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WORLD OF INDUSTRIES 4/2019

WORLD OF INDUSTRIES 4/2019

Author: Sushen Doshi,

Author: Sushen Doshi, International Correspondent, World of Industries Is China loosing steam or is it gearing up for the next round of double digit growth? NEWS AND MARKETS The “Made in China 2025” plan, technology upgradation, slowing down of GDP, trade war with the U.S, Belt and road initiative; China has a lot on its plate, and all this has immense implications on the global economy. China’s growth in the coming years will be much different than that of the of 90s. Xi’s China is strategically prepared, smart and ready to compete on any technological front. In the recent years, economists and experts have been buzzing about the slowdown of China’s economy. Official statistics placed real GDP growth at 6.6 % in 2018, the lowest rate since 1990. Various economic indicators, which track the performance of the economy by taking into consideration parameters ranging from industrial activity, purchasing indices, employment figures, sales numbers and investments in various sectors, all are a proof of dipping trend line in China’s GDP numbers. Yet, despite the doom and gloom China continues to rack up one of the most enviable growth rates in the world, adding more than a trillion dollars each year. The economy is expected to continue its softening in 2020 as well, with GDP growth forecasted to be somewhere between 6.0 and 6.2 %. Many companies will be facing the challenge of quickly adapting or changing their strategies to slower growth, as it will become extremely harder for corporations that require higher growth to thrive, or even survive. Survival will also be difficult for companies that took the growth rates for granted, and in turn created unsustainable amounts of debts. Consumption story now, and planning for the future A series of news reports of multinational as well as domestic companies reporting drastic drop in sales have created a wave of concern over the potential of China’s consumption power. But despite these concerns China still continues to be the best consumer market. Over the next decade as the per capita income of average Chinese individuals rise, China’s market will add more than $ 5 trillion, that’s way more than any other country. Beneath the slowdown lie changes in the patterns of consumption. Also sharper drops in sales of individual companies, or even of sales in categories like autos or cosmetics, does not tell the whole story. A lot of recent news reports have led many to believe that the trade spat between the US and China is leading to the current economic slowdown; this narrative is also convenient for the politicians. But the truth is China’s slowdown has been consistent since 2015. In 2013, Chinese President Xi Jingping announced the long term economic reform to shift from a investment driven economy to consumer driven one. If you understand this blueprint for economic reform, all the warnings about China’s slowdown or collapse will be less alarming. China’s reform will shift the economy from one based on government spending, state-run companies, and low-cost exports. It moves it toward private investment, entrepreneurial innovation, and domestic consumption. In order to achieve this, China has decided to reduce overcapacity in factories, mostly in steel, cement and other state-owned manufacturing companies. These companies have been the pillars of its economic growth. But now many are bloated, ineffective, and unprofitable. The reforms were aimed to modernize them in order to attract private investors, but they ended up creating an oversupply of commodities, which caused the prices to plummet and consequently sabotaged the privatization efforts. Now China has decided to allow the market to absorb the stockpile, as a result, China is willing to accept a slower rate of growth of around 6.5 %. The government will also loosen price controls on water, electricity and natural resources. So that these industries can consolidate, grow and become profitable. In return, they will pay 30 % of earnings as dividends to the government. Proceeds will be used to fund social security programs by 2020. Which will allow the Chinese people to save less, spend more, and boost consumption and demand. Always in focus “Made in China 2025” Launched in 2015, the “Made in China 2025” strategy aims to modernize and digitize country’s industrial set up with innovative technologies. With this strategy China seeks to create innovation-driven development, smart technologies, pursue green development and increase efforts to upgrade China from a manufacturer of quantity to one also of quality. The strategy focuses of 10 key industry sectors: Next-generation 10 WORLD OF INDUSTRIES 4/2019

IT, including cyber-security; High-end numerical control tools and robotics, which are of high importance for China as they help in improving the manufacturing efficiency as labor costs rise; Aerospace and aviation equipment, which reflects China’s ambition to be a world leader in aviation and outer space exploration; hi-tech marine engineering equipment, as shipping plays a vital role in China’s export driven economy and also maritime security implications of China’s territorial claims in South and the East China Sea; Advanced railway equipment, as China is rapidly connecting regions not only within its territories but also in the Central Asia; Electric vehicles technology, which highlights China’s goal to replace traditional fuel vehicles; New generation electrical power equipment, which are part of China’s implementation of clean and green power; Agricultural machinery; New materials like graphene and nano materials; Biomedicine and high-performance medical devices, which includes China’s development of advanced chemicals and medical equipment. The Chinese government has so far invested vast resources, including subsidies and low interest loans to support domestic hi-tech enterprises and encourage more Chinese firms to expand overseas and acquire foreign firms with cutting-edge technologies. The government has also established 5 national manufacturing innovation centers and 48 provincial manufacturing innovation centers. By 2025, the number of national manufacturing innovation centers is set to reach 40. Initial results in some of the sectors have been positive. Huge advances have been made in large aircraft and engine manufacturing, semiconductor technologies, new material, and gas turbine, 5G mobile network equipment and electric vehicles. Trigger point One of the factors in the Made in China 2025 policy that has irked the western industrialized countries is China’s goal to reduce imports of high-end technologies from the EU and the U.S and replace it with home grown ones. This initiative has not gone down well with leaders in the west, as they fear that Beijing’s state-subsidized industries would get an unfair advantage over foreign firms and could lead to market distortions. This issue has become one of reasons for escalation of the trade and tariff war between the US and China. US President Donald Trump has imposed tariffs on goods worth $ 300 billion that are imported from the mainland. Tariffs will especially be levied on products in the 10 key areas identified in the “Made in China 2025” initiative. Despite advances it has made in hi-tech industries, China still depends on foreign technology transfer to push forward its own innovation agenda and next-generation manufacturing goals. These US tariff measures are hurting the implementation of China’s 2025 goals, production of industrial robots in mainland has seen a drop, production of integrated circuits, the semiconductors that power smartphones, computers and other electronic devices, as well as high-end industrial and military products, also fell. Meanwhile, growth in the new-energy car sector, which has been heavily subsidized by the government, slowed down from more than 20 to 15 %. Except a few specific industry sectors, the effect of trade war on the overall Chinese economy has been more indirect, as it impacts the consumer confidence and causes private sector companies to rethink before making any decisions on investing in adding manufacturing capacity in China. Some manufacturers are considering to shift their production bases at locations that less politically sensitive. For example, some robotics makers, have been considering Vietnam and India as a stable option, hence they have already reduced the capital investment in China. Photographs: Lead Photo Fotolia Double the strength and the service life P4.1 e-chain ® : for travel life up to 450.000 km! P4.1is a world first: new low-abrasion and lubrication-free iglidur ® pin/bore connection, with optional intelligent wear monitoring for double the service life, travels of up to 1.000 m, speeds of up to 10 m/s and fill weights of up to 50 kg/m. Find more information at: igus.eu/P4.1 igus ® Tel. +49-2203-9649-800 info@igus.eu motion plastics ® ... for longer life The terms "igus, e-chain, iglidur, motion plastics" are legally protected trademarks in the Federal Republic of Germany and, where applicable, in some foreign countries. Please visit us: IAS, Shanghai – Booth 8.1H-A213 igus-eng.indd 1 07.08.2019 11:21:08 WORLD OF OF INDUSTRIES 4/2019 11

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