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Expert's reading of China's manufacturing stimulus plan
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On February 4, China's State Council adopted a stimulus plan for the country's equipment manufacturing industry. China.org.cn invited Song Qun, secretary-general of the Academic Committee of the National Development and Reform Commission, to explain and analyze the plan for you.

According to Song, compared with the stimulus program in 2006, this plan is different in four aspects. First of all, this plan has fewer and more-concentrated targets: developing key projects, improving technology and enhancing innovation, and supporting mergers and restructuring among large backbone enterprises.

Secondly, the plan is clearer about its emphases, which are the localization of large equipment and key projects, equipment automation and technological improvement in component manufacture.

Thirdly, this stimulus plan is also clearer in terms of the measures required to achieve its targets. Back in 2006, the government specified 16 key areas, while this time only six areas were picked out for localization. Also, there are three industries – steel, auto and textile – that are required to improve levels of automation.

Lastly, the plan is more relevant to the needs of manufacturing industry in coping with the current financial crisis.

However, the stimulus plan is principally a set of guidelines and will not provide a cure-all to existing problems. Dr. Song therefore suggests that the government also takes more detailed measures to facilitate the implementation of the plan. These measures should address questions such as which initiatives can be considered to be key projects, whether it is possible for local government initiatives to be selected as key projects, and how the term "localized" is to be interpreted.

The world financial crisis has had a significant negative impact on the Chinese economy, especially in low-tech industries with low added-value like textiles, small electrical appliances, and toy manufacturing. However, Dr. Song noted, manufacturing industry can also see the crisis as an opportunity to upgrade. In order to cope with global economic slowdown and prepare for future development, domestic manufacturing companies should take this opportunity to adjust their business structure and product range, integrate company resources, improve technology and promote innovation. As to industry as a whole, the sector should focus on the development of producer services, Dr. Song said.

The stimulus plan also calls for mergers and acquisitions among backbone enterprises to form larger group enterprises. According to Dr. Song, China has a number of large-scale manufacturers in industries like automotive, shipbuilding, and steel. However, these manufacturers do not have strong international market power, she added. Large companies should seize the opportunity for further mergers and acquisitions to increase their competitiveness in the global market. They should also promote independent innovation to gain higher market share.

The equipment manufacturing industry will play a key role in lifting China's level of industrialization and promoting the upgrade of the industrial chain, Dr. Song said. This is why the State Council now refers to the equipment manufacturing industry as a "strategic industry" instead of a "base industry" – the term used in the 2006 stimulus plan.

(China.org.cn by Yan Pei, February 16, 2009)

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