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Engineering News, June 2007
Crouching Tiger, Hidden Dragon

There is much more to come. The Beijing Axis MD Kobus van der Wath warns that South Africans often view China as benign, not realising fully what the Asian country is capable of.

“What has happened so far is in the foothills of a megatrend which you can only underestimate,” says Wath, whose consultancy acts as a business bridge between Africa and China.

Van der Wath says China's economy has grown 9,8% every year for the last 28 years.

Already China produces 33% of the world's steel, 81% of printers, 97% of scanners and 54% of the world's garment needs.

“Where is the threshold?

“Chinese boardrooms are now talking aggressively about moving globally, especially as the local market is filling up,” says Van der Wath.

He adds that China will not remain a low-quality producer forever.

“There is a new China we need to think about, a high-tech China that does not only focus on producing plastic toys and cheap garments; a China that beat Siemens in Germany to win a high-end telecoms tender.”

In terms of the automotive industry, Van der Wath points out that close to six-million vehicles were sold in China in 2006, up from about two-million a decade ago.

China is also on track to becoming the third- largest vehicle manufacturer in the world, after the US and Japan.

As far as exports are concerned, component exports to the US alone have increased from $1,6-billion, to $5,3-billion.

With margins under pressure, a growing number of manufacturers are buying components from China as a low-cost producer.

“At present, chassis and drive-train parts dominate Chinese component exports, at one-third of total exports. Engines still make up only 4% of component exports,” says Van der Wath.

However, he emphasises, China is moving quickly into the more high-tech end of component production.

“Some 25 factories dedicated to the manufacturing of engines and transmissions were under construction in 2005.”

As for vehicle exports, Van der Wath says the numbers from China are still small, but that the country is expected to become a major exporter of cars after 2010.

He acknowledges, though, that Chinese expansion abroad may be damaged by “overconfident, but under prepared smaller players”.

“In addition, marketing skills and the establishment of brands will take time.”

Van der Wath adds that Chinese manufacturers still fall short of quality and environmental standards in developed countries, with developing countries, such as markets in Africa and the Middle East, then the first entry points.

He expects the period of adjustment to the demands of foreign markets – especially developed countries – to take no more than five to ten years.

Through all of this, says Van der Wath, “Chinese companies are likely to receive huge government support, both politically and financially”.

It may not all be one-way traffic, though.

He notes that Chinese companies may establish manufacturing capacity in developing countries, especially in component manufacturing, as it will ensure greater market access.

All in all, says Van der Wath, Africa is one of China's fastest-growing vehicle export destinations, adding that South Africa will not escape the effects of China's rising competitiveness.

“Improving quality and continuing low cost will spearhead the Chinese auto industry's advance into Southern Africa.”

He is of the opinion that it is possible for South African companies to turn a potential threat into an opportunity, through proactive engagement.

This would include building relationships with Chinese companies, implementing strategic sourcing from China, contract manufacturing of components, or entering joint ventures to supply South Africa, Africa and the Middle East.