Be prepared for China’s quality drive

China factory

Asked what he was most looking forward to at this year’s Asian Logistics and Maritime Conference, deputy executive director of the Hong Kong Trade Development Council, Raymond Yip said: “The sixth edition of ALMC will continue to spotlight China’s Belt and Road initiative, “Made in China 2025” strategy and the development of cross-border e-commerce. The Maritime Forums will cover a host of topical issues for liners, tankers and dry bulk shippers. We look forward to bringing new insights to the participants and helping them expand their networks in the region.”

While the Belt and Road initiative, a hugely ambitious drive to connect China economically and culturally with some 65 countries across three continents, is on everybody’s lips and tops the agenda in many a company boardroom, ‘Made in China 2025’ has arguably attracted less attention. Until now.

An important forum at ALMC 2016, to be held at the Hong Kong Convention and Exhibition Centre 22-23 November will address China’s move to significantly upgrade its manufacturing sector.

First steps

China took its first tentative steps to opening up to the outside world in 1978, and this of course included trade.  By 1998, the value of Chinese exports had grown to US$184bn. But in terms of export prowess China was just beginning.

Road to global export dominance

The game changer occurred on 11 December 2001, when China joined the World Trade Organization. With all the advantages that brought in terms of reductions or in some case the complete abolition of trade barriers China was ready with a vast pool of low-cost, low skills workers to become the factory of the world. By 2010, China merchandise exports had reached a staggering US$16trn.

But by 2010, there were already reasons to believe that such annual double-digit growth could not last forever. Much of China’s manufacturing growth was, as a result of its huge attraction to foreign direct investment, driven by manufacturing for foreign companies exporting their products to the rest of the world at a cost much lower than could be achieved in their home markets. The advantage was further enhanced by low shipping costs. But the financial turmoil sparked by the crisis in the US in 2008, was beginning to take hold across the world. It’s effect is still being felt today in low global demand.

At the same time, China’s commitment to raising millions of its citizens out of poverty meant that the cost of exports began to rise as workers earned more. Soon other developing economies, particularly in South and Southeast Asia began to compete for FDI. These and other factors have led to a fall in the growth of China’s GDP to 6.9% this year. China’s exports in September 2016 fell 10% from a year earlier to US$184.5bn, following a drop of 2.8% in August.

But China has been fully cognizant of a world that was changing in ways that would not support the country’s industrial efforts as fully as it had in the past. At the same time China’s domestic market was growing. The most obvious example of the country’s response is the Belt and Road initiative, which among other things aims to create meaningful trading partners among many nations that have until now been limited in their levels of consumption of goods and services.

Meeting changing needs

“Made in China 2025’ is another positive response. While China’s exports grew exponentially in the wake of the WTO agreement, developed economies were happy to consume low cost white goods and cheap electronics but there was a lingering perception that low costs came with sacrifices in terms of quality. Aware that it has been losing the cost advantage to its export markets and conscious that its own growing middle class is demanding high quality products, the drive to greater quality is now on.

The Chinese government is set to unveil a raft of compulsory standards on quality, increased supervision and provide incentives to improve product quality. Among other measures that will be taken will be government spot checks and a quality record system. An accountability system will be introduced together with quality inspection and certification. Overall some 95% of the standards of the leading domestic consumer goods sectors will be integrated with international standards by 2018, according to the State Council.

While, the authorities are placing the focus on meeting domestic demand, there are clearly positive implications when it comes to exports both for foreign traders and foreign enterprises based in China who are exporting goods to the world. A transition from cheap goods to quality manufactures needs careful handling, brand management will be just one of the considerations for a manufacturer moving up the quality chain, where product awareness in a regional or global market will be a prime consideration.

How to benefit

Fortunately, this manufacturing revolution will be among the important topics discussed at Plenary Session 1 of ALMC 2016.

Chaired by the Asia Editor of the Financial Times Jamil Anderlini, a panel of speakers including HE Sultan Ahmed Bin Sulayem, Group Chairman and Chief executive officer at DP World, Zhao Huxiang, the Vice Chairman of China Merchants Group and Joseph Phi, president of LF Logistics will provide valuable insight into ‘Made in China 2025’, ‘Internet Plus’ and of course, the Belt and Road initiative’.

To join this ‘Quality’ discussion be sure to book your place at www.almc.hk

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