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Dongguan Works to Upgrade Processing Trade

2014-06-17 15:55:53 Caijing
The upgrade of the processing trade, which remains an important way for China to participate in international trade, will improve China’s export mix and hence drive forward the country’s industrial upgrading.

  By staff reporter Wang Yanchun

  China's imports and exports both dropped year-on-year during the first quarter of 2014, and the processing trade in particular experienced a sharp decline. The situationhas caught the attention of China’s leadership, which has sped up the transformation of the country’s manufacturing industry, particularly that of the processing trade.

  As one of China’s “pilot cities for the upgrade of processing trade,” Dongguan has been trying to help local manufacturers boost domestic sales since the financial crisis broke out in 2008.

  The city government implemented a series of supportive policies to help once export-oriented local manufacturers court domestic customers. For instance, Dongguan initiated a policy measure called “centralized declaration of domestic sales” to streamline the price-verification procedure at customs, and allocated 30 million yuan to provide “centralized guarantees” for processing trade companies’ domestic sales.

  In addition, the city government worked with Wal-Mart to host at the retail giant’s 30 plus outlets located in first-tier cities events dedicated to exhibiting and selling Dongguan’s export brands. The city also put up nearly 100 million yuan to help over 5,500 local processing trade companies set up online shops on Alibaba and 10 other e-commerce platforms.

  The RMB has appreciated by over 30 percent in recent years; and the minimum wage has increased from 574 yuan in 2005 to more than 1,500 yuan now. Corporate expenditures such as environmental protection and social security costs as well as the cost of employee benefits have also risen; as a result, labor-intensive enterprises’ average profit margins have dropped to about 3-5 percent. In response to this phenomenon, some manufacturers in Dongguan have shifted from traditional manual production lines to intelligent production lines.

  Moreover, Dongguan has offered subsidies and subsidized loans to manufacturers that bought robots to alleviate the pressure brought by rising labor costs.

  Manufacturers with deeper pockets have set up their own R&D and sales arms to expand both ways along the industrial chain; while small- and medium-sized enterprises have joined hands with R&D institutions and marketing companies to seek out higher added-value.

  The transformation of the processing trade can only be achieved when the entire industry works together for the integration of the industrial chain. Dongguan has brought in and established a total of 15 platforms for public innovation and nearly 20 platforms for technical innovation, and inspired processing trade companies to invest over 30 billion yuan in R&D by putting in hundreds of millions of yuan in matching funds itself.

  China, which relied solely on trade in goods to participate in the global value chain 30 years ago, will depend on the integration of trade in goods and services to partake. The government will serve as the catalyst for the transformation from OEM (original equipment manufacturer) to ODM (original design manufacturer) and OBM (original brand manufacturer); from sole emphasis on production to a combination of R&D, production, and sales; from factory workshops to corporate headquarters; and from low value-added to high value-added products.

  China cannot afford to fully abandon its processing trade, which remains an important way for the country to participate in international division of labor and international trade, says Wang Jun, deputy director at the Department of Consultancy, China Center for International Economic Exchanges. Wang added that other cities in Guangdong or even other provinces can draw a page or two from Dongguan’s upgrade of processing trade, which will improve the export mix and hence drive forward industrial upgrading.

  Full article in Chinese:http://magazine.caijing.com.cn/2014-06-16/114265757.html

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