Trading Up The Value Chain

Related entries: General, Research, Trading

While China’s export growth has continued to be strong, its make-up is changing. I noted recently that most of the goods are exported by foreign-invested companies), but another issue to look at is the type and value of products that are being exported as China continues to climb the value ladder.

Xinhua noted a report from Deutsche Bank that included the following analysis:

    • Exports of high value added products is expected to grow at more than 30 percent a year in the next three to five years.
    • Growth rates between 30 and 150 percent were seen last year in exports of value added products, including telecommunications equipment, software, high-tech machines, electronic components, and automobile parts.

The report notes that China currently has low global market share in these sectors, but that this is likely to change due to the low cost base:

    • Land costs in China were only ten percent of those in Japan and one fifth of ROK
    • Labor costs were one 22nd those of Japan and one 13th those of ROK.
    • The average net profits rate of high-end products in eight industries was 16 percent, while that of some low-end products like shoes, clothes and home appliances was only 2 or 3 percent.

Previous posts have pointed to China’s move to invest in R&D (see here), and the profits squeeze being felt in low-end manufacturing (see here). It is clear that China can no longer been seen as a one-dimensional exporting machine, but must be seen as a complex market which is adapting to changing conditions, and becoming globally competitive in sectors which have previously been claimed by the old guard – while continuing to lead on low-cost production.

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6 Responses to “Trading Up The Value Chain”

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