China’s Producers Turn High-End

Chinese exports have been rising 17 percent a year on average. To keep that pace, China is trying to grab market share in high-end machinery.

Yellow_Gears_SignFrom its sprawling manufacturing base deep in China’s southwestern Hunan province, some 100 kilometers from where Mao was born, construction-machinery maker Sany Group plans to take on the world. While workers in blue overalls and yellow hard hats crawl over huge mobile hydraulic cranes and cement mixer trucks in a gleaming factory, Sany President Tang Xiuguo sits in his expansive office nearby, discussing the opening of Sany factories in Brazil, India, and Alabama, as well as the soon-to-be-completed $475 million acquisition of Germany’s Putzmeister, the world’s largest maker of cement pumps. The bespectacled Tang, one of four founders of the 22-year-old company, aims to lift overseas sales, now some 5 percent of its $16 billion revenue, to up to one-fifth of revenues within five years.

The phrase “Made in China” summons up images of cheap shoes, plastic toys, and electronics assembled in the vast factory complexes of Foxconn Technology Group (HNHPF). While China built its powerful export business—increasing 17 percent a year over the last three decades—on such light industry and electronics assembly, that is fast changing. Rising labor costs, up 15 percent annually since 2005, plus an appreciating currency, are putting new pressures on China’s cheap manufacturing model and driving textile, shoe, and apparel factories to close or relocate to Vietnam, Cambodia, or Bangladesh. “China’s share of the world’s low-end exports has started to fall. This reflects a shift by Chinese producers into sectors where margins are higher rather than a failure to compete,” wrote U.K.-based Capital Economics in a March 28 note.

Overall, the portion of China’s exports made up by heavy industry, about two-thirds of which is machinery, has grown from 29 percent in 2001 to 38.7 percent last year, surpassing light industry and electronics, according to Beijing-based economics consultants GK Dragonomics. “They are making different products with higher technology, things they can charge more money for,” says Andrew Batson, GK Dragonomics’ research director, who estimates that the new industries can help lift China’s share of global exports from 10 percent now to 15 percent by 2020. “The typical Chinese exporter is not a shoe factory in Guangdong anymore. Instead it is some kind of equipment or machinery maker.”

Click here to read the complete article.

Source: Dexter Roberts | Bloomberg Businessweek