China’s label as the “The Factory of the World” is now an incomplete and inaccurate way to describe its current economic role. The country’s evolution from agriculture to industry in a span of just three decades, is notable, but is only one element of what led its current economic success.
A great role was played by foreign investments, which brought to China machinery, capital, markets, and crucial managerial competences. In exchange, China provided international investors with a mélange of investment attractions, based on a stable political status and low production costs. China’s growth thus called for more foreign investment, which, in turn, expanded its progress and gave way to a virtuous cause-and-effect cycle.
The Middle Kingdom is still Foreign Direct Investments’ paradise, but the novelty of its international status is the result of the duplicity on which it is based upon. Aside from manufacturing, China now offers new and multiple advantages that distinguish from any other country (or continent) in the world. This shift marks its role as a “business partner” in addition to — and not in replacement of — its renowned “low-cost position”. Chinese infrastructure networks are noticeably high in quality vis a vis other middle and high income nations; the speed with which its communication services grow is striking, and their repercussions on supply-chain are just as immediate.
Furthermore, business environment has overall improved due to better English language proficiency, wide internet adoption, modern systems of communication and more sophisticated financial services. New policies protecting intellectual property are making, despite ongoing debates, significant headway. And, for the first time throughout modern China’s history, there is consensus to see the country’s domestic market prosper. These expectations imply wider volumes that go beyond a simple import/export logic.
Delocalization as a mean for economic development is outdated, but enriched with new offers. As a result, Beijing asks for qualitative investments, by presenting itself more as a center for innovation and research, rather than a source of manual labor. Its fear of excess of liquidity and overproduction are leading China to pursue a more social oriented development. Higher salaries, ample financial resources and environment awareness force China to combine its negotiation strength with its new growth perspective. This then calls for advanced technological investments which China is glad to pay for.
The ambit of global market is therefore changed. International companies must prioritize quality over cost reduction and look at China as a provider of cheaper and wider entrepreneurial capital. For them, delocalization is no longer a profitable short-cut to success, but a strategy to blend manufacturing, R&D and finance into a successful and self-reinforcing recipe
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