The picture is from Visual China, background: May 10, 2019, Dongguan, Guangdong, workers are in the automatic assembly line of the smartphone metal shell of Changying Precision Technology Co., Ltd. To work. This article is from WeChat public account: made (ID: xingshu100) , Speaker: Shi Zhan (PhD in History, Peking University , Professor of the School of Diplomacy and Director of the Center for World Political Studies of the School of Foreign Affairs), text: Huang Yicheng
In 2019, we heard a lot of negative news about China’s manufacturing industry. For example, some factories started to transfer from China to Vietnam and other Southeast Asian countries.
In 2020, we also heard a lot of downward expectations about the economy. For example, affected by the epidemic, the “manufacturing industry” will suffer further setbacks. The ongoing trade frictions, the global spread of the epidemic … How exactly will it affect the Chinese economy? Can Vietnam, India, Cambodia and other countries really challenge China’s status as a world factory? What are we going to do in the changing times?
To understand the underlying logic of the real world, “feeling” alone is not enough. We must find reliable facts and evidence, and give rigorous and rational answers based on facts and evidence.
What is the real foundation of the Chinese economy?
What is the real source of trade friction?
How does the manufacturing industry view China’s relationship with the world correctly?
March 22, Mr. Shi Zhan, the director of the Center for World Political Studies at the School of Foreign Affairs, was invited to share his views with us.
Compared with the viewpoint of looking at the problem in isolation, Mr. Shi Zhan stood on a higher pattern and a longer timeline, and explained how the epidemic would affect the Chinese economy under the background of trade friction.
The following is the text:
Many people ask what problems China’s economy will encounter in this epidemic.
For the Chinese economy, what is a longer-term event that we have to face? It was the trade friction that started the year before last year. The Chinese manufacturing industry under the epidemic situation, and the Chinese manufacturing industry under the background of trade friction, under these two impacts, what kind of trend will China’s manufacturing industry take?
What kind of impact may the epidemic have on the Chinese economy?
Conclusion: First, the Chinese economy will encounter setbacks, and second, the manufacturing industry will not move out.
Why does China ’s economy suffer setbacks?
First of all, the Chinese economy is shutting down. Because of the epidemic, you have no way to go to work or work. The Chinese economy is shutting down, so you will encounter setbacks.
The second reason is that when the Chinese economy stopped working, we can see that many other countries ’manufacturing industries have also encountered problems. Finally, until now, China ’s manufacturing industry has gradually begun to recover, and we have begun to resume production. In the end, the foreign countries stopped working again, and the foreign countries stopped working. In turn, China has no way to start work.
Why is there such a dilemma? This is closely related to a structural change in the global economic and trade structure over the years. An interesting statistic is that in the 1990s, over 70% of the global trade structure was trade in manufactured goods. What is this concept? The vast majority of products are manufactured within a single country, but by 2018, this data was reversed. More than 70% of the global trade structure is already semi-finished products, meaning that most of the products are Production was completed across multiple countries.
This means that countries have become highly interdependent in the production process. Therefore, if China stops working, foreign countries will stop working. In turn, if foreign countries stop working, China will stop working. Therefore, until the epidemic in foreign countries really passes, it is actually very difficult for China’s production to fully recover.
The third reason is that if the epidemic situation abroad cannot be effectively controlled, the consumption abroad will drop significantly. The source of GDP, troika, is investment, consumption and export. China is a big exporter. If the epidemic can’t fade away, we will see that the consumption power of other countries will decline and China’s exports will be affected.
Manufacturing will not really move out of China
Many Chinese factories are transferring to Vietnam, but strictly speaking it is not a transfer, it is an overflow
The most fundamental reason for this is the super supply chain network in China’s manufacturing industry.
In 2019, I went to Vietnam to do a very in-depth research. I want to see what kind of logic is the so-called Chinese manufacturing transfer. We do see that many Chinese factories are moving to Vietnam. But this so-called transfer is strictly not a transfer, but an overflow.
We can see that the transfer to Vietnam is the final assembly link, and the assembly link has two characteristics. First, the demand for the supply chain is not particularly high, and second, the labor cost accounts for a relatively large proportion. Higher, these links are transferred to Vietnam, so it is competitive in the local area, but it is more difficult to transfer other links to Vietnam.
How did China ’s supply chain network grow?
comparing the global economyIn the case of a big truck, the United States is the engine, and China is the drive shaft
The logic of explaining China’s supply chain network is actually the same as the logic of explaining China’s economic miracle. Many people used to explain the problem of China’s rapid economic growth in the past. The prices of factors such as labor and land in China are very low, so China’s cost is low.
But note that it is effective to explain the Chinese economy in the 1980s and the first half of the 1990s, when China ’s factor prices were indeed low, but in the 21st century you will notice that factor prices are higher than in the first half of the 1990s The period is much higher, and labor and land costs are much higher, but China’s economic development has not slowed down.
Not only did it not decline, if you only look at the manufacturing industry, you will find that the development rate is even faster. One of the explanation frameworks I gave is that China alone cannot explain it. In fact, China’s manufacturing industry, or China’s supply chain network, has a profound relationship between its growth process and the transformation of the global economy. The most important driving force for the global economic transformation is the transformation of the United States.
The United States promulgated a bill in the early 1980s. Prior to this, American innovation, various new technologies, etc. were mainly concentrated in the hands of large companies, and after that, these new technologies were mainly transferred. It’s in the hands of the small company.
Then this new product of a small company is not a terminal product. There is no way to sell it directly to users. Other companies have to integrate it into a new product. So you will find that the logic of innovation in the United States has begun to change. Large companies and small companies have a layered logic. Small companies master technology, and big companies no longer master technology. They buy technology licenses from small companies, and then The big companies are mastering the creativity of products. Prior to this, once any big company had any innovations, it had its technical barriers, and others would not be able to enter without this technology.
But today is different, technology is not in the hands of big companies, but in the hands of small companies, and small companies have sufficient incentive to sell technology to more companies. So for large companies, it has no technical barriers, so it has to pursue speed barriers, that is, to ensure that its innovation speed is faster than anyone else. And in order to be able to innovate efficiently.
For big companies, the most important thing is that I have to outsource all my production processes to ensure its innovative efficiency. Who can undertake outsourcing? The contractor must meet two conditions at the same time. First, it must be efficient enough. Second, it must be flexible enough. This must be the case, because without efficiency, orders cannot be received, and efficiency requires specialization. But once tooIf it is too specialized, it will be locked in the specific product line of the contractor. Once the contractor ’s creativity changes, the contractor will die; in order to avoid this risk, the contractor must be flexible and able to quickly adjust the transformation, Therefore, it cannot be specialized. In other words, the two requirements of efficiency and flexibility are contradictory to each other, and there is no way to meet them at the same time. Strictly speaking, it is impossible to meet at the same time within the same company.
China did just that. China ’s small and medium-sized private enterprises are specialized to an unbelievable level. The products they produce are restored to extremely basic parts. The wildness of the products will be particularly good, and they can be combined with a variety of other products. Supporting each other. Single small and medium-sized private enterprises are extremely specialized, and then countless small and medium-sized enterprises form a huge network, and these companies within the network can continuously support each other. The flexibility of the entire network is very good. The efficiency of the individual companies inside is very high.
Supply chain network is a prerequisite for China to undertake most of the outsourcing, but at this time you observe that the supply chain network has a crucial point, that is, its scale. The larger the scale, the more SMEs there are, so the deeper it can reach the division of labor, the more specialized, and more efficient. The larger the scale of the supply chain network, the more companies there are, and the more likely it is to complement each other, and the better the elasticity of the entire network.
Once the scale of the network crosses a certain threshold, you can enter a qualitative change. The prices of labor and land, which are two factors, have fallen sharply in the total cost, and the price of labor and land is no longer a core issue that determines the overall cost. The core issue is the operational efficiency of the entire supply chain network.
China has already passed the threshold, so China can lead the world in the comprehensive cost control of low-end and mid-end manufacturing industries. Then you will find that a large number of low-end manufacturing industries are moving from various countries around the world to China.
In this case, for those countries represented by Africa, their comparative advantage is still the raw material industry, and the raw material industry has no way to directly connect with high-end manufacturing and service industries, it can only connect with low-end manufacturing. Industry, so it brings a result, that is, the global economic and trade structure, which I call a double-cycle structure, is a trade cycle between China and Western countries, which is a cycle of secondary and tertiary industries. Between China and non-Western countries, there is a cycle of primary and secondary industries. The primary industry of non-Western countries and the tertiary industry of Western countries cannot directly cycle between each other. The structure can work, just like the Arabic numeral 8, China is in the middle of the node, this node position I call the hub.
Of coursePay attention to the location of the hub, not that China is therefore the center of the world. The global capital cycle is still dominated by the United States. Comparing the global economy to a big truck, the United States is the engine, and China is the drive shaft.
For example, for a complex product, assuming that it has a total of 100 processes, there may be 70 in China, 10 in Southeast Asia and 20 in the West. The most cutting-edge and most advanced in the evolutionary path is still in the hands of the West. So if our Chinese factories cannot grasp the world’s more advanced concepts and technologies in the low-end industry, it will pose a problem, and China’s domestic investment will become very cautious and conservative.
So, never gloat over others. In more aspects, we and the world are deeply dependent on each other, or even completely integrated into one.
How should the manufacturing industry view China ’s relationship with the world correctly?
The epidemic and the trade war are not enough to pose a substantial challenge to China ’s manufacturing industry
I just talked about the high-end manufacturing industry in the West. It is based on technological advantages, which are difficult to replace. China’s low-end manufacturing industry is based on cost advantage, and cost advantage is an advantage that cannot be overcome under normal conditions, so whether it is the epidemic or the ongoing trade friction, because The super comprehensive cost control capability of China’s supply chain network, epidemic situation and trade friction are not enough to pose a substantial challenge and substantial impact on China’s supply chain and China’s manufacturing industry.
However, if we enter an extraordinary state, then Western countries will no longer consider the issue from a cost perspective, but from a safety perspective, then they may rebuild their production systems at any cost. This will have a huge impact on China’s structural position in the world’s manufacturing industry.
How can I avoid entering this extraordinary state? The premise is that China and the world must maintain a necessary foundation of trust. If the trust is still there, then the daily state of the problem is considered from the perspective of cost. If the trust is broken, it will shift to the extraordinary state of considering the problem from the perspective of security.
The premise of building trust is that China needs to have a sufficient vision and pattern to think about issues from a global perspective, rather than a narrow state of nationalism; moreover, this vision and pattern needs to be implemented in An executable and verifiable institutional arrangement.
Therefore, today, China must open up our vision, our mind, and our pattern, so that China ’s vision and pattern can be worthy of the worldwide influence of the Chinese economy. This is what China is today. What should really be done.
“Overflow: A Future History Made in China” by Shi Zhan; CITIC Publishing Group
This article is from WeChat public account: made (ID: xingshu100) , Presenter: Shi Zhan (Doctor of History of Peking University, Professor of the School of Foreign Affairs, Director of the Center for World Political Studies of the School of Foreign Affairs)