China Strength Goes Beyond Low Wages, Says Keynoter
Colin Wu, president & CEO of China Business Sources, presented the first keynote address of National Manufacturing Week, 2006, “What’s Behind Chinese Competitiveness?” on Monday afternoon. Educated in the U.S. and China, Wu has advised multinationals, small and mid-size companies on Chinese alliances and acquisitions. His company has helped establish ground-breaking business structures in this transitional Chinese environment. In his speech, Wu promised to challenge conventional wisdom, which he did from the start by building a case for his assertion that low-cost labor is not the determining factor of Chinese competitiveness.
Wu said that if competitiveness is defined as the ability of a country’s products to command world markets, China has achieved that, changing from a low-cost manufacturer of low-quality items to a country that can stand with the best in the world. Its competitiveness is not simply a matter of undervalued exchange rates and extremely low labor costs, he said. It reflects instead “China’s economic policies, the qualities of the Chinese people, foreign direct investment and foreign joint venture enterprises.”
Wu offered China’s trade statistics to back his assertion. The annual rate of expansion of Chinese exports grew to 35% $593 billion in 2004, for example, and to about 6% of the export volume for the entire world. Figures for 2005 look to be even greater, he said. As a share of world trade, China is gaining on both Japan and the U.S. Wu added that since 2003 China has been the world’s greatest recipient of foreign investment, now estimated at almost $60 billion per year. Most of it goes directly into export industries.
Wu then noted that Chinese personal income has risen significantly since 1978, when the government opened up to the outside world. At that time, he said, the average Chinese annual income was about two thirds of 1% of that of the average American. Chinese wages have since risen about 15% annually to around $1,100 per year, said Wu, and Chinese market share has continued to rise.
The biggest contributor to Chinese competitiveness, Wu said, is the change in national economic policy that began in 1978. The second, he said is the quality of the Chinese people. And the third was the fact that when the U.S. and USSR were locked in rivalry, China was at peace and surrounded by other progressive countries.
The final factor, said Wu, is often overlooked by economists: human nature. Before 1978, he said, China was on the brink of bankruptcy. When Premier Deng began restructuring the economy, capitalism was accepted, he said, “and the Chinese peoples’ desire to escape poverty erupted like a volcano.” But when privatization occurred, many people were laid off, and without social welfare programs to help them, they were forced to fend for themselves. They then started their own businesses, said Wu, worked hard, reinvested earnings and changed China.
Wu then compared Chinese workers with others, calling the Chinese “hardworking, creative, optimistic, entrepreneurial, good-natured and obedient,” unlike Americans, “who always blame others for their own problems;” or the Russians, “who treat their lives submissively and get drunk much of the time.”
How can U.S. manufacturers compete with Chinese manufacturers? Wu suggested engaging China with a clear business objective. Target major projects and specific markets in China. There are many to choose from, he said, and suggested hiring well-connected Chinese companies to partner with. Wu stressed that the Chinese will pay top dollar for products they perceive as high enough quality. He also stressed that protectionism will not work.
By Pete Cleaveland
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