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What I Learned in China

By Shlomo  Maital  

    Shantou Class Photo 2014

  I try to write a blog almost every day – knowing this keeps me ever alert for new ideas to share.  In this sense, blogs are as much for the benefit of the writer as for the reader. 

   I’ve been in Shantou China, for a week, teaching entrepreneurship to 43 eager young undergraduate business majors at Shantou University.  Shantou is in the northern part of Guangdong Province, north of the provincial capital Guangzhou, close to the coast, and two hours by fast train from Shenzhen, which is opposite Hong Kong, on the mainland.  My university, Technion, has a joint venture with Shantou Univ., to establish GTIIT – Guangdong Technion Israel Institute of Technology, now headed by Technion Nobel Laureate Dan Shechtman.  The initiative arose from a generous grant by Li Ka Shing and his Third Son Foundation;  Li Ka Shing, a Hong Kong billionaire, was born in Shantou and his foundation is active in supporting the city and its university.  His investment company has invested profitably in Israeli startups.  

    Supposedly you cannot teach entrepreneurship to undergraduates because “they are too young and lack experience”.  But Babson College does it highly successfully,  using the method developed by my late friend Ted Grossman, an action learning approach in which teams of students form a real company, make a real product and learn the tools of business through running their company, under the guidance of mentors like Ted (who first launched a successful software company before joining Babson). 

    I use the same method in Shantou.  And in one intensive week, the young students do amazing work; some of their ideas become reality, though not all.   The photograph shows last year’s class.

   Wages in China have risen dramatically, from about $100 a month in 2000 to $650 today  (this is still only one-fourth the average wage in America, and Chinese productivity is in many cases even higher).   But Philippines, for instance, has average wages of only one-sixth that of China.  So China in principle should be losing its manufacturing to low-wage countries like Vietnam, Indonesia, and Philippines.  And indeed it is, with shoes and textiles, low value added products, moving to those countries. 

    But China is keeping its high value-added jobs and enhancing them.  How?  China is the world’s biggest market for production robots, buying 20 per cent of worldwide production.  Labor productivity rose by 11 percent yearly (!) on average during 2007-12  (it barely budged in the West).  China uses its network of highly efficient suppliers to keep factories in China.  China has become the hub of a complex ecosystem, in which Asian countries specialize, make components and ship them to other Asian countries.  Asia now accounts for nearly half of all world manufacturing output, compared with 27 percent (about one quarter) in 1990. 

    Bottom line:  China’s strategy is:   Made in China 2025 (its official name) – boost productivity to keep competitive.  If wages rise by 12 percent year but productivity does too…the cost advantage stays.  But at the same time:  Created in China.  China is working to invent more of the products it makes.  Like Xiaomi, the innovative smartphone company.    And this is where I come in… teaching innovation to the young undergrads at Shantou University,  not even a tiny drop-in-the-bucket in huge China, but – China is all about scale, and good ideas spread with lightning rapidity.  

   I truly love my annual one-week courses in Shantou; the students are fiercely eager to learn and highly creative once their creativity machines are turned on.    These young people are literally eating our (Western nations’) lunch.  If we don’t wake up,  China’s living standards will continue to  grow by 11 or 12 per cent a year, the rate of growth of productivity, and our living standards will simply stagnate (the rate of growth of OUR productivity).   We need to save more, invest more, build better infrastructure, educate our young people better, and become more productive.  This is what I learned in my classroom from  43 eager young Chinese business-major undergraduates. 

Putting China Into Perspective

By Shlomo  Maital   

                 chinamanufacturing 1          

   Writing in The Atlantic (August issue),  Matt Schiavenza (“China’s Dominance in Manufacturing  – in One Chart)  helps us put China’s massive industrial capacity into perspective.  In just over 3 decades after launching free-market reforms, China massively dominates global manufacturing.   Here are a few of the numbers:

 ●   China makes 320 m. PC’s every year, 91% of world output!

●  China makes 109 m. air conditioners (80% of world output), 320 m. energy-saving lamps (also 80% world market share),  21.8 gigawatts of solar cell production capacity (74% of global market),

●   1.1 b. cell phones, (71%),  12.6 b. pairs of shoes (nearly two pairs for every human being alive on the planet, or 63 % of world output), 

●  1.8 b. tons of cement (60% of world output),  51.5 m. tons of pork (half of world output), 1.8 b. tons of coal (half again),  and 77 m. metric tons of shipbuilding capacity (also half). 

     So in virtually all the world’s key manufacturing areas, China produces at least half of world output.  And now, China is designing a new jet liner, to be created and produced in China, to compete with Boeing and Airbus. 

      Rising wages are pricing China out of manufacturing?  Don’t hold your breath, Schiavenza counsels.  China has many advantages still, and in addition, a huge domestic market, that can replace any export demand that flags.  

Blog entries written by Prof. Shlomo Maital

Shlomo Maital