Gone are the days when foreign companies operating from China predominated in its export market. Now, home-bred Chinese firms are taking the upper hand.
Gone are the days, too, when China was reliant on Western markets for its exported products. Now, Chinese-built markets in emerging markets of the developing world are taking the lead in China's export trade. So much so, that competition from this superpower-in-the-making will look very different in the coming decade.
Ten years from now, Chinese brands will be commonplace in the global commercial landscape, particularly in the world’s increasingly important emerging markets where business opportunities for growth will be the most prevalent.
Already, non-OECD (Organisation for Economic Cooperation and Development) countries account for 36% of the world's imports (2010 figures) — a share that has risen from 25% in 2001. Capital goods, rather than consumer goods, are leading the way.
In the past, competition from China in low-end exports, such as toys and games, helped to produce a disinflationary effect on importing countries. Now that China’s higher-end exports are seeing success in emerging markets, Chinese companies are able to produce such goods relatively cheaply as well. In turn, competitive prices from China force rival global manufacturers to look constantly for ways to add value and stay ahead of the curve.
Some economic analysts say that, despite rapid progress on the technology front, Chinese companies have 'gone to ground' before catching up with the West: under the veneer of a seemingly unstoppable Chinese manufacturing machine, it is suggested, lies a frail foundation.
However, the influential Economist Intelligence Unit forecasts that, as Chinese wages rise and technology progresses, Chinese exporters will move up the value chain and increasingly compete in the core product markets of developed countries.
Chinese manufacturers of heavy equipment, notably in the construction machinery sector, are likely to take the lead. China is also expected to overtake Germany and Japan in construction machinery exports by the end of 2011 — to become the world’s second-largest exporter of such goods, after the US.
The Economist Intelligence Unit admits Chinese penetration of OECD markets in high-end manufacturing is likely to be limited, but China will see rapid increases in market share in non-OECD markets where Western companies have in recent years lost significant export market share.
Export recovery & growth
After a painful economic downturn, but nowhere near as painful as in the West, China's export growth has already recovered to levels seen just before the downturn started to bite. Since 2001, China has steadily increased its share of global manufactured exports, by around 1 percentage point per year. In 2010, the country’s share of global manufactured exports reached 13.7%, up from 12.1% in 2009. This trend in growth is likely to persist in the coming decade.
Some economic analysts say that China will reach a point where mounting labour costs trigger declining shares in low-end exports, off-setting gains in the mid- and high-end value segments. To date, however, China's export market share in low-end goods is still increasing.
The Export Similarity Index (ESI) — a measure of the extent to which two countries export the same products — shows how far China's exports are beginning to overlap those of its wealthier trading partners.
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