China–Leader of the Third Industrial Revolution?

CHINA’s industrial output， which in- cludes 220 of world major products such as steel， coal， cotton and cement， continues to accelerate. Statistics show that China’s yarn output rose from 6.57 million tons in 2000 to 28.7 million tons in 2011 while that of its cloth rose from 27.7 billion meters to 81.4 billion meters over the same period. Even in the shadow of the global financial crisis， these products have maintained steady growth.

Comparative Advantages of Chinese Products

China’s low labor costs have enabled Chinese products to enter the world market and make the country the world’s foremost manufacturer. Despite a surge in wages in recent years， China’s relatively low production expenses retain its world advantage. The statistics below show that the hourly pay for China’s factory workers is less than 10 percent of that in the U.S.， and that those in Brazil， Mexico and certain other developing countries earn around 20 percent of the U.S. hourly rate. The hourly rates in Japan and the Euro zone， meanwhile， range from 80 to 120 percent of that in the U.S. China has one of the world’s most abundant labor pools. Hundreds of millions of rural workers migrate to cities in search of work and more than five million college graduates flood the labor market every year.

China’s second comparative advantage is its combination of low-cost production factors and foreign capital. Cheap land as well as labor in relation to world market demand has triggered massive growth in Chinese trade.

Table 2 shows a rise in China’s processing trade exports from US $25.42 billion in 1990 to US $862.98 billion in 2012. Steady growth has been sustained other than in the year 2009， when it dipped under the weight of the global economic crisis. Processing trade nevertheless still constitutes more than 40 percent of China’s total exports. Skillfully set up complete industry and supply chains enable China to top the world market and achieve more than 10 percent of total exported products.

Still the World’s Foremost Manufacturer

Foreign-funded companies have played a vital role in China’s export trade. Table 3 shows that export values emanating from these companies rose from US $240.31 billion in 2003 to US $1.02 trillion in 2012， accounting for more than 49 percent of China’s total exports. Their imports also surged from US $231.86 billion to US $871.25 billion over the same period， accounting for 47 percent to 60 percent of China’s total. The manufacturing strength of foreign-invested companies has thus significantly promoted the rapid growth of China’s exports.

Meanwhile， the sales value of foreign manufacturing enterprises in China rose steadily from RMB 4.12 trillion in 2003 to RMB 21.46 trillion in 2011 – an annual increase of 20.12 percent. The year 2007 saw sales values of RMB 11.99 trillion， and in 2011 they reached RMB 18.43 trillion. The impact of the economic crisis was evident in the relatively modest annual increase of RMB 471.8 billion in 2009. In other years， however， it surpassed RMB 1.5 trillion， and hit RMB 3.9 trillion in 2011.

Over the years since 2003， 27.23 percent to 33.24 percent of China’s industrial sales value is directly attributable to foreign manufacturing enterprises. The impact of the 2009 global financial crisis， however， brought a declining trend –to 29.26 percent in 2009， 28.36 percent in 2010 and 27.23 percent in 2011.

Prospects for China Products

The foreign-investment companies in China have made it the world’s manufacturing and processing center. If not for them， production， export volume and quality would be substantially lower.

China’s dominance is nevertheless still confined to labor intensive products at the bottom of the industry chain. This precludes the country’s technological competitiveness and hence participation in the international division of labor. A high share of the world market， therefore， is in itself no reason for complacency.

On one hand， China is still at the development phase of the first or second Industrial Revolution. Its economic growth and manufacturing progress have mainly relied on capital and labor input rather than on high-tech and new resources.

On the other hand， China could lead the world’s third Industrial Revolution. The U.K. headed the first in the 19th century， and the U.S. led the second in the 20th century. China may well now lead the third. Chinese infrastructure is in place to serve its massive market and emerging industries such as e-commerce and domestic companies such as Huawei， ZTE， Geely and Chery. Integrating new-era Internet technology and renewable energy sources， promoting digital technology and the new business mode， and accelerating transformation of growth modes could realize China’s potential to lead the third Industrial Revolution.