February 2012 Archives

The shipbuilding industry has been the scene for a major uptick in Chinese export market share in the period 2007-10. 

Ship Exports.png
The OECD countries that China captured market share from were in this case Japan and South Korea. These two, in their turn, were responsible for capturing the market from Europe as early as the 1970s, but it was only in 2010 that South Korea was surpassed by China as the world's leading shipbuilder. The chart above illustrates how rapidly this occurred in the period 2007-10. 

According to the global shipping services provider Clarksons, in 2011 China accounted for around 41% of the global shipbuilding share in dead weight tonnes, while South Korea had 33%, Japan 20%, and Europe only 2%. China's ascent in the industry was complicated, however, by the global financial crisis. With sluggish demand for new ships and rising costs for labour and steel, the volume of new orders in 2011 fell 52%, according to the China Association of the National Shipbuilding Industry (CANSI). 

China's smaller shipyards are bearing the brunt of the downturn, and more than 30% of them could go bankrupt this year, according to some observers. The current dearth of orders is not a new phenomenon, moreover, as Clarksons have pointed out that the numbers of orders for local Chinese yards have been declining all the way since 2007.     

Early in 2012, the dire situation facing China's smaller shipyards seems to have contributed to China's Transport Ministry banning from its ports any ships larger than 300,000 dead weight tons. For more on this somewhat controversial issue, see this Reuters report.   
Its always tempting to compare economic aspects of China and India, as we have done before. Exports is one area that is commonly compared; the chart below summarises briefly China and India's performance over the last decade. There are some striking observations. 

China and India Export Growth.png

Firstly, the scale indicates that India's exports are dwarfed by China's, yet both Chinese and Indian exports have increased substantially in the last decade. China's advance in exports was mainly situated in the Machinery and Electrical Equipment category, in which it has gained market share all over the world (i.e. in Australia, as we have outlined before) and which reflect the strategic evolving of its economy from the 1990s.  

India, however, have not focused on equipment as China has, but instead the bulge has occurred in the 'Other' category. The bulk of this 'Other' category includes Manufactured Goods, of which Engineering Goods in 2010 constituted about 65%. Petroleum Oil Products (or POL products) constituted a significant share of about 15% of India's total exports by 2010, and was the fastest-growing Indian export over the decade. Gems and Jewelry constituted another 16.2%. For some more info on India's recent export performance, see here
This is the first in a new series of posts looking at certain trade and industrial 'hotspots' in China.

China Henan Map.png
If you look at trade statistics for Chinese provinces in 2011, it is clear that something is happening in Henan, an emerging central province, and particularly in its provincial capital of Zhengzhou, one of China's 20 fastest growing cities. Zhengzhou is what some might call a typical second-tier Chinese city (Bentley and Louis Vuitton have just set up shop there). Provincial Value Added of Industry growth was a solid 19.6% in the first eleven months of 2011, yet what sets the province apart is the huge jump in foreign trade achieved in 2011. In August 2011, Xinhua picked up on Henan's trade bounty when it reported that Henan had registered total foreign trade of USD 11.7 billion for H1 2011 (this is perhaps an underestimate), with the European Union serving as the main trade partner. The province's main exports were silver, aluminium, vegetables, porcelain, and fur, while main imports were iron ore, lead ore, machinery, and wood pulp. 

According to China's National Bureau of Statistics, in the first eleven months of 2011, the y-o-y growth in the province's foreign trade was 78.5%, the second-highest rate of growth (Chongqing registered a full 143%). This rapid growth was from a relatively low base, it now stands at USD 28.4 billion (light years away from the likes of Jiangsu with USD 490 billion and Guangdong with USD 830 billion). Henan still also has a very low GDP per capita as well as average household consumption expenditure of only RMB 7837, the ninth lowest of all China's provinces, and the lowest average wages of all China's provinces (RMB 22,552). Yet the province's rapid growth in trade in 2011 points to the fact that something is stirring in Henan. 

From backwater to transportation and manufacturing hub
Although it is often regarded as somewhat of a rural backwater, Henan has a lot going for it. Consider the following. As a province of China, in 2010 Henan: 
  • had the third-largest population of 94 million people (Shandong had 96 million; Guangdong had 104 million)
  • had the second-largest cultivated land area of 7.9 million hectares Heilongjiang had 11.8 million)
  • had the second-longest total length of highways at 245,089 km (Sichuan had 266,082 km), and the fourth-longest length of railways in operation at 4,282 km
  • had the second-largest freight traffic at 20.0 billion tonnes (Anhui had 22.8 billion tonnes)

In 2011, moreover, Henan very much lived up to its reputation as China's breadbasket: it was China's leading province for Output Value of Agriculture, Forestry, Animal Husbandry and Fishery, with RMB 560 billion. Yet with a large albeit low-earning workforce, good transportation networks and a suitable geographic location close to the eastern seaboard, Henan is well-placed to take advantage of the large-scale relocation of manufacturing to cheaper central provinces. 
  
It comes as no surprise, then, that Foxconn, the original equipment manufacturer for Apple products, plans to hire an additional 100,000 workers at its plant in Henan, doubling its workforce there. Foxconn's Henan factory is itself brand new, only opening in August 2011. 

In appreciation of the province's attractive set of advantages for its business, Kerry Logistics in January 2012 announced plans to build a new logistics centre in Henan that will be targeting the electronics and technology, automobile, industrial and material science sectors. Kerry's managing director in mainland China put it well: "China’s coastal provinces have refocused to attract manufacturers of higher value-added products and there has been a migration of production to the central and western regions due to lower land and labour costs, we see the potential to transform Zhengzhou into one of China’s manufacturing and processing hubs."

Foxconn and Kerry are both setting up in Zhengzhou, the provincial capital and rising star of Henan. The city has been included in 29th place in the Top 50 Chinese Cities by Investment Potential list, and Zhengzhou’s imports and exports last year reached USD 13.5 billion, up 196% from 2010. Exports jumped 166% to USD 5.3 billion, while exports increased by 258% to USD 5.3 billion. Another prominent city in Henan is Luoyang, where CITIC HIC, one of the world's leading manufacturers of mining equipment, is located. 

The next China
Although its people are still relatively poor, Henan is on the cusp of the next development wave in China. It has a strong agricultural reputation, yet it also has a number of advantages that positions it to become a manufacturing hub in central China, ideally placed in central China close to the eastern provinces. 

It all means that you should probably get used to hearing the name 'Zhengzhou.' 


Note: All data is from China National Bureau of Statistics, unless otherwise stated. 
China Procurement Roundtable: Assessing China as a Supply Chain Partner for the African Mining, Industrial and Retail Sectors  

Venue: Radisson Blu Hotel Sandton (close to Hilton) Cnr Rivonia & Daisy, Sandton, Johannesburg, South Africa 
Date: 16 February 2012, 07:00 - 09:00 
Organiser: The Beijing Axis
Tel: +27 (0) 11 201 2453 

Briefing: From resource extraction and investments to consumer products and services, China’s presence in Africa and its role in the continent’s development can be observed in various facets of the economy. With China’s continued role as a key supply chain partner in the mining, industrial and retail sectors, supply chain managers of companies engaging with or planning to engage with China need to understand the realities and inherent complexities of dealing with the country and, specifi cally, the individual suppliers. The lure of eff ectively dealing with capacity constraints and minimising costs are strong incentives for reaching out to a low-cost country solution; however, this must be tempered with a robust understanding of the market, proper supply chain and logistics management, as well as developing a solid relationship with your supplier. This session will include an examination of actual procurement case studies that were inherently complex or that experienced difficulties in the process of execution. 

Please send confirmations to rsvp@thebeijingaxis.com before 10 February 2012. For any further enquiries please contact Dirk Kotze at +27 (0) 11 201 2453 or send an email to dirk@thebeijingaxis.com.