Chapter 28 Section 3 China’s Economic Hard Power: China’s Price
From the perspective of growth, what China relies on is not agriculture, but industry, especially manufacturing.Now, the added value of industry has accounted for about 45% of GDP, comparable to that of Singapore and South Korea.The GDP provided by agriculture is only 10%, and this share is still declining.This means that the key to China's economic growth lies in the manufacturing sector.
More than two hundred years ago, Adam Smith had a keen insight into the great potential of China in the division of labor in manufacturing. He pointed out in "The Wealth of Nations": "China has a vast territory, such a vast territory, so many inhabitants, and various climates. Because of the variety of products produced in each place, and the great convenience of water transport for the most part among the provinces, this vast domestic market alone can support a very large manufacture and permit a very considerable division of labor. If the markets of the rest of the world could be added to the domestic market, the greater foreign trade would greatly increase the manufactures of China, and greatly improve the productivity of its manufactures."
China's reform and opening up since 1978 has gradually taken advantage of the huge opportunities brought about by global economic integration and sought a dynamic position in the global manufacturing system.The manufacturing industry chain can be roughly divided into seven links: (1) product research and development, (2) raw material procurement, (3) processing and manufacturing, (4) logistics and transportation, (5) wholesale operation, (6) marketing, (7) ) terminal retail. In 1978, when China joined the global industrial chain, it started from the third link.For the first time, a large amount of cheap Chinese labor force entered the international market, and labor-intensive export processing industries were established in coastal provinces, which is called "three to one supplement" or "two ends out".At the same time, cutting into the global processing and manufacturing link has achieved a key current account surplus for the Chinese economy, earning foreign exchange, avoiding a current account crisis, and providing primitive capital accumulation.This entry point may seem mundane, but it is actually quite subtle.The industrial revolution in the United Kingdom originated from the textile industry, India’s economic miracle since 1991 originated from the unconventional software industry, and China’s economic take-off actually started from the humble “three to one supplement”.
China's huge cost advantage has directly brought about the gradual transfer of processing and manufacturing links to China. Multinational companies continue to transfer their headquarters, production bases, supporting factories and R&D centers to China to take advantage of China's cheap and skilled labor, industrial structure and technology. The level keeps improving.The composition of China's exports has also changed dramatically.From 1980 to 2008, the proportion of manufactured goods in total exports increased from 12.4% to over 90%. "China price" began to become the hard power of China's economy.
It must be noted that in the second 30 years of New China, China's service trade is at a disadvantage in the global market.Traditional service trade sectors such as transportation and tourism have developed steadily, while modern service exports such as communications, insurance, finance, exclusive rights and licensing, computer information services, consulting, and advertising account for a relatively low proportion.The structure of service trade is still labor-intensive and resource-intensive, and the trend of transformation to the emerging knowledge-intensive is not yet strong.
Regarding "China price", we must first determine its meaning.Judging from the current situation, "Chinese price" is widely welcomed all over the world, mainly because of its high quality, low price and very practical features.In the Chinese economy, there are new reformed state-owned enterprises, private enterprises and foreign-funded enterprises, and it is these enterprises that jointly create the "China price".As shown in Figure 3-16, China's labor force with junior high school and high school education as the main body has adapted to the demand for labor at "China's price".
In the production chain of the global manufacturing industry, Chinese enterprises are only in the middle and low end, with low added value and high resource consumption. The links in the value chain with high added value are basically in the hands of foreign multinational companies.Due to the lack of deep competitive resources such as technology and brand, China's manufacturing industry is only an important "workshop" in the world's manufacturing production chain, and it is far from becoming a "world factory".From the perspective of China's comprehensive national strength, manufacturing quality and competitiveness, especially its independent core technology, there is still a big gap between China and Britain, which is known as the "world factory" in the history of the world economy.
After the Second World War, especially since the establishment of the General Agreement on Tariffs and Trade, world trade has grown rapidly.Under the mechanism of the General Agreement on Tariffs and Trade, the "Uruguay Round" negotiations have achieved remarkable results. In 2001, China joined the World Trade Organization and gained a stable multilateral legal relationship in the global trading system and a relatively stable international market.One-third to one-half of the Chinese manufacturing market is abroad, showing a high degree of export-oriented.So much so that when the world economy is booming, demand is not a problem. The world financial crisis in 2008 led to a downturn in the real economy, a reduction in foreign orders, and the crisis quickly spread to the country, especially in coastal areas.
The prerequisite for the US government's economic stimulus plan is that the United States needs to abide by the signed international economic and trade treaties.For the United States, its international treaties mainly refer to multilateral agreements of the World Trade Organization and the North American Free Trade Area Agreement.Just imagine, if China has not joined the World Trade Organization by 2009, under the circumstances of the rise of trade protectionism, China lacks the protection of international economic laws and regulations, and it will be "dumb eating coptis, unable to express its suffering", and unconsciously become a victim.So how farsighted it was for the Chinese government to seize the opportunity to join the World Trade Organization in 2001.
China has joined the world's industrial division of labor system, integrated low-cost elements into the global industrial chain, and supported the high-growth and low-inflation pattern of the global economy from the supply side.Consumers around the world benefit from China's ability to supply a wide variety of goods at low prices.According to the research of the US-China Business Council, by 2010, Sino-US economic and trade cooperation can increase US GDP by 0.7%, reduce the price level by 0.8%, increase the disposable income of each American family by US$1,000, and increase manufacturing productivity by 0.3%. What does "Made in China" mean to American life?Sarah, a housewife in the United States, proved in her book "A Year Without Made in China" that the days when Americans do not buy Chinese products will be miserable, and the days without "Made in China" will be much troubled.The author's final conclusion is: "We finally decided that it is better to coexist with Chinese imported products. It seems unrealistic to swear that we will not use Chinese products for a lifetime... I would rather not know that I will not live on Chinese products in the next 10 years. How difficult it will be."
"China price" has also become the embodiment of the competitive advantage of world retailers.A well-known example is the dispute between Wal-Mart and Kmart, two major retailers in the United States.The success of Wal-Mart, which takes "everyday low prices" as its brand charm, is inseparable from China. Wal-Mart puts the center of the global procurement chain in Shenzhen, which enables it to have unlimited and low-priced commodities. Kmart refused to buy Chinese goods on a large scale, which was one of the main reasons for its eventual bankruptcy.Computer manufacturer Dell has long put computer manufacturing lines in China to significantly reduce costs.Former General Electric CEO Jack Welch believes, "If General Electric's strategy of investing in China is a mistake, then it means a loss of US$1 billion or even US$2 billion; Wisely, it will win GE for the next century."
The international competitiveness of China's manufacturing industry can be roughly measured by the real effective exchange rate.As shown in Figure 3-17, China's international competitiveness changes in two stages: 1. From 1980 to 1994, it has been declining.During this period, the renminbi continued to depreciate, from 1 dollar to 2 yuan in 1982, to 1 dollar to 8 yuan in 1994. However, China’s international competitiveness declined at an accelerated rate. During the price reforms of the 1990s, domestic inflation was much higher than that of China's trading partners.Second, since 1994, international competitiveness has remained basically stable.Even when the RMB started to appreciate slightly against the US dollar in 2005, the international competitiveness remained unchanged.This shows that domestic inflation is close to that of China's trading partners.
Globalization has created an era of brand economy.The value of product premium and influence that a successful brand brings to an enterprise is often incomparable to any tangible assets.In a rapidly changing market, it is difficult to grasp the development direction of future technology.Even if it can be grasped, it needs to be supported by the company's strong R&D strength and strong capital investment.And any mistake may cause a world-class company to suffer serious setbacks.In order to avoid being completely defeated when technology lags behind competitors, companies need a strong brand image to maintain profit margins and buffer pressure.
Chinese enterprises not only rely on capital and technology, but also on brand.From the era of products to the era of marketing; from the era of huge profits to the era of meager profits; from the mass market to the segmented market.Chinese companies have not yet established a stable brand in the domestic market. It is difficult for us to fully grasp the situation of all Chinese companies, but we can grasp the trend of the main players in the Chinese manufacturing market by mastering the situation of China's top 500 companies.At the same time, the life cycle of China's local brands is also very short. Among the top 500 Chinese companies ranked in 2005, 112 shortlisted companies were eliminated from the list of China's top 500 companies in 2008, and the elimination rate was 22.4%. According to the 2005 World Top 500 Enterprises released by the magazine, the 5% to 7% exit rate is 3 to 4 times higher.The turnover rate of this list is currently very high, indicating that Chinese companies have not yet established a solid brand in the domestic market.
China's comparative advantage in cost will gradually weaken, and brand building will be more critical.In foreign countries, the core meaning of the four words "Made in China" is "Chinese price".People will find that "Made in China" products can be bought no matter where they go all over the world, but Chinese famous brands are hard to find all over the world. "Made in China" has not obtained the matching competitiveness.The ranking of the world's top 500 brands released by the World Brand Lab for five consecutive years is based on the brand's world influence.Brand influence refers to the brand's ability to develop the market, occupy the market and obtain profits.The World Brand Lab rates world-class brands on three key indicators of brand influence: market share, brand loyalty and global leadership. A total of 28 countries were included in the 2008 World Top 500 Brands list.In terms of the number of brands by country, the United States occupies 243 of the top 500, France ranks second with 47 brands, and Japan ranks third with 42 brands.China has 15 brands successfully selected, becoming the seventh country with the number of selected brands.
The Chinese brands on the list are: PetroChina, China Merchants Bank and Tsinghua Tongfang, China Mobile, CCTV, Haier, Lenovo, Industrial and Commercial Bank of China, State Grid, Bank of China, China Life, Changhong, China Railway, Air China, Sinopec , but China has yet to become a global household name like Japan's Toyota, Finland's Nokia or South Korea's Samsung.We have noticed that the country distribution of the world's top 500 brands is significantly different from that of the Fortune 500.The proportion of a country's enterprises listed in the "Fortune" 500 is basically the same as the proportion of a country's total economic output in the world's total economic output.For example, the U.S. economy accounts for a quarter of the world’s total. There are about 125 U.S. companies on the Fortune 500 list, but there are as many as 243 U.S. companies on the world’s top 500 brands.France's economic aggregate ranks around 5th in the world's total economic aggregate, but French famous brands rank 2nd.Therefore, the gap between Chinese corporate brands is greater than the gap in corporate strength.The world-renowned American marketing guru Milton Kotler pointed out, "China has corporate brands, but no product brands. Without product brands, corporate brands are just empty shells. The export profits of industrial products of production and processing enterprises are constantly increasing. decline, while the market share of foreign brands in China is increasing. Therefore, building Chinese brands to obtain premium capabilities in the export and domestic markets has become the focus of discussion.”
From 2009 to 2029, China's economy will enter the "brand era".Chinese enterprises not only need to create their own brands in the domestic market, but also need to gain a foothold in foreign markets.An enterprise that establishes a brand domestically may not be able to establish a brand internationally.The Chinese economy urgently needs brands that can perform well both at home and abroad. If "Made in China" fails to establish an international brand in the next 20 years, it may be replaced by "Made in India".Many people think that the development strategies of China and India are different, and that "Made in India" will not appear.In my opinion, India's development strategy is exactly the opposite of China's. India first successfully developed the information industry, especially the software industry, and then used the capital accumulation in the software industry to start the rise of "Made in India".India has always set the goal of catching up with and replacing China's position in the global manufacturing industry chain, but its backward urban infrastructure and logistics network have seriously hindered the development of the manufacturing industry.With the gradual improvement of India's infrastructure environment, the manufacturing industry will also usher in a period of rapid development, and its industrial structure will gradually change from the past service industry-based to labor-intensive and knowledge-intensive, and the advantages of latecomers will be fully realized play.Take India's Tata conglomerate's 2008 development of an inexpensive but functional family sedan, for example.
What is the brand strategy of Chinese enterprises?In my opinion, the brand strategy of Chinese enterprises cannot be achieved by one plan, but systematic marketing must be carried out.System marketing has three key elements: the first is cost control, the second is technological improvement, and the third is corporate culture positioning.I will not discuss technological progress in detail, because the millennium history of China's economic development shows that China is a technologically advanced country, and there is no problem with improving technology. The third point is beyond the scope of this book.
In the next 20 years from 2009 to 2029, China's cost control advantages mainly lie in three aspects: first, the huge income gap between domestic regions; second, the labor force with gradually improved human capital; third, "big aircraft" Project spillover effects.
China has a vast territory, with a land area 27 times that of Japan, and there is still a large income gap between regions, which gives Chinese manufacturing room to maneuver to control costs.For example, a manufacturer in the eastern coastal area can keep its R&D center in the east, and move its production line to the central or northeast first, and then move to the west after the cost in the central and northeastern regions rises.This is not a simple industrial transfer, but a system integration.Another model is that the Yangtze River Delta is the marketing center, the Pearl River Delta is the R&D center, and the production base is in the central, northeast or western regions.The integrated system of China's "Large Aircraft" project can spread in the Chinese enterprise sector, and its significance is far greater than the project itself.
Before the interstellar tourism that Marshall imagined, that is, the commercialization of spaceflight, the highest level of manufacturing was the commercial aircraft project.Commercial aircraft are extremely complex, with hundreds of millions of parts, and the core competitiveness is the overall system integration capability.System integrators in the world's aviation industry no longer focus on the direct manufacturing of components, but pay more attention to the management of the entire supply chain.To respond to the demands of system integration, key component suppliers themselves must invest heavily in research and development.
Japan's domestic aviation market is limited. Facing the competition from Boeing and Airbus, it is difficult to launch commercial large aircraft projects, so it took the technical route of robots.At present, only the United States, France, Germany, the United Kingdom, Spain and Russia have the ability to manufacture large aircraft in the world, and only Boeing of the United States and Airbus of Europe occupy the international market.The Boeing Company of the United States is the largest aviation manufacturing company in the world, ranking among the top 500 companies in the world listed by "Fortune" magazine. The market share of Boeing aircraft in China is close to 67%.Among the innovation strategies listed by Drucker, "all or nothing" is one of them.Boeing is an "entrepreneurial enterprise" capable of executing an "all or nothing" strategy.Bill Gates says of Boeing in his book Future Speed: "One of the company's traditions is to bet the company on one or two breakthrough aviation products every 20 years or so." McDonnell Douglas of the United States is the leader of the passenger plane, but McDonnell Douglas was left far behind by Boeing's "frog jump" in the 1970s. In 1968, Boeing invested a total of 6.9 billion U.S. dollars in the research and development of the Boeing 747 jetliner when the aviation market was not yet fully developed.If the Boeing 747 program fails, Boeing may face bankruptcy.But the company successfully launched the Boeing 747, which was a huge success and captured the majority of the global air passenger market in one fell swoop.In the 1990s, Boeing took another risk with the 777.The biggest innovation of the Boeing 777 passenger plane is that all parts are all computer-aided design.Hundreds of millions of parts are computer-aided design, which is unthinkable even today.With the help of computing networks, Boeing has greatly reduced the time and cost of design.At present, Boeing is mobilizing more than 100 factories to jointly complete the production of the "Dream 787", using new materials, such as increasing the application of aluminum alloy, greatly reducing the weight of the aircraft, and so on.
In order to challenge Boeing's dominance in the global aircraft manufacturing industry, in 1970, France and Germany decided to join forces to create a large European civil aircraft manufacturing company - Airbus.Subsequently, the United Kingdom and Spain joined the consortium.By the beginning of the 21st century, Airbus developed the Airbus A320, which was a huge success, and it was evenly divided with Boeing in the sales of large civil aircraft. The "Big Mac" A380 also achieved initial success.
The Chinese government launched the "Commercial Large Aircraft Project" in due course, detonating the "frog leap" from low-end to high-end made in China.China's commercial aircraft company "Huashan Lunjian" is facing the American Boeing Company with a revolutionary and innovative tradition and the European Airbus Company, a rising star.The State Council issued the "National Medium and Long-Term Science and Technology Development Plan (2006-2020)", identifying the large aircraft project as one of the "16 major scientific and technological projects that will strive for breakthroughs in the next 15 years". The project finally broke ground. The "commercial large aircraft project" will lead to the birth of the supply chain of China's leading local system integrators, which is more meaningful than the large aircraft itself.China's "commercial large aircraft project" started with the "commercial small aircraft project" and achieved initial success. In October 2000, the former AVIC First Group Corporation officially launched the new regional aircraft project. In September 2002, the State Council approved the formal establishment of the new turbofan regional aircraft project. On November 28, 2008, ARJ21-700, a new generation of regional airliner independently developed by China, soared into the sky in Shanghai under the eyes of everyone. At the Zhuhai Air Show in 2008, the world's largest aircraft leasing company, General Electric Commercial Services, signed a purchase agreement with Commercial Aircraft Corporation of China for 25 ARJ21-700 aircraft, indicating that the aircraft has certain international competitiveness. Before 2020, Chinese commercial aircraft will enter the global aviation market.
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