The upgrade of China manufacturing – and its implications

June 4, 2018

HONG KONG - China's transformation into a medium-tech producer will have broad-ranging implications – and there will be three primary beneficiaries, says HSBC in a new research report.

As China bring its formidable economies of scale to bear, the first beneficiary will be the emerging market consumer, who  will benefit from affordable machinery and electronics goods, the bank says.
“Second, trade links between China and other emerging markets will broaden, from traditional commodities to more medium-tech goods.
“Third, where trade flourishes, it begets investment, which, in turn, generates growth.
“At the same time, our Revealed Comparative Advantage analysis shows that China is not yet competing head to head with Japan, Germany and the US.
“However, we believe it will put some pressure on producers, such as Malaysia, Thailand, Mexico, Taiwan, and South Korea.”
HSBC says China has remained as the centre of global trade by moving up the value chain - machinery and electronics exports today account for over half of its total exports.
“China's export market share in this category has also increased visibly,” the bank says.
“The increasing prominence of China-made smartphones and white goods for foreign brands but also increasingly domestic brands are examples of this trend.
“We expect this process to not only continue but to accelerate in the coming years.”
HSBC says China's move up the value chain is supported by four structural facts - China's large economies of scale and supply network; the benefit of a large domestic market that gives its producers a unique perspective on the sensitivities and trade-offs of aspiring middle class consumers;  the build-up of physical infrastructure, which has helped increase connectivity between different regions and lower transport cost; (rising educational attainment will provide the human capital needed for industrial upgrading); and policy support through more market-driven industrial policies and flexible fiscal policies. (ATI).