The plan to guide China's economic development from 2011 to 2015 emphasizes income disparity reduction, brand building and R&D capability upgrades. Companies are encouraged to go "green" as well.
China's 12th five-year plan is likely to shake up the country's export industry.
Released in mid-October, the draft framework for China's economic development from 2011 to 2015 is expected to be approved in March 2011. While the plan covers many aspects that contribute to the country's economic growth and social stability, some of those targeting the export sector seem aimed at driving away low-end manufacturing.
For instance, one of the heavily stressed provisions is on reducing income disparity. This brings the possibility of several rounds of minimum wage increases in the next five years, which would raise production costs. And since most low-value manufacturers operate on wafer-thin margins, this development could result in factory closures if the additional expense can no longer be absorbed.
But there are recommendations that will help boost suppliers' competitiveness in the international market, even while conformance could also increase outlay. Among these are modernizing China's industrial system and improving manufacturers' core competitiveness.
The country's export sector has been slowly evolving from being a source of low labor and entry-level goods to producers of value-added products and companies with steadily improving R&D capability. Businesses are already receiving support from local governments and associations, but the provision aims to extend the assistance further.
Banks, for instance, will be encouraged to grant loans to companies that are marketing in-house branded lines locally or abroad. In the past, export-oriented factories focused on OEM orders, with suppliers that catered to both overseas and domestic clients more inclined to develop ODM and OBM lines. Government aid and support from associations have emboldened more exporters to build their own brands.
The 'green' mandate
The new five-year plan also intends to push through with several other policies that are already in place, including the emphasis on "green" products, manufacturing processes and energy. The government has already enforced a few directives to encourage suppliers toward this direction, with more expected to be implemented in coming years.
Click International (HK) Trading Co. Ltd is an export manufacturer of switching power supplies, battery chargers, transformers and inductors. With Beijing promoting development of new energy industries, demand for accessories of various environment-friendly products has been on the rise. Consequently, the company has increased its focus on developing LED power supplies, smart meter components, rechargeable pile components for electric cars, and wind turbine parts and accessories. Click intends to showcase these products at the upcoming Consumer Electronics Show in Las Vegas.
The AUX Group, meanwhile, is now concentrating on its inverter-type air conditioners, which were first launched in 2009 and are now gaining in popularity because of their energy-saving features. AUX's models have a healthcare function as well.
Even auxiliary industries can benefit from the government-backed push to go green. Luo Baihui, deputy secretary general of the Shenzhen Die & Mold Technology Society, said an increasing number of mold suppliers have joined the industry in recent years. This is mainly in response to growing demand from makers of electric cars and wind turbines.
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