China's Economy: Behind all the hype
23 Oct 2009, 1605 hrs BusinessWeek
By Dexter Roberts and Pete Engardio
At the parade marking the 60th anniversary of the People's Republic of China, tanks and missiles trundled past the Forbidden City and down Beijing's Chang'an Avenue. Battalions of soldiers goose-stepped in perfect unison. Overhead, fighter jets soared in tight formation.
But delve beneath the muscular statistics and hype about advances in strategic industries, and China doesn't seem so prepared to catapult into a role of global economic leadership. Experts familiar with highly touted Chinese achievements such as commercial jets and high-speed trains say the technologies that underpin them were largely developed elsewhere.
There is no Chinese Sony, Toyota, or Samsung on the horizon. While Beijing's $586 billion stimulus package and a 150% increase in bank lending have spurred impressive growth, "the question," says Morgan Stanley (MS) Asia Chairman Stephen S. Roach, "is the quality of that growth."
By Beijing's own admission, the economic model that has powered China for three decades can no longer be counted on to move it forward. The mainland has prospered largely through construction and by exporting all manner of consumer goods churned out in low-wage factories; workers parked their savings in state-run banks, which then loaned the money to companies to make more stuff.
But technology and managerial knowhow came mostly from multinationals, and the costs—pollution, decaying social services, and a yawning gap between the urban rich and rural poor—were largely ignored. Though that model has fueled phenomenal growth, Hu and others now call it "unbalanced" and "unsustainable."
As President Barack Obama prepares for his first state visit to the mainland on Nov. 15 though, some economists are taking a skeptical look at China's evolution. While Beijing has honored many of the market-opening commitments it made to join the World Trade Organization in 2001, promised reforms such as allowing greater foreign investment in telecommunications and financial services have stalled.
Over the past three years a steady stream of directives flowing from a raft of ministries and the National Development & Reform Commission—successor to the old central planning agency—have tightened the state's grip on the economy. In June, for example, the commission ordered that wherever possible only goods made by Chinese-owned companies be used in any project funded by the government.
For a glimpse of what may lie ahead if China fails to transform its economy, head to the southern city of Dongguan.
The thousands of factories in the Pearl River Delta industrial hub churn out televisions, furniture, toys, and a seemingly infinite number of other products for consumers worldwide. But with China's exports down 15% in September—the 11th consecutive month of decline—Dongguan is reeling. In the Changping district, once dubbed "little Hong Kong," shuttered factories are overgrown with weeds.
The karaoke bars and restaurants, which once catered to the thousands of Hong Kong and Taiwanese managers who have fled, are quiet. Sure, the economy of Guangdong Province is on track for 9% growth this year, but that's due mainly to massive government spending on public works, such as an airport expansion and a nuclear power station. "What Guangdong is facing, all of China is facing," says Wang Yiyang, vice-director of Guangdong's development research center, an arm of the provincial government. "We have to find new sources of competitiveness."
NO INCUBATOR OF INNOVATION
China has a long way to go, though, in innovation. The mainland has dramatically boosted research spending and boasts the world's biggest pool of science and engineering graduates. But aside from Internet games, the country creates few breakthrough products, due in no small measure to the perennial problem of rampant counterfeiting.
China last year exported $416 billion worth of high-tech goods. But subtract the mainland operations of Taiwanese contract manufacturers and the likes of Nokia (NOK), Samsung, and Hewlett-Packard (HPQ), and China is an electronics lightweight.
Beyond Tsingtao beer and low-end Haier refrigerators, "China has zilch brand presence in the U.S.," says Kenneth J. DeWoskin, director of the China Research & Insight Center at Deloitte & Touche.
Instead, most mainland companies mine existing technologies and compete on high volume and low cost in commodity goods.
WESTERN TECHNOLOGY INSIDE
Disassemble other widely hailed successes of indigenous innovation, and there is little Chinese about them. Beijing has long craved its own commercial aircraft industry, and its first offering—a 90-seat commuter jet dubbed the ARJ21—is to hit the market next year. Next up is the C919, a midrange plane with up to 190 seats that state-owned Commercial Aircraft Corp. of China unveiled on Sept. 9. The airliner, scheduled for delivery in 2016, is intended as a direct challenge to Boeing and Airbus.
Western experts familiar with Comac's planes say they're based on older jets designed by McDonnell Douglas two decades ago, before the U.S. company was acquired by Boeing. The avionics, engine, and other key systems on the ARJ21, meanwhile, come from Western suppliers such as Honeywell, General Electric, and Rockwell Collins .
But it simply doesn't have the capabilities to develop these aircraft without Western technology." The prospect of Comac competing with Boeing and Airbus outside China even two decades from now, says Smith, "is a long shot." Comac declined interview requests.
23 Oct 2009, 1605 hrs BusinessWeek
By Dexter Roberts and Pete Engardio
At the parade marking the 60th anniversary of the People's Republic of China, tanks and missiles trundled past the Forbidden City and down Beijing's Chang'an Avenue. Battalions of soldiers goose-stepped in perfect unison. Overhead, fighter jets soared in tight formation.
But delve beneath the muscular statistics and hype about advances in strategic industries, and China doesn't seem so prepared to catapult into a role of global economic leadership. Experts familiar with highly touted Chinese achievements such as commercial jets and high-speed trains say the technologies that underpin them were largely developed elsewhere.
There is no Chinese Sony, Toyota, or Samsung on the horizon. While Beijing's $586 billion stimulus package and a 150% increase in bank lending have spurred impressive growth, "the question," says Morgan Stanley (MS) Asia Chairman Stephen S. Roach, "is the quality of that growth."
By Beijing's own admission, the economic model that has powered China for three decades can no longer be counted on to move it forward. The mainland has prospered largely through construction and by exporting all manner of consumer goods churned out in low-wage factories; workers parked their savings in state-run banks, which then loaned the money to companies to make more stuff.
But technology and managerial knowhow came mostly from multinationals, and the costs—pollution, decaying social services, and a yawning gap between the urban rich and rural poor—were largely ignored. Though that model has fueled phenomenal growth, Hu and others now call it "unbalanced" and "unsustainable."
As President Barack Obama prepares for his first state visit to the mainland on Nov. 15 though, some economists are taking a skeptical look at China's evolution. While Beijing has honored many of the market-opening commitments it made to join the World Trade Organization in 2001, promised reforms such as allowing greater foreign investment in telecommunications and financial services have stalled.
Over the past three years a steady stream of directives flowing from a raft of ministries and the National Development & Reform Commission—successor to the old central planning agency—have tightened the state's grip on the economy. In June, for example, the commission ordered that wherever possible only goods made by Chinese-owned companies be used in any project funded by the government.
For a glimpse of what may lie ahead if China fails to transform its economy, head to the southern city of Dongguan.
The thousands of factories in the Pearl River Delta industrial hub churn out televisions, furniture, toys, and a seemingly infinite number of other products for consumers worldwide. But with China's exports down 15% in September—the 11th consecutive month of decline—Dongguan is reeling. In the Changping district, once dubbed "little Hong Kong," shuttered factories are overgrown with weeds.
The karaoke bars and restaurants, which once catered to the thousands of Hong Kong and Taiwanese managers who have fled, are quiet. Sure, the economy of Guangdong Province is on track for 9% growth this year, but that's due mainly to massive government spending on public works, such as an airport expansion and a nuclear power station. "What Guangdong is facing, all of China is facing," says Wang Yiyang, vice-director of Guangdong's development research center, an arm of the provincial government. "We have to find new sources of competitiveness."
NO INCUBATOR OF INNOVATION
China has a long way to go, though, in innovation. The mainland has dramatically boosted research spending and boasts the world's biggest pool of science and engineering graduates. But aside from Internet games, the country creates few breakthrough products, due in no small measure to the perennial problem of rampant counterfeiting.
China last year exported $416 billion worth of high-tech goods. But subtract the mainland operations of Taiwanese contract manufacturers and the likes of Nokia (NOK), Samsung, and Hewlett-Packard (HPQ), and China is an electronics lightweight.
Beyond Tsingtao beer and low-end Haier refrigerators, "China has zilch brand presence in the U.S.," says Kenneth J. DeWoskin, director of the China Research & Insight Center at Deloitte & Touche.
Instead, most mainland companies mine existing technologies and compete on high volume and low cost in commodity goods.
WESTERN TECHNOLOGY INSIDE
Disassemble other widely hailed successes of indigenous innovation, and there is little Chinese about them. Beijing has long craved its own commercial aircraft industry, and its first offering—a 90-seat commuter jet dubbed the ARJ21—is to hit the market next year. Next up is the C919, a midrange plane with up to 190 seats that state-owned Commercial Aircraft Corp. of China unveiled on Sept. 9. The airliner, scheduled for delivery in 2016, is intended as a direct challenge to Boeing and Airbus.
Western experts familiar with Comac's planes say they're based on older jets designed by McDonnell Douglas two decades ago, before the U.S. company was acquired by Boeing. The avionics, engine, and other key systems on the ARJ21, meanwhile, come from Western suppliers such as Honeywell, General Electric, and Rockwell Collins .
But it simply doesn't have the capabilities to develop these aircraft without Western technology." The prospect of Comac competing with Boeing and Airbus outside China even two decades from now, says Smith, "is a long shot." Comac declined interview requests.
Last edited:
