Multinationals manufacture margins
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Even though the factory he works for produces 2 million computers for various global brands each month, Jin Zhiqiang does not intend to buy a computer assembled by himself for a simple reason.
To Jin, a migrant worker from Anhui province, having a laptop computer seems too luxurious.
"A computer we've assembled costs about 4,000 yuan ($607) in the market. The price is three times what I can earn in a month and I just cannot afford it," said Jin, a 37-year-old migrant worker at a laptop computer assembly line at Singapore-headquartered Flextronics International's manufacturing base in Suzhou, Jiangsu province.
Jin's frustration described the unparalleled chasm between what thousands of his colleagues give and take at Flextronics' Suzhou branch.
Flextronics and many other electronic manufacturers, including Foxconn, China's largest contract electronics manufacturer, helped the country shine in 2010 exports. These companies hold dominant positions in contract manufacturing and processing services with the world's top brands in the computing, industrial, and mobile phone sectors.
Processing refers to the business activity of importing all or a portion of raw and auxiliary materials, parts and components, accessories, and packaging materials from abroad, and re-exporting finished products after processing or assembly by Chinese companies.
Among China's $170.4 billion trade surplus in the first 11 months of 2010, $112.5 billion came from foreign-funded enterprises, according to statistics released by the General Administration of Customs in December.
China's processing trade surplus hit $291.1 billion from January to November in 2010, the equivalent of 1.7 times its total trade surplus. This meant the country actually registered a trade deficit in its exchange of goods and services with other countries, excluding processing services.
In a recent study, Yuqing Xing and Neal Detert, researchers at the Tokyo-based Asian Development Bank Institute, found that traditional methods of calculating global trade figures produce a number, but fail to reflect the complexities of modern global commerce where the design, manufacturing and assembly of products often involves several countries, reported the Wall Street Journal.
The researchers found that trade statistics in China and the United States consider the iPhone to be a Chinese export, even though it is entirely designed and owned by US-based Apple Inc, and is made largely from parts produced in several Asian and European countries. China's contribution to the product is the last step - assembling and shipping the phones.
That statistic alone reflects how the reality of global commerce is distorted in international trade data and it exaggerates trade imbalances between nations, the journal quoted the researchers as saying.
Edy Jianto, general manager at Flextronics Electronics Technology (Suzhou) Co Ltd, estimated that many multinational companies enjoy a gross profit margin of between 50 to 60 percent while Chinese contract manufacturers have an average margin of around 3 percent.
"Compared with multinational upstream companies, our profit margin is definitely on the low side," Jianto told Xinhua.
Observers say China's huge trade surplus, whether the data is distorted or not, brings only meager benefits to the Chinese and its industrial workers, in particular.
Zhang Yansheng, director of the Research Institute of Foreign Economic Relations with the National Development and Reform Commission, said China's contribution to the value-added chain of international trade was limited to the assembly and shipping of electronic products, the last step for original equipment manufacturers (OEMs).
The majority of the profits from "Made-in-China" OEM products are taken out of the country by multinationals, Zhang said. "This is an irrefutable fact I've underscored for many years," he said.
According to Zhang, China is now under pressure due to rising costs of labor, land, resources, energy and other factors of production, undermining the low-cost advantage of "Made-in-China" products.
"In about five to 10 years, such low-cost advantages will be over for China, so we need to seek out our own competitiveness in the future," he said.
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