Innovation Blog

The Real Truth About China’s High-Tech Industry

By Shlomo Maital

  A terse and compelling background brief by Xing Yuqing, from the National University of Singapore’s East Asia Institute,  reveals the truth about China’s high-tech industry. [1]  Here are a few excerpts:

    * China became the world’s largest high-tech exporting nation in 2006, surpassing Japan, the US and the EU-27, with 17% of global market share in high-tech products.  China’s high-tech exports doubled every two years between 1995 and 2008!

    *  The cause of China’s high-tech export growth is “relocation of production capacities by multinational enterprises into China”; foreign MNE’s “account for 85 % of China’s high-tech exports”.   

    * A crucial role was played by Taiwanese-owned companies; Taiwan relocated all of its production in laptops, digital cameras, motherboards and LC monitors to China.  This, despite China-Taiwan hostility.  Apparently, business trumps politics.

    * China “is far from being a real high-tech exporter”;  so-called high-tech firms in China “are at the lowest value added segment of production chains: processing and assembling.”  China imports large amounts of high-tech components.

    * Despite China’s high domestic saving rate, much of China’s high-tech capacity was built and financed through FDI foreign direct investment.

    *  China has yet to build a true indigenous high-tech technology capacity.  It is in fact an exporter of low skill labor, rather than high-tech technology.

     Essentially, America and Europe have shifted their manufacturing to China.  Was this wise?  China leveraged its infinite labor supply to gain global competitive advantage, but is taking aim on the next stage in its long-range plan:  Move up the value chain.  This could be a threat to the U.S. and Europe.  If it happens, it will be America and Europe that made it possible, by giving China a powerful boost up the high-tech value chain ladder.     

[1]  XING Yuqing, “China’s High-Tech Exports: Myth and Reality”,  EAI  Feb. 25 2010.