Solar panels produced in Hebei Yingli Solar, a leader in solar PV technology in China

When China surpassed Germany in 2009 to become the world’s largest exporter, Chinese leaders were quick to downplay the significance of this milestone by pointing out that German exports were typically composed of higher-value goods. This was a clear statement that China would not be content with just exporting large amounts of low-value goods. Its maturing domestic economy coupled with increasing global competition means the "factory of the world" can no longer sustain producing only low value-added products. 

Upgrading already in progress 

While critics of China’s "low-quality" products keep talking, there are Chinese firms that are marching up the manufacturing value chain. A hybrid solar photovoltaic equipment manufacturer in Jiangsu Province is an example of this trend. 

Formed in the early 1990s as a Sino-German joint venture, the firm sought to outsource German production costs to China. Inside their plant, European equipment lay everywhere. Asked why the factory owners felt the need to import equipment like ladle cranes when Chinese cranes were already on par with international standards, they said it was the "old" plant. 

A few yards away, at a visibly newer plant, much of the equipment was Chinese - including the ladle cranes. However, most of the advanced hi-tech equipment for manufacturing silicon wafers was still imported from Germany. Nonetheless, the transition Chinese firms have made on other types of heavy equipment in two decades is astonishing. 

At the Jiangsu factory, there are always two types of products: the "German" brand and the "Chinese" brand. But both the products are manufactured in the same factory, using the same process and materials, and by the same engineers. However, in the end they are divided into those that would bear the German logo and those that would bear the Chinese logo. 

Tiepai, which in Chinese literally means sticking on a logo, is original equipment manufacturing where a factory usually manufactures products for different brands. In the Jiangsu factory, Western companies are in the process of tiepai-ing high-quality Chinese goods for export worldwide. In fact, simply tiepai-ing Western brands would increase the price of a product several fold. 

Is China ready to compete? 

Manufacturing is no longer only about cheap labor. Labor-intensive industries such as textiles have already shipped out or will be shipping out soon. China must therefore compete on other production factors. The aforementioned company, for instance, located its polysilicon production in the westernmost parts of China. This was due, in part, to the government incentive policies of developing the central and western parts of China, but the key economical reason was availability of cheap electricity there. 

Over time, firms such as these have developed products destined for hi-tech companies in Japan and South Korea. Ironically, adopting technology may actually be a faster process than building a brand, which is a key challenge for Chinese firms. For reputable firms to shake off the stereotype that "made in China" means cheap and inferior and prove to the world that indeed there are high quality products requires time and clients need to invest in intensive due diligence. 

Made in China 2025 

China’s highest organ of state administration, the State Council, has developed the Made in China 2025 plan. The 10-year plan seeks to overhaul the manufacturing sector and put China on the path to becoming a global leader in producing higher-value, quality products. Introduced by Premier Li Keqiang, it is the country’s first action plan focusing on promoting manufacturing and essentially the government’s response to the "end of cheap China." 

Made in China 2025 is similar to Germany’s Industry 4.0, a national strategy to implement greater computerization of manufacturing. The plan prioritizes 10 key sectors ranging from power and railways to medical and aerospace equipment. Innovation-based upgrades and intelligent manufacturing have become the buzz-words in China’s new march to raise its manufacturing output value. Further goals include information integration, green manufacturing and promoting Chinese brands. 

China’s manufacturing research and development (R&D) currently accounts for almost 90 percent of the national R&D spending, with double-digit growth over the past decade. This is also reflected in China’s export composition in the past decade, which indicates a growing focus on high-end products and technology. 

China of course cannot leapfrog Germany in 10 years, but in the Chinese spirit of planning, there is an ambition to become the world’s leading manufacturer by 2049 - just in time for the 100th anniversary of the founding of the People’s Republic of China. 

Implications for Africa 

Procurement opportunities from Chinese original equipment manufacturers (OEMs): African companies need to familiarize themselves with their product origins as tiepai can unnecessarily increase the cost burden. Various international firms have spent time and money to develop suppliers and put in place internationally recognized quality controls, but some Chinese firms are making strides and in most cases can export their own brands emerging from the same factories. With some due diligence and groundwork African firms can benefit from this trend. 

Rethinking "Made in China": A company had been procuring from Europe for years. Efforts to convince them to explore the manufacturing options in China were unsuccessful. It was only after competition from China started to eat into their market share that they finally ventured into China. 

Then much to their astonishment, they found their European supplier had been producing under the OEM for over a decade, while they had been paying three to four times the price for the same products! 

Made in China 2025 vs. Africa’s development requirements: China is placing renewed emphasis on improving agricultural machinery and medical equipment in its manufacturing country plan. At the same time, there is a great need for mechanization across Africa. The potential to reduce costs in agriculture while increasing yields stands out as an opportunity. 

On the other hand, China’s setting its sights on developing high-performance medical devices also has the potential to reduce health costs. It has been said that in Africa, "the Chinese build hospitals, but India staffs and supplies them." China’s manufacturers are looking to challenge this phenomenon and it could be a boon for Africa’s health sector. 

Chinese firms face an uphill battle in developing their brands in a way that will challenge the perception of cheap, poor quality products. Meanwhile foreign firms, looking to earn cost savings while at the same time procuring quality products, are advised to seek to understand China’s rapidly shifting manufacturing sector and re-calibrate their procurement managers’ view of China as a sourcing destination.

(Walter Ruigu is managing director of the CAMAL Group, a trade and investment advisory firm based in Beijing, Nairobi and Lusaka)