Manufacturing in China: how to outsource to a reliable factory?

China manufacturing industry

China’s manufacturing industry has seen remarkable development and its general scale has ranked as one of the world’s best with obvious comparative advantages internationally. Currently, the manufacturing sector plays a significant role in the country’s economic growth and basis for economic transformation.

Over the last 30 years, Chinese economy has undergone a rapid growth. With a GDP of US$5.7 trillion, China overtook Japan as the second largest economy in the world in 2010. The significant growth in the economy is largely due to the contributions from the development of the manufacturing industry.

Equipment manufacturing serves as a significant industry of economic development in many countries. It has also become an integral part of the production chain in most of the key industrial industries in the world. Over the years, equipment manufacturing has morphed into a complex technological industry, demanding highly skilled workforce and an extensive research and development capacity.

Outsourcing to China

The growth of the Chinese manufacturing industry in China has been remarkable. Today, 35 per cent of the global output is primarily sourced in China. In this regard, more and more countries are showing interest for an investment in China’s manufacturing industry.

China has seen the need to develop a knowledge-intensive production in its machinery and equipment manufacturing industry. Most stately-owned companies in the sector are traveling around the world to seek cooperation with other companies with more advanced technologies for further development. Other key sector of China such aerospace, automotive and green technologies will need an equipment manufacturing sector based on knowledge, innovation and high quality products.

The manufacturing industry serves as the main channel of employment in cities and towns in China, as well as the country’s major representation of competitiveness. The comprehensive development and optimization of the industry has enabled it to be a “strong country of manufacturing.”

Benefits of outsourcing manufacturing to China

With average daily wage costs of around 35 US dollar, China is more expensive than Indonesia, Vietnam, the Philippines or Thailand, but this is compensated by the higher annual manufacturing labour productivity of around 53.000 US dollar per worker, where the above mentioned countries do not come any further than around 18.000 US dollar. That makes China still the champion in productivity compared to labour cost, with a Chinese worker producing 6.3 times more the value of his or her wage costs. This still better than in Indonesia or the Philippines (2014 data).

There are 12 major categories in the equipment manufacturing industry in China: transportation equipment manufacturing industry; electrical equipment manufacturing; heavy-duty and mining equipment manufacturing; petrochemical and general equipment manufacturing; agricultural equipment manufacturing; construction equipment manufacturing; internal combustion engine manufacturing; machine tool and tools industry; instruments and meters; general equipment manufacturing basic components; environmental protection equipment manufacturing; food processing; and packaging equipment manufacturing.

Investing in China manufacturing

“The epicenter for manufacturing continues to shift to emerging markets and Asia in particular. With the rise of China, India, and Korea, Asia has become the most competitive location,” Deloitte concluded in the 2010 Global Manufacturing Competitiveness Index. The conclusion is based on responses to a survey of more than 400 CEOs and senior executive in the manufacturing industry worldwide, and on the analysis of key factors influencing manufacturer’s competitiveness.

Since the publication of the report, many changes in the global economy have occurred. Deloitte china conducted an ad hoc survey on the competitiveness of China’s manufacturing industry, with 150 large and medium-sized manufacturing enterprises participating. Survey results reveal that, despite the fluctuation in the global economy, China has managed to maintain a sound development in the manufacturing industry.

Present challenges in the Chinese manufacturing industry

The manufacturing industry of China still faces many challenges. Many Chinese products have low added value, with its manufacturing industry mainly playing the role “manufacturing, processing, and assembly,” which has the lowest value. China is also still dependent to more developed countries, in terms of patent technologies and purchase of upstream resources.

To address the situation, Chinese government and enterprises are working to change the tide. China is making efforts to develop towards the high-end of the industry chain. Through overseas mergers and acquisitions (M&A), more Chinese companies have acquired advanced technologies and brands.

Based on country data gathered by Alliance Experts, the overall environment of China’s manufacturing industry has remained strong. Factors considered for the assessment include fixed cost investment, supply of supporting resources, physical infrastructures, senior technical labor, quality and availability of labor force, and government focus science and technology development and project investment. In most aspects, China is considered “generally competitive” to “relatively strong.”

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