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Economic framework paves way for value-added shift

The plan to guide China's economic development from 2011 to 2015 emphasizes income disparity reduction, brand building and R&D capability upgrades. Companies are encouraged to go "green" as well.

China's 12th five-year plan is likely to shake up the country's export industry.

Economic framework paves way for value-added shift
Click boosted output of accessories for environment-friendly products, including LED drivers.

Released in mid-October, the draft framework for China's economic development from 2011 to 2015 is expected to be approved in March 2011. While the plan covers many aspects that contribute to the country's economic growth and social stability, some of those targeting the export sector seem aimed at driving away low-end manufacturing.

For instance, one of the heavily stressed provisions is on reducing income disparity. This brings the possibility of several rounds of minimum wage increases in the next five years, which would raise production costs. And since most low-value manufacturers operate on wafer-thin margins, this development could result in factory closures if the additional expense can no longer be absorbed.

But there are recommendations that will help boost suppliers' competitiveness in the international market, even while conformance could also increase outlay. Among these are modernizing China's industrial system and improving manufacturers' core competitiveness.

The country's export sector has been slowly evolving from being a source of low labor and entry-level goods to producers of value-added products and companies with steadily improving R&D capability. Businesses are already receiving support from local governments and associations, but the provision aims to extend the assistance further.

Banks, for instance, will be encouraged to grant loans to companies that are marketing in-house branded lines locally or abroad. In the past, export-oriented factories focused on OEM orders, with suppliers that catered to both overseas and domestic clients more inclined to develop ODM and OBM lines. Government aid and support from associations have emboldened more exporters to build their own brands.

The 'green' mandate

The new five-year plan also intends to push through with several other policies that are already in place, including the emphasis on "green" products, manufacturing processes and energy. The government has already enforced a few directives to encourage suppliers toward this direction, with more expected to be implemented in coming years.

Click International (HK) Trading Co. Ltd is an export manufacturer of switching power supplies, battery chargers, transformers and inductors. With Beijing promoting development of new energy industries, demand for accessories of various environment-friendly products has been on the rise. Consequently, the company has increased its focus on developing LED power supplies, smart meter components, rechargeable pile components for electric cars, and wind turbine parts and accessories. Click intends to showcase these products at the upcoming Consumer Electronics Show in Las Vegas.

The AUX Group, meanwhile, is now concentrating on its inverter-type air conditioners, which were first launched in 2009 and are now gaining in popularity because of their energy-saving features. AUX's models have a healthcare function as well.

Even auxiliary industries can benefit from the government-backed push to go green. Luo Baihui, deputy secretary general of the Shenzhen Die & Mold Technology Society, said an increasing number of mold suppliers have joined the industry in recent years. This is mainly in response to growing demand from makers of electric cars and wind turbines.

Boosting domestic consumption

The push to increase local spending on goods and services has been in the past two five-year plans, and is likely to continue through 2015.

In 2009, domestic consumption contributed nearly 53 percent to China's GDP, up almost 7 percent year on year. The share in 2010 is projected to increase to between 55 and 60 percent. This is due largely to the still volatile overseas market. Many companies kept their focus on domestic sales this year while waiting for their export business to improve and stabilize.

Cnlight Co. Ltd, a supplier of energy-saving, HID and UV lamps, believes it is safer to cultivate sales in the local market as it is more stable. Turnover from its domestic business now exceeds $3 million.

Moreover, Beijing has implemented several measures to make it easier for export manufacturers to branch into the domestic market, and for local consumers to buy their products. In 2009, trade-in subsidies and a policy easing delivery of home appliances to the countryside helped companies such as AUX expand to the rural areas.

Subsidies and refunds are given to car and motorcycle buyers, a policy that is in place through 2013. The trade-in subsidies for cars, however, will increase from 3,000 yuan ($450) to 18,000 yuan ($2,700).


Note: This article "Economic framework paves way for value-added shift" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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