With recent figures showing that the manufacturing sector is the biggest victim of the current economic turmoil in Europe, the impact of the global slowdown is also becoming increasingly evident in emerging economies – including the manufacturing powerhouse of the BRIC economies.
Whilst the UK’s GDP growth is expected to fall 1.2 percentage points in 2009, Brazil’s is tipped to fall by 4.6 percentage points, Russia by 4.3, India by 2.7 and China by 1.8 percentage points.
At the start of the financial crisis in the West many commentators thought that the large emerging economies such as China and India would be able to “de-couple” from the recession and continue to grow at similar levels to recent years. This has not proved to be the case and the BRIC economies have been severely hit by the recession, particularly in some of the key manufacturing regions.
One such example from China is Guangdong, a southern province of China close to Hong Kong. It is a major manufacturing base for electronic products, toys, textiles and plastics. The region accounts for around a third of China’s exports and is the country’s richest province.
The impact of the recession in the region is clear with growth in exports slowing dramatically from 22.3 per cent in 2007 to 5.6 per cent in 2008.
However, China has big plans for manufacturing in Guangdong. The Pearl River delta area of the province looks likely to be turned into a technological hub with the Chinese National Development and Reform Commission recently releasing plans for the region to become a significant innovation centre by 2020.
The investment by China in this region is impressive: Around 100 state laboratories for engineering innovation and research and development will be established in the next three years and the goal is that by 2012 there will be three to five industrial clusters powered by high-technology that will generate more than $14.60 billion in industrial output in total. By 2012, R&D expenditure will account for 2.5 per cent of the region's annual GDP, and the proposal sets out plans to improve intellectual property rights protection and make finance more accessible for companies occupied in technological development.
China is here to stay as one of the world’s great manufacturing centres. It still offers the UK’s manufacturers great advantages in terms of a large and relatively well skilled labour force and is a huge market for sales if companies are able to position their products successfully in China.
Doing business in China has always been challenging and is perhaps more demanding today as a result of the recession. But it is simply too large to be ignored by UK manufacturers - and we should embrace the developing and changing opportunities it provides.
Our China Advisory Service, led by Katherine Liu, employs both British and Chinese nationals with substantial commercial knowledge and expertise in establishing and operating businesses in China. If you would like further information about how we can help you, please contact your local BDO Partner, or Tom Lawton, Head of Manufacturing at BDO.