Posts Tagged ‘made in China’

Xi Jinping in American-Style “Campaign” in China’s Export Base as China’s Middle Class Moves Money Overseas

October 19, 2018
  • Leader will head to southern manufacturing base in the coming days, sources say
  • He may also attend the official opening ceremony of the new Hong Kong-Zhuhai-Macau bridge
  • “But the general direction of China won’t change.”
South China Morning Post
PUBLISHED : Friday, 19 October, 2018, 7:18am
UPDATED : Friday, 19 October, 2018, 12:23pm

Chinese President Xi Jinping will soon embark on what he hopes will be a confidence-boosting tour of Guangdong province, according to sources familiar with the matter, as the manufacturing and export base begins to feel the impact of the country’s trade war with the US.

While the leader’s itinerary is a closely guarded secret, the South China Morning Post reported on Wednesday that he might attend the official opening ceremony for the new Hong Kong-Zhuhai-Macau bridge, which is set to take place on Tuesday.

The bridge is key to country’s connectivity plans for the Greater Bay Area, its tech-led economic zone that has aspirations to rival California’s Silicon Valley.

Guangdong is where China’s economic liberalisation began 40 years ago, and while there, Xi might inspect some hi-tech firms, visit factories and talk to local people and officials in the cities of Guangzhou, Shenzhen and Zhuhai, the sources said.

One of them said he may visit Sun Yat-sen University, which was founded in 1924 and whose library houses a display of Karl Marx transcripts and early publications.

Coming as it does on the 40th anniversary of China’s “reform and opening up”, a dramatic policy shift that allowed China to transform itself from a closed communist backwater into an economic powerhouse, Xi’s visit is symbolic.

It also comes as doubts are growing over Beijing’s commitment to becoming a more market-oriented economy.

Liao Qun, chief economist at China Citic Bank International in Hong Kong, said Xi would use the trip to shore up economic confidence.

“Xi will send a message that Beijing is committed to the road of reform and opening up and will do more in this regard amid the trade war with the US,” he said.

He might also stress the importance of hi-tech development and the Greater Bay Area, Liao said.

Chinese economist Hu Xingdou said Xi’s visit to Guangdong might be the catalyst for “the third round of ideological emancipation” in China, after a first round in 1978 and a second in 1992.

China’s former paramount leader Deng Xiaoping visited Guangdong in 1992 to restart the process of economic liberalisation, which was initiated in 1978 but halted by the 1989 pro-democracy movement and the bloody crackdown on June 4.

His visit is remembered as a watershed moment for China as it ushered in capitalist ideals and the nationwide pursuit of wealth. Hundreds of thousands of government officials and state workers left the security of the public sector and opened their own businesses.

At the same time, the red carpets were rolled out for foreign investors, the command economy system was dismantled and ties between China and US strengthened, partly thanks to lobbying by US business groups, which paved the way for China’s economic boom and, a decade later, entry into the World Trade Organisation.

Now, after four decades of almost uninterrupted economic growth, China’s economy is slowing. Its gross domestic product for the third quarter of this year is estimated to have grown at its slowest rate for a decade.

China is also grappling with structural problems, such as a widening wealth gap, serious pollution and a rapidly ageing population.

Beijing is also facing fresh demands and criticism from the West. Earlier this month, US vice-president Mike Pence accused Beijing of paying “lip service” to reform and opening up and said Deng’s policy “now rings hollow”.

Meanwhile, China’s once-booming private economy is losing ground to the state sector, which benefits from preferential government policies and low cost loans from state banks.

Many firms, including some in Guangdong, are considering relocating their operations outside China, just as the country’s middle classes are trying to move their money overseas amid tighter government controls on capital outflows.

Since Xi came into power in late 2012, he has led a campaign to bolster the party’s authority in all walks of life, while overseeing the state’s absorption of private firms and significant tax increases.

“Hopes are high on Xi to clarify two issues: the relationship between the state and the private economy, and the one between the rule of law and the rule of man or party,” Hu said.

While in Guangdong, Xi might visit Shenzhen, a thriving city of 13.6 million people that was just a fishing village when Deng visited.

Known as a world-class manufacturing base, it exemplifies how China has moved up in the value chain.

Xi’s father, Xi Zhongxun, was a senior official who helped to implement Beijing’s reform and opening up policies in Shenzhen.

However, the prevailing mood among businesses in the hi-tech hub is not good. A businessman in the city who asked not to be named but has close links to investors in the hi-tech sector, said the trade war and China’s economic slowdown had seriously undermined investor confidence.

“Everything seemed prosperous about half a year ago with ideas like ‘Made in China 2025’ and the Greater Bay Area lifting market expectations,” he said.

But that optimism quickly vanished due to the trade war and a slump in the share prices of technology firms. The value of shares in Tencent, one of China’s internet giants, has fallen by about 40 per cent in Hong Kong since March.

The benchmark Shenzhen component stock index, meanwhile, has fallen 60 per cent since its peak in June 2015.

While Xi would not be able to pull rabbits out of his hat during his Guangdong trip, he could confirm Beijing’s policies, a government adviser who asked not to be named said in an interview.

“China is in defensive mode because of the trade war,” the person said. New reform and opening up measures, if there are any, would be technical instead of strategic and could focus on “improving the business environment and modest tax cuts”, he said.

On a trip to northeast China’s rust belt at the end of last month, Xi said the country must become more self-reliant. While in the region he visited state-owned factories and said they were important to China’s economic future.

On a trip to northeast China’s rust belt at the end of last month, Xi said the country must become more self-reliant. Photo: Xinhua

Earlier this year, before the US imposed its first trade tariffs on Chinese imports, Xi visited the southern island province of Hainan and pledged to make it a free-trade zone and a new front in China’s opening up to the outside world.

However, the policy guidelines for such a move released this week fell short of expectations. The blueprint made no mention of allowing horse racing or casinos on the island, or of a local government plan for uncensored internet access.

Xi visited Guangdong in December 2012 after taking over as general secretary of China’s Communist Party. On that trip he visited Deng’s statue in a Shenzhen park and pledged to continue the former leader’s work.

Zhao Xijun, a professor at Renmin University in Beijing, said Xi was trying to take China’s opening up to “a new level with higher aims” but also ensuring it served its “own purposes”.

“Today’s situation is very different from that in 1970s, 80s or 90s,” Zhao said. “But the general direction of China won’t change.”

Additional reporting by Choi Chiyuk, Nectar Gan, Sidney Leng, Wendy Wu and Frank Tang



A Twist in the U.S. Tariff Battle: ‘It’s Helping China Be More Competitive’

September 17, 2018

In the Pearl River Delta, companies are racing even faster toward more advanced manufacturing and products

Image result for hybrid vehicles, China, Foshan, Pearl River Delta, photos

Hybrid vehicle components on the assembly line at a new factory in Foshan, in the Pearl River Delta. REUTERS


By  Liza Lin and Dan Strumpf
The Wall Street Journal


SHENZHEN, China—There is an unintended consequence of the White House’s trade battle with China: Companies in the Pearl River Delta, the center of China’s manufacturing might, are accelerating toward making higher-quality products to compete against American goods.

In response to tariffs, which make his goods more expensive, Michael Lu of LTS Group plans to trim costs by using more robots at his plants, which make lamps, bulbs and other lighting products sold at American stores. He is also moving low-skilled work elsewhere in Asia.

Left in Shenzhen will be his research and development operations and a team of skilled workers who make his company’s more complex products, such as smart lighting.

“The U.S. tariffs are pushing China toward making the higher-end stuff,” Mr. Lu said as he walked past red-uniformed workers assembling table lamps in his Shenzhen factory. “It’s helping China be more competitive down the road.”

Michael Lu of LTS Group is moving some of his company’s low-skilled work to Vietnam.
Michael Lu of LTS Group is moving some of his company’s low-skilled work to Vietnam. PHOTO: ANTHONY KWAN FOR THE WALL STREET JOURNAL

After building its economy on a mountain of inexpensive exports, from socks to toys to steel, China has been on a mission to upgrade its output. Over the past few years, Beijing has embarked on a campaign to ship low-skill factory work out of the country and build an economy that uses advanced manufacturing techniques to produce high-value products.

U.S. tariffs promise to make selling low-cost goods to American consumers less profitable. Companies as a result are rethinking their operations and products, while the government is offering more incentives to help the transition along.

Accelerating that process wasn’t exactly the goal of President Trump’s tariffs. The U.S. action is aimed at stopping what the administration says is unfair competition, citing Beijing’s support for strategic industries such as semiconductors and an assortment of tactics, including industrial espionage, to unlock the trade secrets of U.S. auto makers and other companies.

The initial tariffs on $50 billion in Chinese imports largely hit so-called intermediate goods purchased by businesses, including semiconductors, plastics and machinery. Mr. Trump plans to announce a new round of tariffs on as much as $200 billion in goods, The Wall Street Journal reported on Saturday, which would sweep in many more consumer products, from furniture and apparel to electronics.

Since the tit-for-tat trade threats begun, the Chinese yuan and the nation’s stock markets have slid, with the currency down almost 6% against the dollar this year. The trade friction is also weighing on an economy that is already slowing, in part due to a top-priority debt cleanup. Beijing is easing off that campaign to arrest the slowdown, and its desire to revive growth may limit its ability to endure a lengthy trade battle.

Meanwhile, the shift to higher-value products is well under way in the Pearl River Delta—one of the world’s largest cluster of urban areas, with nine cities. Nearly four decades ago, Chinese leader Deng Xiaoping chose the region to be the vanguard for China’s economic liberalization. In the years since, it has turned to making sophisticated electronics including smartphones and semiconductors.

Manufacturers say the region’s many attributes include rock-solid supply chains, easy access to ports, proximity to the financial precincts of Hong Kong and the political stability ensured by Beijing. There’s also a large workforce, with about 60 million residents.

In 2000, 17% of the region’s industrial output was classified as high-tech products, including electronics, biotech and aerospace components. That rose to 44% last year, according to figures from the local government and HSBC Research.

To help spur the manufacturing revolution in the face of tariffs, Guangdong province, which includes the Pearl River Delta, recently announced plans to invest more than 450 billion yuan ($65.46 billion) through 2020 to subsidize strategic industries including information technology, high-end equipment manufacturing and biomedical products.

Jimmy Liao’s company in Shenzhen, TechTurbo Innovation Ltd., buys and modifies computer chips for use in smartwatches, internet-connected home devices and specialty lighting products. Many of its clients make products on the $200 billion list of tariffs, which have left them searching for ways to cut costs—including asking Mr. Liao for less expensive chips.

His solution: Buy fewer chips from his chief American chip supplier, Qualcomm Inc., and steer more business to a Chinese supplier, Telink Semiconductor Co. By 2019, he expects to buy half his chips from China, up from 20% last year. Those purchases will help support a domestic semiconductor industry China is spending billions of dollars to nurture.

Jimmy Liao of TechTurbo Innovation says Chinese computer chips are getting better.
Jimmy Liao of TechTurbo Innovation says Chinese computer chips are getting better. PHOTO: ANTHONY KWAN FOR THE WALL STREET JOURNAL

“Chinese chips don’t perform as well as their U.S. counterparts,” Mr. Liao said. “But the manufacturers here are very keen to work with us to improve their chips, and they are also getting much better.”

TechTurbo engineers are working to tweak the chips to boost performance, he said, and the modified chips are good enough so that he can now show off samples to his U.S. customers.

With its futuristic skyscrapers and lush greenbelts, Shenzhen established itself as a repository of electronic component parts more than a decade ago, and manufacturers flocked in from around the world.

The biggest city by economic output in the Delta, Shenzhen relies on exports for about three-quarters of its gross domestic product, which was 2.24 trillion yuan in 2017.

Today, it is home to the biggest operation center in China for iPhone maker Foxconn Technology Group, and is headquarters for Chinese internet giant Tencent Holdings Ltd.The city’s more than 12 million residents can pay for their subway rides and purchases using mobile phones. Many old factory buildings are home to research and design studios, or startups working in artificial intelligence or financial technology.

Outside Shenzhen, there are still plenty of gritty factory towns like Dongguan, with its boxy, low-slung buildings churning out inexpensive furniture, clothing and chemical products—though there, too, change is in the air. Even before the recent trade tension, factories making low-end products had already begun shifting inland or to other countries, as wages in the delta region rose and the government tightened environmental protection rules.

The view from the observation deck of the KK100 tower in Shenzhen.
The view from the observation deck of the KK100 tower in Shenzhen. PHOTO: QILAI SHEN/BLOOMBERG NEWS

Telecommunications giant Huawei Technologies Co. is opening a new 13 million-square-foot campus alongside bucolic Songshan Lake for its research and development team and other units. The site incorporates 12 styles of European architecture, including buildings inspired by Bruges, Burgundy and Bologna.

Tony Lee’s Sintai Furniture Co. makes outdoor furniture and other products sold at Costco ,Home Depot and other U.S. stores that would be subject to tariffs in the expected $200 billion round. He is moving one-fifth of production to Vietnam for his U.S. exports, and keeping production for European and other markets at his factory in Dongguan.

Mr. Lee said the company will incur higher costs in worker training and material shipment in the short term, but he expects the move will save money in the long run. “The supply chain and capability in Vietnam takes time to build,” he said. “Once it is built up, Vietnam will be cheaper than China.”

Mr. Lee intends to keep the manufacturing of more complicated products such as outdoor wooden drink coolers in China for now.

As battle lines on trade were being drawn earlier this year, GMM Nonstick Coatings in Zhuhai decided to shift factory work to India and build four additional facilities there. Ravin Gandhi, chief executive officer, said GMM worried that its nonstick coatings, which are used on cookware such as George Foreman grills, might be next on the tariffs hit list.

“There’s already been a natural shift away from China, but now it’s accelerated since the trade friction,” he said.

Charles Hubbs, a director at Houston-based Premier Guard, which makes operating room drapes and other medical shielding products, said what bothers him is that the Chinese government no longer seems to care about low-tech factories like the one he runs in Zhongshan.

“We were the backbone of China’s growth,” Mr. Hubbs said. “Now China is…saying ‘We don’t need you, we want higher quality manufacturing.’ ”

Mr. Hubbs is slowly shrinking his production in the region. He is moving some manufacturing to the U.S., including by hiring workers at a facility in Beaumont, Texas.

China’s focus on developing its high-technology sectors is one of the key issues in the U.S.-China trade dispute. In his March 22 report on Chinese trade practices, U.S. Trade Representative Robert Lighthizer zeroed in on Beijing’s Made in China 2025 industrial policy, introduced three years ago, which aims to make China a global leader in industries such as robotics and electric vehicles.

Those goals have led the Chinese government to institute unfair policies, the report said, including subsidizing favored Chinese industries with government capital and requiring Western firms to give up trade secrets when they form joint ventures with Chinese firms. The Trump administration’s tariffs are partly aimed at getting China to abandon these practices.

Analysts say that Beijing sees Made in China as a national imperative and isn’t likely to back away from its central aim.

China “can’t stay low end—if you stay low end, your wages stay low end,” said Alicia Garcia Herrero, the chief economist for Asia in Hong Kong at French investment bank Natixis . “It is essential that disposable income continues to increase so that Chinese are happy, because that is the social contract.”

The new U.S. tariffs are expected to begin at around 10% on $200 billion worth of China imports—on top of the current 25% on $50 billion of imports—though they could later be raised to 25%. If that goes into effect, China’s annual GDP growth could fall to 5.6% in 2019, research firm Oxford Economics predicts. That would be its lowest level in almost three decades, and down from a projected expansion of 6.5% this year.

A TechTurbo employee tests a prototype smart LED light in Shenzhen.
A TechTurbo employee tests a prototype smart LED light in Shenzhen. PHOTO: ANTHONY KWAN FOR THE WALL STREET JOURNAL
A TechTurbo component.

Still, Oxford Economics expects the impact to be partly offset by China’s domestic policy support. Chinese leaders have recently tamed threats of retaliation, embarking on a friendlier outreach campaign to American companies.

Last week, Guangdong province published new investment rules allowing foreign investors to produce an array of high-tech products without a joint-venture partner, as previously required, in an effort to bolster higher-end manufacturing.

The Pearl River Delta has also been attracting foreign investors outside the high-tech world as well. Exxon Mobil signed a preliminary deal this month worth $10 billion to build a petrochemical complex and invest in a liquefied natural gas terminal in the city of Huizhou. It would be one of the largest single foreign investments in the country.

The city of Zhuhai announced in August that it is working with Taiwan-based Foxconn on a semiconductor project. People familiar with the matter said the aim is to build a chip fabrication plant. Foxconn didn’t return calls for comment.

The Zhuhai deal strengthens Foxconn’s already substantial commitment to the area. Formally known as Hon Hai Precision Co., Foxconn has more than one million employees in China, many based in Shenzhen.

Wang Guanghui said he realized last year, even before the tariffs, that his business making plastic packaging for smartphone covers and other consumer products might be at risk to lower-cost competitors elsewhere. With the help of a $63,000 grant from the local government, Mr. Wang’s Shenzhen Fulee Industrial Co. developed a machine that automates the process of making plastic packaging, saving labor costs.

His company now sells that machine, along with continuing to make plastic packaging.

“We knew we had to invest in research and development to upgrade our products, or we would be phased out,” Mr. Wang said.

Write to Liza Lin at and Dan Strumpf at

China lowers tariffs, rejects US trade war escalation — Afraid of Trump?

May 31, 2018

China said Thursday it wanted to avoid an escalation of trade tensions with the United States, as the two sides held new talks and Beijing decided to lower some tariffs.

The overture came two days after the White House said its planned trade sanctions against China were still in the works despite the announcement of a truce following a previous round of talks earlier in May.

China has threatened to hit back with tit-for-tat tariffs on tens of billions of dollars in US goods.

© AFP/File | China has said it wants to avoid an escalation of trade tensions with the United States

A 50-strong US delegation arrived in Beijing on Wednesday for follow-up meetings, Chinese commerce ministry spokesman Gao Feng said, without proving more details.

“We hope that China and US economic and trade cooperation can benefit people in both countries, and we are not willing to see trade frictions escalate,” Gao told a regular press briefing.

The delegation is laying the groundwork for a weekend visit by US Commerce Secretary Wilbur Ross.

The Trump administration said Tuesday that US sanctions announced in March — including restrictions on Chinese investment, export controls and 25 percent tariffs on as much as $50 billion in Chinese tech exports — remain under development.

Gao slammed the proposal, saying US measures to implement investment restrictions and export controls against China “do not conform with the basic principles and spirits of the WTO (World Trade Organization)”.

“China will carefully evaluate the US measures and relevant impact and retain its rights to adopt relative measures.”

Separately, the Chinese government announced in a statement late Wednesday that it would further cut import tariffs on daily consumer goods from July 1.

The average tariff on clothing, shoes and hats, kitchenware, and sports and fitness supplies will be reduced from 15.9 percent to 7.1 percent.

The rate for home appliances such as washing machines and refrigerators will be lowered from 20.5 percent to eight percent.

– ‘No forced tech transfers’ –

Gao said China will also publish a “negative list” of foreign investment by June 30 to ease restrictions in fields including energy, resources, infrastructure and transportation. A negative list includes all the industries with foreign investment restrictions.

Beijing previously said it would relax restrictions on foreign investment in automobiles, shipbuilding and aircraft firms.

At a meeting Wednesday chaired by Premier Li Keqiang, the State Council — or cabinet — also decided that China would widen market access through more foreign investor-friendly measures, according to the official Xinhua news agency.

“We should raise our innovation capacity in the new round of opening up and see that all intellectual property be fully protected,” Li said.

“No forced technology transfer will ever be imposed on foreign-invested enterprises and IPR (intellectual property rights) infringements will be penalised to the full extent of the law.”

Donald Trump has accused China of forcing US firms to hand over their industrial secrets to Chinese firms in order to do business in the country, a charge that Beijing has rejected.

In other measures announced by Xinhua, overseas traders will be encouraged to participate in crude oil and iron ore futures trading.

Severe measures will be taken to punish infringements, counterfeiting, commercial secret violators and trademark squatters.



China Cuts Tariffs on Wide Range of Consumer Goods From July

 Updated on 

China will reduce tariffs on a wide range of consumer goods from July 1, the State Council said in a statement.

The tariff cuts will apply to products including clothes, washing machines and makeup. The reduction was decided at the state council on Wednesday which was chaired by Premier Li Keqiang.

The announcement came after President Donald Trump decided to move ahead with additional tariffs on $50 billion of imports from China, a move that could potentially derail the truce reached last week between the world’s two biggest economies. China hit back at that, with a foreign ministry spokeswoman saying on Wednesday that China would respond accordingly if the U.S. insisted on unilateral measures.

Read the rest:


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Trump urges staff to portray him as “crazy guy”

U.S.-China Trade is Not About Tariffs — China Wants to Dominate the Industrial Future — Destroy the viability of companies in the West — “If China’s interests are impaired — we will have to take measures.”

March 28, 2018
The Chinese minister of industry and information technology, Miao Wei, second from left, has underlined Beijing’s determination to stick to its ambitious plan known as Made in China 2025. CreditJason Lee/Reuters

BEIJING — China has struck a hard stance on the issue at the root of the looming trade fight between Beijing and Washington: China’s government-led drive, which Washington describes as breaking international rules, to build the cutting-edge industries of the future.

Chinese officials in recent days have been defending the government’s ambitious plan, known as Made in China 2025, to create globally competitive players in industries like advanced microchips, driverless cars and robotics. While Beijing has signaled a willingness to compromise on other matters, the intractable standoff over its core industrial policy could prolong a trade fight that has already shaken markets and led to concerns about a full-blown trade war.

“We are three years into the implementation of Made in China 2025, and we will keep going,” Miao Wei, China’s minister of industry and information technology, said on Monday, the last day of a three-day economic policy forum in the Chinese capital.

The Trump administration has threatened to impose tariffs on imports involving many of the industries being developed under the Made in China 2025 program. Administration officials strongly object to the program’s goal of having Chinese companies dominate these advanced industries, particularly in the Chinese market.

Washington has also protested that companies in the targeted industries have been offered loans at low interest rates by state-controlled Chinese banks. The White House argues that will result in global capacity gluts that could drive down prices and destroy the viability of tech companies in the West, as well as in countries, like Japan and South Korea, that are allied with the United States.

“China has engaged for a very long time in the theft of our intellectual property as well as practices like forced technology transfer,” Peter Navarro, President Trump’s trade adviser, said on CNBC on Monday. “We’re hopeful that China will basically work with us to address some of these practices.”

Mr. Navarro on Monday tried to calm financial markets, which were rattled last week by the prospect of a trade war. He emphasized that “growth and stability” were the aim of Mr. Trump’s policy goal of ensuring that trade with the United States is fair and reciprocal.

Investors’ fears of a trade war seemed to subside some on Monday. The Standard & Poor’s 500-stock index climbed 2.7 percent, the Dow Jones industrial average rose 2.8 percent and the Nasdaq composite jumped 3.3 percent.

Whether an agreement that forestalls a protracted economic conflict can be reached remains unclear. The two nations, whose markets are highly integrated, have engaged in discussions for years with little to show as a result. Talks between the United States and China stalled last summer, and the Comprehensive Economic Dialogue between two countries has produced little progress.

The Trump administration has largely shunned the highly structured discussions of past administrations, which were used to try to reach agreement on economic and security issues. The White House now views those channels as producing largely hollow promises by the Chinese and has shifted toward engaging directly with senior-level Chinese counterparts.

On Saturday, just two days after the administration announced tariffs on up to $60 billion worth of Chinese imports, Steven Mnuchin, the Treasury secretary, called Liu He, China’s economic czar, to congratulate him on his new role of vice premier. The two discussed the trade tensions, including reducing tariffs on American cars and opening up China’s financial services sector to American firms.

“They also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it,” a Treasury spokeswoman said.

China’s official news agency, Xinhua, characterized the call between Mr. Mnuchin and Mr. Liu as confrontational, with Mr. Liu warning Mr. Mnuchin that America’s trade actions against China were straining economic ties between the countries.

Chinese leaders contend that their country’s economy is still developing. They openly reject Mr. Trump’s call for reciprocity in trade relations. They have instead offered concessions like raising caps on foreign investors’ stakes in Chinese financial institutions, and proposed eliminating import tariffs in narrow categories like drugs to treat cancer.

Beijing says that opening up some services sectors would improve the efficiency of the Chinese economy as well as make money for foreign companies. Improving health care, particularly for the aging, has also become a national priority.

But Chinese officials argue that their country is still dangerously reliant on smokestack industries of the past, like steelaluminum and cheap manufacturing. The average Chinese household lives on a quarter of the income that American and Western European households do, and standards of living remain very low in rural parts of the country, and across central and western China.

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Why China will not fall into the middle-income trap

April 23, 2016

By John Wong
The Straits Times

If highly industrialised China were to fall into the trap, it would imply that no other developing country would ever make it to developed economy status

China’s economic growth after over three decades of dynamic expansion at double-digit rates has markedly come down in recent years. The growth deceleration has raised the spectre of the Chinese economy falling into the “middle-income trap” (MIT).

The concept of the so-called MIT has been widely discussed in recent years, but also widely misunderstood. It is simply about how a less developed economy (LDC) loses growth momentum after its initial easy phases of growth and stagnates, and is unable to graduate to become a developed economy. This LDC fails to make the critical transition from middle income to high income.

Early development economists had used the concept of “low-level equilibrium trap” to explain the phenomenon and argued that many LDCs’ initial economic growth was not strong enough (due to low investment, low savings and hence low growth) such that any gross domestic product (GDP) growth would just be “eaten up” by their high population growth. That, however, may sound like a trite argument that a country remains poor because it is poor.

Naturally, many development economists took strong exception to this extreme argument, seeing it as purely a kind of “cumulative causation” with little explanatory power. MIT essentially operates on similar logic, as indeed any trap would imply little or no chance of moving forward towards a real economic take-off.


At the empirical level, many LDCs in Latin America and South-east Asia started their economic development in the late 1950s. However, most of them failed to become high-income developed economies, either because their growth was based on the export of primary products or their industrialisation was trapped in prolonged import substitution, and they thereby failed to make the successful transition to export orientation. The Philippines is a case in point. It was the first country in South-east Asia to start industrialisation in the early 1950s, but it has since been languishing as a lower middle- income economy for half a century.



Accordingly, as reported by the World Bank, of the 101 or so middle-income economies in the 1960s, only about 13 of them (mostly relatively small economies) had become developed economies by 2008. In East Asia, it was Japan and the four “Little Dragons” of South Korea, Taiwan, Hong Kong and Singapore that had successfully overcome the MIT to become developed economies. They had precisely made the successful transition from import substitution to export orientation.

In 2006, a World Bank report entitled “An East Asian Renaissance”, prepared for the 2006 World Bank and International Monetary Fund (IMF) meetings in Singapore, first introduced the concept of the “middle-income trap”. This term has since been widely used in economic development discourse.

The concept of MIT is nonetheless full of conceptual and empirical difficulties. The World Bank used to categorise countries into low-income, lower-middle, upper-middle, and high-income, with the average income level of the high-income group being used as a benchmark for a “developed economy”. Such categorisation and benchmarking are necessarily arbitrary. Furthermore, the per capita income level to benchmark a developed economy has changed several times over the years.

More serious for the MIT concept are its technical shortcomings. Economic growth is a long-term process full of ups and downs. For a country to be trapped at middle income implies that its growth has suddenly stagnated at a particular point or is predetermined to systematically slow down once it hits a particular income level. This is hard to explain and justify, especially since “being trapped” implies no exit.


China has been an intriguing case in the ongoing MIT debate. Whenever China’s economic growth hits a hurdle, some commentators would project China to be moving towards the precipice of the MIT.

Chinese officials have also frequently discussed China’s vulnerability to the MIT. Top economic officials such as Mr Liu He have often warned that China must step up its macroeconomic rebalancing to avert the MIT. More recently, Finance Minister Lou Jiwei was even more explicit, saying that China might face a “greater than 50 per cent chance” of falling into the MIT. Chinese officials use the phrase of MIT often as a political message to caution the Chinese people against the many potential obstacles and challenges that China is facing.

A useful starting point to discuss China and the MIT is to analyse China’s available GDP numbers. China’s per capita nominal GDP last year was about US$8,300 (S$11,200), compared with US$56,000 for the United States and US$53,000 for Singapore. In PPP (purchasing power parity) terms, China’s per capita GDP for 2014 was US$13,000. This puts China in the upper range of the middle-income category.

For a country with such a huge population, it is always more difficult to achieve a quick jump in its per capita GDP, considering that China has already experienced over three decades of high growth. Accordingly, it is inherently more difficult for large economies like China, India and Indonesia to overcome the MIT.

The question of how long it will take China to become a “developed economy” obviously depends on, first, the internationally acceptable benchmark for a “developed economy”, and then, the future growth potential of China’s economy.

For many years, the World Bank had simply used the per capita nominal GDP level of US$10,000 as a convenient cut-off point to denote a “high-income economy”, which is a proxy for being a “developed economy”. In this sense, China today with its per capita income of US$8,300 is quite near the threshold of a developed economy, and likely to get there around 2020.

However, the cut-off point for a “developed economy” has recently been raised to about US$16,000. Using 2015 as a starting point to extrapolate, it will take China’s economy about six years to reach this US$16,000 level, assuming a 7 per cent growth; or about 10 years with a continuing 6 per cent growth. In any case, China would certainly become a “developed economy” well before 2030.


For a formal discussion of whether China can overcome the MIT, one needs to properly analyse its present state of economic growth as well as its future growth potential.

After over three decades of double-digit rates of hyper-growth, China’s economy in recent years has significantly slowed down, and this growth deceleration is set to continue. But the country’s present economic slowdown has been much sensationalised by international media.

First, China’s so-called “slowdown” has actually been quite moderate – “slow” only in China’s own historical growth context. China’s 7.4 per cent growth in 2014 was regionally and globally the highest among major economies. Even its 6.9 per cent growth last year was still higher than that of its neighbouring economies.

Economic growth means increases in GDP based on the compound interest rate principle. With a bigger base, the 6.9 per cent growth of 2015 actually generated more GDP than the 7.4 per cent growth in 2014! This explains why President Xi Jinping readily embraced China’s present economic slowdown as a “New Normal”.

The Chinese government is currently doing its utmost to moderate the growth deceleration with all its available monetary and fiscal tools. Premier Li Keqiang has repeatedly affirmed that China has the means to maintain reasonable economic growth while at the same time carrying out the necessary structural reforms.


To maintain its reasonably strong growth in future, China will have to cultivate its new sources of growth associated with (1) innovation and technological progress, and (2) accelerating industrial restructuring.

China’s past dynamic growth had indeed been fuelled by significant technological progress associated with simple technology transfer from imported machines and the initial phases of economic reform by marketisation. But China today has already exhausted such easy sources of technological progress, and is no longer picking low-hanging fruit. Its future productivity gains will have to come from its own technological development.

Indeed, China has already rapidly expanded its R&D activities, which reached 2.1 per cent of GDP in 2014, compared with 2.8 per cent for the US. In total terms, China’s R&D spending is actually quite high, being the world’s second-largest after the US. Not surprisingly, China has for several years in a row topped the world in filing the largest number of patents and inventions – some 2.7 million applications were registered in 2015 alone.

China is already home to the world’s largest stock of science and technology personnel, with over 3.5 million engaged in full-time R&D activities. With nearly eight million new university graduates every year joining the ranks and a vast industrial base that is becoming increasingly sophisticated, China is admittedly on track to develop a viable technological base that will eventually generate new sources of productivity increases to support its future growth.

In the meantime, the government has also stepped up its industrial restructuring efforts. Recently, it unveiled a bold “Made in China 2025” Master Plan (reportedly similar to Germany’s “Industry 4” plan for its Fourth Industrial Revolution) to promote “intensive manufacturing”. This is aimed at fundamentally transforming China’s manufacturing sector from being a global giant in terms of volume and output to a leading manufacturing power in a quality and high-tech sense. The key slogan is to upgrade China’s manufacturing industries from “Made in China” to “Created in China”. The focus is on 10 crucial sectors, including information technology, robotics, large aircraft, new materials and biotech.

Suffice it to say that all these new investments and action plans are calculated to create a powerful new engine of growth that will propel China’s next phase of economic growth not just to overcome the MIT, but also to cross the threshold of a developed economy well before 2030.

To conclude, China does present a sharp contrast to the many developing countries that had fallen into the MIT. Apart from its stellar growth record, China has already developed a huge and balanced industrial structure along with a strong and growing technological foundation. Its manufacturing exports are dynamic and competitive while its superb infrastructure is of First World standard.

If the highly industrialised China should still fall into the MIT, it would simply be mind-boggling, implying that no other developing country would henceforth ever make it to a developed economy – quite an implausible supposition.

  • The writer is a professorial fellow at the East Asian Institute, National University of Singapore.
A version of this article appeared in the print edition of The Straits Times on April 23, 2016, with the headline ‘Why China will not fall into the middle-income trap’.

Reviving Respect for the Chinese Communist Party and its Revolutionary Heritage: Has To Be Time For Hong Qi

July 15, 2013

BEIJING (AP) – The massive frame, bug-eyed headlights, huge retro front grille and scarlet glass hood ornament can mean only one thing: China’s big and brash Red Flag limousine is back.

The giant homegrown sedans were once among the most distinctive icons of the People’s Republic. Chairman Mao Zedong perched in the back of one to inspect Red Guards in the 1960s. President Richard Nixon rode through Beijing in one during his breakthrough 1972 visit. Bob Hope rode in one too, and was mysteriously told that the trunk was off-limits.

The Red Flag disappeared in the 1980s, replaced by humbler joint efforts with foreign partners that produced boxy Lincoln copies and rebranded black Audis. Now Beijing is reviving the brand to its former glory as a rolling chrome-and-steel embodiment of national pride and ambition.

The Hongqi Red Flag, China’s first passenger car, which premiered in 1958. Here with Deng Xiaoping.

Since this spring, the newly designed L7 model has conveyed dignitaries including French President Francois Hollande and South Korea’s Park Geun-hye in motorcades from Beijing’s airport.

“China wants to make clear to foreign visitors that it will not become just another Western society with Western goods and taste,” said Jonathan Holslag, a research fellow at the Institute for Contemporary China Studies at the University of Brussels. “China in the first place wants to be different from the West, and in the second place to be respected as a strong, muscular power.”

The L7 is a 6-meter (20-foot) dreadnought of an automobile, boasting a mammoth 12-cylinder engine and roughly resembling an oversized Bentley Flying Spur.

Foreign dignitaries and officials above the rank of minister get the L7, while top-level Chinese officials are chauffeured in an even bigger version, the leviathan L9, which reportedly costs about $800,000 and looks like the kind of car rock stars might drive into swimming pools. Almost 40 centimeters (15 inches) longer than the L7, the L9 comes with an armored chassis, rear-opening “suicide doors” and an optional sun roof from which Chinese leaders emerge when reviewing troops.

A neo-Red Flag

Ministerial-level officials are assigned the much more modest H7, which starts at around $50,000.

Chinese car enthusiast Liu Weining, who owns a 2000 version based on the Audi 100 and wishes he could afford one of the latest models, thinks the future of the brand is bright because of its iconic status.

“It’s a sturdy car with a very distinctive look and lots of power,” Liu said. “There’s no other brand like it because so many key events in modern Chinese history have somehow had a connection to Red Flag.”

The cars have featured heavily in coverage of official visits, and drivers say they’ve gotten positive feedback from their distinguished passengers.

“The response from top leaders has been excellent,” said a driver surnamed Zhang who had just ferried a Chinese vice premier in an H7 to a meeting with Nigerian President Goodluck Jonathan at Beijing’s Great Hall of the People.

“It’s as big as the Audis I used to drive, and at least as comfortable,” he said.

In this Friday, July 5, 2013 photo, Pakistani Prime Minister Nawaz Sharif, second from left, arrives in a Hong Qi limousine in Beijing. China is reviving the illustrious Red Flag marque, better known at home by its Chinese name, Hong Qi, courtesy of a government-backed program to promote domestic brands that dovetails neatly with efforts to step-up China’s diplomatic profile, partly through a greater emphasis on the pomp and circumstance accompanying state visits. (AP Photo/Ng Han Guan)

The re-emergence of the Red Flag, better known by its Chinese name, Hong Qi (hong-CHEE), coincides with newly installed President Xi Jinping’s promotion of the “China Dream,” a vague concept intended to instill national pride and fire China’s further development.


The Red Flag’s revival “is part of the general attempt to revive respect for the Chinese Communist Party and its revolutionary heritage, rather than worship of things foreign,” said Anthony Saich, a China expert at Harvard University.

“I think it would be odd to promote the China Dream with senior officials riding around in foreign limousines, so it seems to me to be a natural extension of (Xi’s) desire to boost respect and prestige for the made-in-China brand of the revolution,” Saich said.

That plays into China Inc.’s ambition to establish global brands such as Red Flag’s parent company, First Auto Works, more commonly known by its initials FAW.

So far, sales of Chinese car brands in China – the world’s largest car market since 2009 – have been hampered by poor quality, clunky design and less-than-stellar customer service. Foreign makes account for 70 percent of the country’s new car purchases, with the figure rising to 80 percent for vehicles purchased by officials and government agencies.

But local brands are now getting a leg up with a new government policy requiring officials to gradually replace their Audis and Volkswagens with local brands. China’s government is reported to spend up to $16 billion annually on its fleet of roughly 5 million vehicles.

Red Flag’s storied reputation could give it an edge over other local marques, said Klaus Paur, global head of automotive at market research company Ipsos.

“While other Chinese car makers are not really up to the challenge, Red Flag is probably the only domestic brand that may be accepted by Chinese officials as an alternative to international brands,” Paur said. “If Hong Qi is able to succeed with officials, this may also have a positive impact for the private car market.”

One of China’s top three automakers, FAW produces vehicles from buses to SUVs, but the Red Flag has always been its flagship brand.

The Red Flag was hatched in a tossed-off comment by Chairman Mao. Arriving in a Russian limousine at a meeting of the Politburo in 1956, Mao questioned out loud when he would travel “in one of our own sedans.” That led to a prototype in 1958. Production began in earnest in 1959.

For more than two decades, FAW churned out Red Flags in a variety of sizes and styles. In 1965 it introduced Mao’s CA770, which featured a luxury interior and three rows of seating.

Production ended in 1981 under then-leader Deng Xiaoping’s drive to reduce waste and revive the moribund economy through his policy of reform and opening.

In the years that followed, no less than three attempts were made to revive the brand through hook-ups with foreign brands, resulting in such combinations as the CA7465 C8, based on a second-generation Lincoln Town Car, as well as the rebranded Audi 100.

While such iterations haven’t had the gravitas of the classic limos of Mao’s era, the brand has managed to retain its mystique, said Liu, the car enthusiast.

“It’s much more than just a type of automobile,” Liu said. “For the citizens of China, there’s really nothing that can replace it.”

Louise Watt contributed to this report.

China Adds Ukraine-Designed Amphibious Landing Craft

June 27, 2013

Chinese state-owned media recently showcased the importance of its newly  delivered Zubr-class air-cushioned landing craft. The world’s largest hovercraft  was built and sold to China by Ukraine.

Col. Gen Yansheng, spokesman for the Chinese  Ministry of National Defense, confirmed May 30 that the first Zubr [aurochs  or European Bison] had arrived in China.

“Zubr’s joining the Chinese navy will  push China’s amphibious capability upward to a new  height,” the official Global Times newspaper said.

“It will give us the capability for the fast delivery of troops and weapons  to the shores of enemy territory, excellent for the [army’s] surprise amphibious  assault and landing operations.”

When fully loaded, the Zubr has a 555-ton displacement — enough to carry 500  troops or an array of weapons systems, including three main battle tanks, 10  armored vehicles or eight amphibious tanks.

The most valuable feature of the Zubr is its speed and range. The craft can  reach an impressive 63 knots — more than 70 mph — with a range of 300 miles,  crucial for minimizing casualties from enemy coastal defense fire.

The new addition makes a total of nine Zubrs currently in operation — two  from Russia, two from Ukraine, four from Greece and one made in China.

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Like It Or Not: China Has Gained The Upper Hand

November 6, 2012

I just finished watching a clip of Donald Trump on David Letterman implying that he and Mitt Romney are vehemently against the amount of business China receives from the US.

His comment, “They are taking the heart out of us.” Within minutes of that statement, Letterman handles a tie and dress shirt from the “Donald” collection, being sold at Macy’s, (according to Trump, a big seller).

Of course this prompts the obvious question, which Letterman asks, “Where is it made?” A stage hand yells out, “China!”

I could not believe what I had just heard. As a matter of fact, I had to rewind the news clip just to be sure I heard correctly. Upon confirming, I was mortified and angered by the stupidity and deception of this discovery. I could not join in on the laughter.

It’s a joke all right, but not very funny. Perhaps if the punchline was delivered from a fortune cookie, I would have laughed. That would have been a humorous distraction. But, instead, I had to resort to watching Trump’s face after what the morning newscasters described as BUSTED!

However, I did share in Trump’s jaw-dropping reaction, but certainly not with purchasing one of his ties, best seller or knot.

Kery M. Wirth


Gordon Logan said…The Bank of England secretly controls 80 currencies. That is to say that their exchange rate is decided by Jacob and Evelyn. For some years now, the exchange rate of the Chinese renminbi has been a bone of contention, with Geithner and his predecessors saying that it’s overvalued. This means that the Chinese are not amongst the eighty. Moreover, on 27th April 2005, Shi Jiliang, vice-chairman of the China Banking Regulatory Commission expressed reservations about the WTO rules and announced measures to restrain western banks. Kissinger was very unhappy and was dispatched to Beijing forthwith, where he didn’t get much if anything.

Subsequently, the Chinese were able to escape the 2008 Wall Street debacle. Putin gave Jacob the bum’s rush in 2003, and London has been treating him as a mortal enemy ever since, even going so far as to poison Litvinenko to make Putin look bad. Ergo, the Russians and the Chinese have flown the coop. There’s plenty of other evidence for that.

On the other hand, the Jews have been giving America a hiding for years, but the Yanks keep coming back for more, much like the British. Some people never learn. The Russians and the Chinese must laugh at Anglo-Saxon stupidity. They don’t need to do anything. They can just sit back and watch the Jews making fools of us. What is astonishing is how the Rothschilds can keep stabbing their shabaz goyim in the back and getting away with it. 9/11, Hurricane Sandy, Bankrupt America rushing around fighting endless wars and flushing the US Constitution down the toilet, then giving more money to Israel. Americans just love being pissed on by Jews. There should have been tanks in Pennsylvania Avenue long ago.

Correction! “with Geithner and his predecessors saying that [the reminbi] is UNDERvalued.”,_4th_Baron_Rothschild

Most Of Items Used at Olympics “Made in China”

August 3, 2012

GUANGZHOU, Aug. 2 (Xinhua) — At the exhibition room of a small string manufacturing company in south China’s Guangdong Province, strings of different styles and colors hang on the walls, displaying their international elements.

The strings include those with famous brand logos, such as Benz and Coca Cola, as well as the world-popular cartoon images, such as Angry Birds and Winnie the Pooh.

The Zhanhong Weaving String Co., Ltd, based in the Shatian Township in the city of Dongguan, produces 5 million weaving strings for the world monthly, ranging from badge ribbons to trunk belts.

Team USA uniforms made in China

On the other side of the world, where the Olympics Games and Paralympic Games are being held in London, athletes, coaches, volunteers and working staff are carrying their ID badges around their necks with a total of 700,000 ribbons produced by Zhanhong, giving its chairman Chen Jiemin every reason to be proud.

“Wherever there is a country in the world, there are strings we produced,” Chen said.

Apart from badge ribbons, the company also received orders of 5 million strings for Olympic-related merchandise through authorized agents.

Chen still remembers two years ago, when the company attended the Canton Fair — China’s largest trade fair — in the Guangdong provincial capital Guangzhou, a “mysterious” potential buyer expressed his interest in their strings.

In September 2010, the buyer decided to authorize a third party to inspect and review Chen’s company, including its production scale, quality management and social responsibilities. Two months later, Chen was told the company had passed the review.

“After the review, we started to produce some gifts and other products, but we had no idea that the products were intended for the London Olympic Games,” he said.

This March, the company was given an initial design for ID badge ribbons, which was later modified more than 10 times until the final version was determined in April.

“The buyer said the products were very important, and every item had to be strictly inspected,” Chen recalled.

The company was only given less than a month to complete all the 700,000 ribbons. “Working day and night, we finished the order in only 20 working days,” Chen said smiling.

Before the opening of the Olympic Games, Chen discovered via the Internet that the buyer was a purchasing agent for the Games, and the ribbons they produced were prepared for athletes, coaches, reporters and workers at the event.

With 20 years’ experience of string production, the company has a mature and complete string production chain, and all procedures can be done within an hour, making the company’s products competitive in both price and quality, according to Chen.

Chen said the company had advantages in its strict and efficient quality control, which also enabled itself to win orders for the German and South Africa World Cup games in 2006 and 2010.

The company has also been authorized to produce strings printed with renowned logos or cartoon images, in cooperation with world famous companies such as Coca Cola and Disney.

Zhanhong is not the only company in Dongguan that has manufactured Olympic-related products. At the Xinda Toy and Gift Company, more than 2.5 million licensed Olympic souvenirs, including mascot Wenlock and Mandeville, were produced in its workshop and sold abroad.

According to the London Olympic Organizing Committee, up to 65 percent of the licensed Olympic merchandise was manufactured in China. The other share was produced by Turkey, India, Vietnam, Indonesia, Thailand, Pakistan, Germany and Poland.

Huang Qiqiang, an executive with Xinda company, said their products, although labelled “Made-in-China,” were actually a combined effort of companies based in Europe, Southeast Asia, the Chinese mainland and Taiwan.

With the rapid development of world economic integration, economies around the globe have been strengthening their interdependence. The design, material supply, manufacturing and assembly of a product were often undertaken by companies from different countries.

“From this point, made-in-China products are essentially made in the world,” Huang said.

China commentary says U.S. uniform row Olympic “blasphemy”

July 17, 2012

BEIJING (Reuters) – An uproar over the U.S. Olympic team’s made-in-China uniforms is a blasphemy on the Olympic spirit which is supposed to separate sports from politics and a show of pure ignorance to boot, China’s official Xinhua news agency said on Monday.

With U.S. unemployment hovering just above 8 percent, U.S.politicians have spoken out against the uniforms for the London Games, which start later this month, and six Democratic senators said they plan to introduce legislation requiring the ceremonial uniforms be produced in the United States.

Olympics US Uniforms

Above: US swimmer Ryan Lochte, decathlete Bryan Clay, rower Giuseppe Lanzone and soccer player Heather Mitts model the Team USA outfits. Picture: AP Source: AP These uniforms were made in China

But Chinese government-run Xinhua said in a commentary that it was hard to believe such hysteria over the matter could come from the mouths of such senior U.S. politicians.

“The Olympics spirit is all about separating sports from politics, but these U.S. politicians are going too far and trying to force a political tag onto the uniforms,” it said in the Chinese-language commentary.


“This is a parochial nationalistic attitude, a blasphemy on the Olympic spirit and a show of ignorance,” Xinhua added.

There can be little doubt that U.S. election year politics are to blame for this spat, as in the previous years the U.S. Olympic team’s uniforms have also be made abroad, it said.

“The reason this issue has stirred people up is because the words ‘made-in-China’ touch upon the most sensitive topic of the U.S. election – ‘outsourcing’,” Xinhua added.

Democrats have attacked Republican presidential candidate Mitt Romney who, while at private equity firm Bain Capital, was involved in firing workers and outsourcing U.S. jobs to foreign countries.

Romney, for his part, has repeatedly pledged to get tougher with China on its trade and currency practices, including pledging to quickly declare China a currency manipulator if elected.

The U.S. Olympic Committee has defended its decision to have Ralph Lauren Corp design the outfits and oversee the manufacturing process.

Xinhua said the United States would do well to remember how many of its people benefit from the cheap goods China provides.

“The unjustified criticisms of U.S. politicians about ‘made-in-China’ is incredibly politically hypocritical,” it added.

While such commentaries do not necessarily constitute official statements, they may be read as a reflection of Chinese government thinking on important issues of the day.

(Reporting by Ben Blanchard; Editing by Michael Perry)