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Friday, July 19, 2024

Column: China wants more

We are nearing a time when “Made in China” will no longer be discreetly etched under our plastic tchotchkes or sewn through the backs of our labels.  Because of increasing blue-collar labor costs this past decade in Guangdong and other coastal hubs, China is at the bottom of any manufacturer’s list for super-cheap hands.

This change doesn’t necessarily mean that the United States should avert its stare from a familiar lender and competitor. Rather, we should continue to keep our eyes peeled, for while China may be focusing less on mass production, it is revving up R&D (research and development) to accommodate an influx of innovative products.

It has always been widely acknowledged (maybe even become somewhat of a global joke) how tremendously economical and productive China keeps its supply chain. The bargain it offers makes many companies come back for more, constantly and exclusively contracting with Chinese suppliers. Much of the southern part of the country is basically a workshop for the world, whose mantra can be read on an enormous billboard in the industrial city of Shenzen: “Time is Money, Efficiency is Life.”

This too-good-to-be-true trend in China is certainly veering off its current trajectory. Costs for production are soaring every which way. Land, environmental concerns and tax increases pose problems for coastal trade provinces.

Most troublesome to the global market now dependent on the Chinese, however, are surging salaries. Every year for the past four years, migrant workers’ wages (including benefits) have jumped 20 percent. Local Chinese governments, and other Asian governments alike, are finally siding with their people and hiking minimum-wage rates in response to labor unrest.

I keep pinching myself. We have come upon an age where it is actually too expensive to do business in China. (Then again, see our $1.2 trillion — and counting — debt to the country.) As thoughts of cheap China get left behind, the Eastern country and all others must gain inspiration from bigger and better ideas.

If China wishes to continue to prosper, its manufacturers must put more emphasis on quality than quantity, on the value chain over the supply one. Rather than bolting together sophisticated products designed elsewhere, it needs to do more actual inventing themselves.

A few Chinese firms have started to do this already. For example, a company called Huawei filed for more international patents than any other firm. Earlier this year, it unveiled the world’s thinnest and fastest smartphone.

China does not yet have enough Huaweis, but it attracts plenty of bright young people who would like to build one. Every year another wave of “sea turtles” — Chinese who have studied or worked abroad — return home.

The pace of transformation in China has been so startling that it is hard to keep up with. At once, we can be celebrating or fretting its demise and its ascent. Without question, though, the esoteric stereotypes about low-wage sweatshops are as out of date as Mao suits.

The world’s immediate response to these fiscal, political and social revisions across the Pacific has been to pull out. Manufacturers have found some relief by moving production to new areas, such as western China, Vietnam, Bangladesh and India. But all of these places rely on the same increasingly expensive pool of commodities. The price of aluminium or silicon isn’t, for example, less expensive for one country than another.

For the long-term, then, America especially needs to follow and exceed China’s example. Not only will China make it harder to purchase more with less, but it will also begin to intrude on the spheres of other countries’ fortes. President Obama would argue that investing in innovation should be America’s, not China’s, “Sputnik moment,” as he made clear during his 2011 State of the Union address.

America cannot afford to skimp on entrepreneurial ventures, if only for the progress of humanity. The moment any country becomes complacent, the rest of us get strung through the wake. By peeling off from the arguably less-challenging task of factory work, China is motivating all to take the path of most resistance and difficulty. This next decade will prove to be quite interesting — China and the world must innovate, or slow down.

It has been a pleasure writing for you this quarter. If you think I deserve a spring column, contact CHELSEA MEHRA at cmehra@ucdavis.edu with topic ideas.

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