Nation on way to economic upgrade, says CEO

China's woeful export figures this year may have prompted concerns about the country's manufacturing sector, but the head of the world's largest shipping line by volume suggests this is a natural consequence of the country becoming a more sophisticated manufacturer.

Soren Skou, CEO of Maersk Line, the container unit of the Danish shipping conglomerate AP Moller-Maersk Group, said that China's slowing trade growth suggests that the country "may have lost some of its competitiveness in some areas of the manufacturing sector", particularly in light industry, such as the production of toys, shoes and garments, as more companies have moved their manufacturing to neighboring Southeast Asian countries including Vietnam.

But Skou said the trend also makes clear that "Chinese companies are trying to move up the value chain to produce more expensive goods" in sectors including solar energy, automobiles and aviation, a development likely to shore up the country's exports in the long run.

Chinese exporters experienced rocky times in recent months because of the ongoing debt crisis in Europe and the sluggish world economic recovery, which has put a serious dent in global demand for Chinese products.

In the first eight months of 2012, China's exports jumped 7.1 percent compared with the same period last year, the lowest increase since the 2009 world recession, according to data from the General Administration of Customs.

In addition to weak external demand, many analysts also blamed rising wages, among many other growing costs, for eroding China's advantages as the leading manufacturer.

According to recent research by Boston Consulting Group, Chinese workers' wages have been increasing 15 to 20 percent on a yearly basis in recent years, which has considerably narrowed the gap in labor costs between China and certain states in the United States.

Yet with China's vast skilled workforce, developed infrastructure and supply chain, and "with continued high growth in the emerging markets for the next five to 10 years, China will continue to be a strong manufacturer and play a huge role" for Maersk's business, Skou said.

David Skov, Maersk Line's regional head in South China, said the country's shift from labor-intensive to capital-intensive manufacturing is well under way, and this caused exports from the South China region - the country's light industry hub - to decline in volume but increase in value in recent years.

Exports of more sophisticated products are unlikely to offset the dip in volume in the short term, Skov said. But in the meantime, as household income rises, import increases are expected to surpass those of exports, he added.

"China's trade pattern is changing. And it is not all bad," said Tim Smith, Maersk's regional head in North Asia.

During the first eight months of this year, China's exports of machinery and electronic products surged by 8.3 percent year-on-year, accounting for 57.2 percent of the country's total export value, official data showed.

(China Daily 09/14/2012 page16)