China's industrial strength

[Martin Hart-Landsberg <marty@xxxxxxxxxx>]

Just came upon an interesting article that apparently appeared in Foreign
Affairs July/August 2004.  It can be accessed at another site:
http://www.howardwfrench.com/archives/2005/08/13/the_myth_behind_chinas_miracle/

The article, called the myth behind china's miracle, includes a number of
interesting statistics (unfootnoted) that highlight the large and growing
foreign domination of China's domestic and export activity in high tech,
and also the weak research and development capacity of China's domestic
firms.

Wondered what people think of the argument and significance.
Marty


A snippet:

A close look at the breakdown of Chinas exports by type of producing firm
puts Chinas economic rise in perspective. Foreign-funded enterprises
(FFEs) accounted for 55 percent of Chinas exports last year. In this
respect, China diverges from the typical Asian success story. According to
Huang Yasheng of the Massachusetts Institute of Technology, FFEs accounted
for only 20 percent of Taiwans manufactured exports in the mid-1970s and
only 25 percent of South Koreas manufactured exports between 1974 and
1978. In Thailand, the FFEs share dropped from 18 percent in the 1970s to
6 percent by the mid-1980s.

As shown in the figure on the next page, the dominance of foreign firms in
China is even more apparent in advanced industrial exports. While exports
of industrial machinery grew twentyfold in real terms over the last decade
(to $83 billion last year), the share of those exports produced by FFEs
grew from 35 percent to 79 percent. Exports of computer equipment shot
from $716 million in 1993 to $41 billion in 2003, with the FFEs share
rising from 74 percent to 92 percent. Likewise, Chinas electronics and
telecom exports have grown sevenfold since 1993 (to $89 billion last
year), with the FFEs share of those exports growing from 45 percent to 74
percent over the same period. This pattern repeats itself in almost every
advanced industrial sector in China.

The data featured in the figure highlight another trend that reinforces
Chinas dependence on foreign investment and the growing gap between FFEs
and domestic Chinese companies. In the 1990s, Beijing permitted a new FDI
trend to develop: a shift away from joint ventures and toward wholly owned
foreign enterprises (WOFEs). Today, WOFEs account for 65 percent of new
FDI in China, and they dominate high-tech exports. But they are much less
inclined to transfer technology to Chinese firms than are joint ventures.
Unlike joint ventures, they are not contractually required to share
knowledge with local partners. And they have strong incentives to protect
their technology from both domestic and other foreign firms, in order to
capture a greater share of Chinas domestic markets. As a result, according
to the most recent Chinese government statistics for high-tech industries
(pharmaceuticals, aircraft and aerospace, electronics, telecommunications,
computers, and medical equipment), FFEs increased their total share of
high-tech exports from 74 percent to 85 percent between 1998 and 2002. But
perhaps more significant, in the same period, they increased their share
of total domestic high-tech sales from 32 percent to 45 percent, while the
share of that market held by Chinas most competitive industrial firms,
SOEs, fell from 47 percent to 42 percent.