New Frontiers In Exports

By+Wang+Jun

Equipment industries could soon present a viable way out for Chinas sluggish exports. At a State Council executive meeting on January 28， Chinese Premier Li Keqiang made clear his decision to promote big-ticket items such as railways， nuclear power and other Chinese equipment in overseas markets.

The government will step up efforts in exploring overseas markets for railway， nuclear power and other large-scale equipment sales by setting up joint venture companies or public-private partnerships in targeted countries， said a statement released by the State Council after the meeting.

Industries with overcapacity， such as steel， nonferrous melting， building materials and textiles， also have roles to play in the plan to raise exports from the worlds top trader in merchandise， according to the statement.

The statement also said that this decision will facilitate the creation of another engine to drive the countrys exports and help with the much-needed upgrading of domestic industries.

Strategic change

“Promoting our goal of ‘going global through exporting Chinese equipment and conducting international cooperation in production capac- ity is necessary for Chinas economic development at present，” said Premier Li. “This will not only be conducive to economic development but also offer significant opportunities to promote industrial upgrading.”

From November 2014 to January 2015， the concept of “going global”has been discussed at four State Council executive meetings. During these three months， the State Council held a total of 12 executive meetings.

“Premier Li has made frequent overseas visits and brought back big orders. This is an important feature of the ‘new normal of Chinese economy， a ‘new normal of integrating into the world economy，” said Wang Shengchun， a research fellow at the Center for Economic Reform of the Central University of Finance and Economics.

“The process of Chinas integration into the world economy has gone through stages of attracting foreign investment， exporting laborintensive products， and purchasing natural resources， and it is now entering the stage of transferring production capacity and exporting complete equipment，” Wang said. “With hi-tech content and large investment， complete equipment will play a significant role in supporting Chinese companies development， industrial upgrading and product innovation through providing full services.”

“This is a significant strategic change，”said Zhang Shuguang， a research fellow with the Institute of Economics of the Chinese Academy of Social Sciences. He said it is time for China to， through outbound investment and equipment export credit， boost exports of products and deploy trade in services so as to accelerate economic transformation.

Zhangs views are based on three observations： that Chinas industry has developed well within the past three decades； that it has accumulated considerable foreign exchange reserves； and that the countrys emerging service sectors， such as finance， insurance and consultancy， have developed rapidly and they need further growth through international competition.

Key strength

During the World Economic Forums annual meeting held in Davos， Switzerland in January， Premier Li stated that China will explore new approaches to investing in other countries. Chinas high-speed railway， nuclear power， aviation， telecommunications and other sophisticated manufacturing capacities are gradually being introduced to other countries. They can meet the market demand of the recipient country. This indicates that high-speed railways and nuclear power will be major sectors for Chinas strategy of “going global” to target in the new era.

Gao Zhenting， counselor of the Department of International Economic Affairs of the Ministry of Foreign Affairs， said high-speed railway exports will effectively boost Chinas overall exports of goods， technologies and services in both the high-end and low-end markets as well as accelerate the development of many other related industries such as mechanics， metallurgy， construction， power， electronics and information technology. It is estimated that for every kilometer of high-speed railway built， more than 600 job opportunities will be created.

The international high-speed railway market will see robust growth over the next 15 years. Countries such as the United States， Russia， Malaysia， Singapore， Brazil and Turkey have all made plans to build high-speed railways， and France has also planned to extend its high-speed railways by 2，000 km. A report by Economic Information Daily said Chinese companies have signed high-speed railway contracts with more than 50 countries and regions.

Progress has also been made in the export of nuclear power equipment. In January， China and Pakistan entered into an investment agreement amounting to $34 billion， in relation to the construction of large-scale nuclear power plants， subways and light rail stations.

“China has gained some experience in the construction and operation of nuclear power projects in the overseas markets， and some of these projects are using China-made equipment. Chinas nuclear equipment manufacturing has the capability to go global， which will help boost Chinas economic growth， Zhao Chengkun， vice Chairman of the China Nuclear Energy Association， told Economic Information Daily.

Watch out for risks

Experts suggest Chinese companies guard against possible risks when investing abroad.

“China only started outbound investment not so long ago. The amount of investment is small， and more importantly， we have inadequate experience as a latecomer. We have limited understanding of the global market and need more qualified professionals for international business，”said Zhang. “To expand overseas direct investment， China must make its strategic plans， develop independent technologies and brands and draw up cooperation strat- egies in the financial sector.”

Zhang Xiang， spokesperson of the China International Contractors Association， said Chinese companies will see several opportunities to go global in 2015， but they still face various challenges.

Market competition will be more intense. The increase of labor costs in China and the appreciation of the yuan will weaken Chinese companies advantages in terms of production costs， and they still need to improve industrial cooperation and management practices.

Security remains a worry for many Chinese companies. In some Asian and African countries， political， economic and security risks have increased. In some markets， security will present a challenge for some time to come.

Chinese businesses also need financial and tax support as the current financial and taxation systems are unable to fully meet their needs in going global. The government must further strengthen financial and taxation support through methods that reduce financing costs and reform taxation on overseas revenues.

Miao Rong， Deputy Director of the Research Department of the China Enterprise Confederation， said nuclear power， ultra-high voltage grids and high-speed railways are becoming the new “calling cards” of China. However， Chinese companies still experience some difficulties in developing international business. For instance， they need more financial support， but Chinas financial system is not sound and effective enough to offer such support.