Alex Shum, Audit Partner and Industrial Manufacturing leader with KPMG in China provides a perspective on the challenges and opportunities facing China’s manufacturers.
China is transitioning from an investment-intensive, export-led model of growth, to one driven by consumption and innovation. And, as a result, we are seeing the development of a ‘two track’ economy in China.
The first track comprises the country’s traditional sectors such as the steel, shipbuilding and industrial products sectors. Companies in these sectors are now facing multiple challenges such as slowing demand and significant overcapacity problems.
The other, faster growth track primarily consists of sectors and companies focusing on consumers and services, as well as those driven by innovation and technology. As a result, more advanced and innovative organizations – such as medical device manufacturers and other high-end manufacturers – have seen impressive growth and are poised to continue this momentum into 2016.
At the same time, China’s 13th Five-Year Plan highlights Overseas Direct Investment (ODI). The result will be greater competition from China’s manufacturing sector eager to expand overseas.
China remain a significant market that can’t be ignored by manufacturers looking for growth. Foreign investors able to bring innovation and investment into new technologies should find strong growth opportunities in China. But China’s own manufacturers are keen to move up the value chain and expand their global footprints brining not only competition but also opportunities for collaboration.
Q: What is the greatest threat to growth for manufacturers in China today?
Alex: Overcapacity and rising labor cost.
Q: What are companies in China doing differently do drive growth?
Alex: Overseas investment and home-grown innovation.