also caused foreign companies to be concerned about the implications of China’s hunger for high-end technologies. Leading foreign machinery manufacturers can make use of these opportunities to export, both, equipment and expertise that is urgently-needed in China. To enter the Chinese market, foreign companies must find potential Chinese distribution partners. Seeking professional commercial and research services, participating in sector-specific exhibitions, and utilizing business matchmaking programs will allow foreign machinery manufacturers to eliminate networking uncertainty, facilitate transparent interactions, protect IP, and make sustainable investments. Photographs: Lead Photo Fotolia z WORLD OF OF INDUSTRIES 3/2019 7

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