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China Briefings

Reports on China issued by Samsung Economic Research Institute

China Business Intelligence No. 20

China Business Intelligence No. 20

Samsung Economic Research Institute Beijing Office

Feb. 20, 2007

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Highlights

I. High-Speed Economic Growth Despite Concerns Over Sustainability

  • Although China's economy achieved impressive 10.7% growth in 2006, questions emerged over the current economic model's long-term sustainability. In particular, a burgeoning trade surplus (US$177.5 billion in 2006), coupled with the inability to cut down on energy consumption, challenged government initiatives to change the economy's main growth drivers.

II. The Sustainability of Chinese Automakers' Growth Strategies

  • Chinese automakers have recently made aggressive moves to increase overall competitiveness. In particular, auto producers have sought tie-ups with more technologically advanced foreign producers and sought to increase brand awareness and sales channels abroad.
  • Overall, Chinese automakers growth trajectories can be classified as incremental or radical. Their incremental growth path has been either technology or marketing led. At the same time, direct competition with multinational peers has been avoided. The technology push focuses existing resources on technological development to achieve independent R&D and innovation.

III. The Implication of Decreasing Manufacturing MNC Investment in China

  • After a sustained period making manufacturing investment into China, MNCs are diversifying manufacturing investments. In 2005, manufacturing investment inflows to China fell 1.3%, after gaining 16.5% in 2004.
  • Overall, Korean firms need to review the idea of diversifying manufacturing investments toward Southeast Asian region. Given that China's comparative strength in production costs is getting weaker, Korean manufacturers should examine the feasibility of shifting their investments toward ASEAN countries.
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