In what the Financial Times describes as a great leap, next year (and four years earlier than expected) China is set to become the world's largest producer of manufactured goods with 17% of manufacturing value-added output, while the rapidly weakening US economy will have to settle for second place with 16%. Underlining the surge of China's manufacturing-led economy (China contributed only 3% of global manufacturing in 1990), The Financial Times is in no doubt about the historical significance of the development:

The expected change will end more than a 100 years of US dominance. It returns China to a position it occupied, according to economic historians, for some 1,800 years up to about 1840, when Britain became the world's biggest manufacturer after its Industrial Revolution.

One defining element that typified the divergence between China and the West during the latter's rise to ascendancy during the Industrial Revolution was the utterly novel ability to build a machine, and a steam engine in particular - the quintessential invention of the Industrial Revolution. Here I can only acknowledge my sage old history professor at the London School of Economics, Prof Kent Deng who, with his paper Why the Chinese Failed to Develop A Steam Engine, delved into the multiple reasons why pre-modern China was never able to progress from building production processes relying on human or natural forces to inventing a man-made engine utilizing the conversion of one form of energy to another, as is the case with the steam engine.

Yet in an inverted parallel between ancient China and the modern, confident Middle Kingdom, contemporary China's ability to build and export various machines is indeed setting it apart from the rest of the world. Apart from its imminent status as the world's leading manufacturer, China is now the world's leading exporter of machinery and electrical equipment (i), and it exports more high technology than Germany and Japan (ii). Most (56%) of its high tech exports, moreover, go to the US, Japan and Germany (ii), and its high tech exports to the US has grown by 197% from 1990 to 2004 (ii).

If 2009 is then to be the year when China officially returns to a position of dominance in the world, it remains a fascinating sight to behold China's ongoing great leap into the unknown - by no means a perfect journey, but history moving before our eyes.

Does the Peri minicar (left), built by China's Great
Wall Motor, look remarkably similar to the Fiat Panda (right)?


A Turin court was in no doubt last month when it barred the Peri from being sold in the E.U., after an appeal by Fiat. Yet unsurprisingly, Great Wall Motor was able to shrug off the Italian court's decision, because a few days later a Chinese court dismissed the claim filed by Fiat in China alleging the GWPeri model was an infringement of its patent.

The Peri/Panda case is by no means the first claim of imitation against Chinese auto makers. In 2006 The Times described at length how the likes of General Motors, Rolls-Royce, BMW, DaimlerChrysler, Honda, Audi, Nissan, Toyota and Mercedes-Benz have all had to fend off a so-called attack of the clones from Chinese manufacturers like Chery, Shuanghuan, Hongqi, Geely and JiangLing. Some analysts have even concluded that Western manufacturers have to accept copying as part of the price of doing business in China, like Honda concluded when it lost half of its motorcycle manufacturing market share in China to cheaper Chinese immitations. Staying in China, Honda decided, required entering into partnership with some of the very companies copying its bikes. 

Yet with the steady growth of the Chinese car market, China is no longer producing just lower-value clones. Chinese brands have grown to the point that 57% of all vehicles sold in China in 2006 were from local manufacturers, and in March 2006 Chery Automobile became the first Chinese auto maker to top the domestic car sales list. To actually break in to markets overseas, however, and to overcome their disadvantages in product and business model innovation and manufacturing quality, Chinese car makers have to make a quantum leap across the automotive value chain, enhance quality standards while developing unique models. While positioning itself for exports, Chery has been co-operating with global design and engineering experts and is now boosting exports to markets such as Egypt, Italy and Russia.

For many years regarded as low-end, unreliable brands, Chinese auto manufacturing is experiencing a gradual coming of age with the global emergence of Chery, and with the growth of the market in China and government encouragement of R&D, China will gradually lose its knack for manufacturing cheap clones.

Additional sources:
China. An Automotive Industry on the Verge (Accenture)
Shaping the Future of China's Auto Industry (McKinsey)
Foreign Technology in China's Automobile Industry (China Environment Series)

Images:
http://blogs.automobilemag.com (Panda)
http://www.cnnauto.com (Peri)