VI. Fitting China into key industry chains faster

Current presence of China in global industry chains in key industries

One of the characteristics of economic globalization at the end of the 20th century is that multinational companies who arc the major players in globalization, in order to gain global competitiveness, outsource low value-added production processes to enterprises in other countries or build factories in other countries for production, while keeping R&D, design, marketing and other high value-added businesses to themselves. This international production model breaks the vertically integrated production process down into different processes scattered in different countries, thus forming a global value chain based on intra-product division of labor. With the global value chain becoming the main organizational mode of international economic activities, the competition between countries has changed from the competition of enterprises to the competition of clusters, chains and networks. As China is becoming an important market in the world with fast economic growth, Chinese enterprises will make use of their incumbent advantages of flexible production, engineering capability, mass manufacturing and logistics operation accumulated in the global value chain, and combine them with the “local advantages” of cultural compatibility, close tics and familiarity with the environment, to upgrade the industry by making use of the advantages of a large country. The experience of upgrading in some developing countries shows that local firms that expand through the growth of domestic markets and then enter regional and global markets often exhibit a strong capacity for functional and chain upgrading in the global value chain.

Accelerated global deployment in key industries

Iron and steel industry

The iron and steel industry is an important and fundamental raw material industry of the national economy, with great ability to attract investment, create jobs and connect to other industries, making significant contribution to China’s social and economic development. In recent years, against the backdrop of a weak recovery in the world economy, China has entered the economic new normal, which witnesses profound changes in the environment for the development of the iron and steel industry. Deployment on the global industry chain of the iron and steel industry can help us obtain cheaper factors of production, break through the bottleneck of limited domestic demand, better allocate resources around the world, improve the efficiency of resource allocation and further enhance international competitiveness. It also responds to the need to solve the problem of insufficient demand, reduce excess capacity and expand scopes of demand.

From 2013 to 2015, China’s steel exports increased by 11.9%, 50.5% and 19.9% respectively. In 2015, steel exports reached 110 million tons, but most of them were construction steel such as rods and wires, while the export volume of high-end cold-rolled steel sheets was only 6.18 million tons. Most of China’s iron and steel enterprises that have established their presence overseas aim at obtaining iron ore resources to ensure supply. In the past, countries and regions with rich mineral resources such as Australia, Canada and South America arc their major destinations. But in recent years, Africa and Southeast Asia have gained popularity, as more and more Chinese mining enterprises arc investing and doing M&A in Guinea, South Africa, Indonesia, the Philippines, Myanmar and other countries. Most of them aim at obtaining iron ore resources, instead of deploying an overall layout of industry chain of smelting, processing and sales, etc.

Non-ferrous metal industry

The non-ferrous metal industry is an important basic raw material industry of the national economy. It plays an important role in the economic and social development of China as an important support for the strategic emerging industry and the national defense science and technology industry. The non-ferrous metal industry is one of the leading industries in China’s plan to develop a global presence. Since China’s non-ferrous metal enterprises invested in Australian electrolytic aluminum plant through international financing in the mid-1980s, the enterprises have set foot overseas for more than 30 years, grown in scale and accumulated rich experience. At present, China’s non-ferrous metal industry has established its presence all over the world, extending from resource cooperation to equipment and technical cooperation, and forming a large scale. But at the same time, the development of the industry is restricted by resources, the environment, the market, etc.

By the end of 2015, the mining capacity of non-ferrous metal mines of China’s enterprises overseas had reached over 50 million tons, including 870,000 tons of copper production capacity, about half of the domestic production capacity. The smelting capacity of non-ferrous metal overseas reached more than 1 million tons, and 300,000 tons for copper and aluminum processing capacity. As an international powerhouse of the non-ferrous metal industry, its output, consumption and trade volume have been ranking first in the world for more than ten consecutive years. Exporting complete sets of technologies and equipment for electrolytic aluminum, copper smelting and processing of copper

Presence of China in global industry chains 381 pipes and aluminum profiles, and constructing a number of influential projects overseas, have significantly elevated the international status of Chinese non-ferrous metal enterprises.

Building materials industry

After more than 30 years of reform and opening up, China’s building materials industry has formed an industrial system with complete supporting facilities, comprehensive categories and the largest scale in the world. In particular, the complete sets of technical equipment of cement, plate glass, glass fiber, ceramics, brick and cement products, etc., which are world class, economic and practical, have occupied a large market share internationally. Since the reform and opening up, China’s building materials industry has been trading with more than 130 countries and regions in a variety of forms, opened up businesses such as product export, general contracting of foreign projects, technical services and labor cooperation, and formed an all-round and multi-leveled new pattern of opening up in a wide range of areas.

In 2015, China’s foreign trade volume in building materials reached USS 38.3 billion, twice as much as in 2010. The scale of export for complete sets of technical equipment for building materials constantly expands. In particular, the market share and brand influence of cement technical equipment projects have been continuously increasing, with its global market share exceeding 50%. Large enterprises represented by Sinoma, China National Building Material Group, Conch Cement Company, Huaxin Cement and Fuyao Group have internationalized some of their businesses through a variety of ways. A good foundation has been established for China’s building materials industry to go overseas to form a global industry chain layout.

Textile industry

The textile industry is a traditional pillar industry of China that is closely related to people’s livelihood and creates a new opportunity for internationalization. It is the combination of technology and fashion that satisfies the need of clothing consumption and industrial use. It plays an important role in beautifying people’s lives, energizing relevant industries, stimulating domestic demand, building ecological civilization, enhancing cultural self-confidence and promoting social harmony. After more than 30 years of reform and opening-up, China’s textile industry has made remarkable achievements in the level of manufacturing of the whole industry chain, brand image, technology upgrading and green and sustainable development.

During the 12th Five-Year Plan, the main business revenue of more than 30,000 textile enterprises above designated size increased by 9.2%, and their profits raised by 11.5% on average annually. In 2015, the textile fiber processing capacity of the whole industry reached 53 million tons, accounting for more than 50% of the world; the export of textile and clothing amountsto USS 291.15 billion, accounting for about 38% of the world’s total exports; about 20 million jobs were created. In 2015, the proportion of textile fiber consumption for clothing, home textile and industrial use was adjusted to 46.4%, 28.1% and 25.5% from 51%, 29% and 20% in 2010. The fiber processing volume of industrial textile industry increased by 10.6% annually on average. The output of chemical fiber is 48.32 million tons, taking up 84% of the total volume of textile fiber processing for industrial use, 14 percentage points higher than that of the end of the 11 th Five-Year Plan period.

Shipbuilding industry

The shipbuilding industry is an export-oriented industry that fully participates in the competition in the international market. Apart from being capital-intensive, technology-intensive and labor-intensive, which arc its typical characteristics, the shipbuilding industry is also characterized by its exclusive and hardly movable production facilities, long-term overcapacity, great market fluctuations, high internationalization level of products and building standards, which determines the particularity of the global shipbuilding industry chain. In recent years, China’s key shipbuilding enterprises have made active attempts along the global industry chain, accelerated the building of a global R&D network and addressed weak links in core supporting facilities through overseas mergers and acquisitions, joint ventures and other measures, enhanced the capacity of service and marketing and gradually increased industrial value.

After the reform and opening up, China’s shipbuilding industry began to march towards the international market and grew in scale amid international competitions. Now China has become a major shipbuilding country in the world. In particular, after the outbreak of the 2008 financial crisis, China’s shipbuilding industry accelerated its restructuring and upgrading process, improved weak links in its development by going global and sped up its progress towards building China into a strong shipbuilding country.

Power industry

In recent years, Chinese power enterprises have been actively going global, making full use of the markets and resources at home and abroad, developing traditional and new markets in depth, cultivating a number of competition participants in the international market with outstanding core technologies, innovation capabilities and resource integration capability, promoting the concentration of resources to key countries and key areas and continuously making breakthroughs in outward investment cooperation. At present, the main forms of global industry chain deployment of power enterprises are direct outward investment, overseas contracting projects, export of power equipment, etc. Among them, Asia and Africa arc the main destinations of the major projects for outward investment and the major projects for overseas contracted projects.

Chinese power enterprises have eertain advantages in technology, equipment, management and talents. For example, they have strong power equipment manufacturing capacity, power engineering design, construction and general contracting capacity. China is leading the world in its UHV AC/DC transmission technology, has successfully developed a complete set of key equipment and built a number of UHVDC lines, and their technical standards have become the international standard. Throughout the world, China is highly competitive in the research and development of smart grid, technologies of clean energy grid integration, ultra-supercritical thermal power, large air cooler and circulating fluidized bed, hydropower technology and equipment, nuclear power technology and equipment, and energy-saving and environmental protection technology and equipment.

Information and communication industry

After years of development and foreign cooperation, China has formed a number of world-renowned information and communication enterprises. As leading enterprises in global industry chain deployment, the three basic telecom operators have built 100 PoP overseas for telecom operation. China Telecom has established interconnection with more than 100 leading Internet operators in the world, and China Telecom, China Mobile and China Unicom arc among the top 500 companies in the world. In terms of equipment manufacturing, ZTE and Huawei have grown into world-class enterprises, with their revenue overseas accounting for more than 50% of their total revenue, serving more than 170 countries and regions around the globe. In the field of telecom engineering, China Communications Services Co., Ltd. has set up subsidiaries or offices in 43 countries and regions, covering more than 60 countries and regions in Africa, Asia, Latin America and the Middle East. In 2015, the total value of foreign contracted projects amounted to USS 1.38 billion. In terms of Internet services, Alibaba’s listing in the United States created huge impacts overseas. In 2013, the volume of cross-border e-commercc exceeded USS 3.1 trillion. Tencent’s WeChat boasts more than 100 million overseas users. In science and technology R&D, the proportion of core technologies and patents of China’s new generation of information and communication technology is close to that of developed countries.

Therefore, China’s information and communication industry, with its comparative advantages overseas, has formed a complete industrial system of information and communication equipment manufacturing, operation services, engineering construction, and science and technology R&D. It has the foundation and capability of global deployment on the entire industry chain. Spearheaded by leading enterprises, capable enterprises in the industry chain are going overseas to open up the international market.

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