"Made in China" undergoing changes

GUANGZHOU, Jan. 6 (Xinhua) -- Lingering cold fronts caused sales of telescopes to be slack, as fewer people went observing outdoors. But Jinghua Optics and Electronics Ltd., a telescope manufacturer in southern China's Guangzhou, kept receiving orders.

What clients ordered were tiny projectors, which the company has introduced as a main product since the global financial crisis in 2008 to upgrade its consumer electronics.

"We used to assemble and sell telescopes to brand holders in the U.S. and Germany at a price of five to six U.S. dollars, while they sold them to consumers at 10 to 15 dollars each," said Huang He, vice general manager of Jinghua.

Low profit rates threw the company into a hopeless situation during the global economic downturn. In 2008, its net profit decreased sharply, by 83.4 percent, while total sales fell 19.6 per cent from one year earlier.

"Before we transformed our product structure, the gross profit rate of our company was only 14 per cent. It reached 45 per cent in 2010. I think our transformation is quite successful," said Huang.

To overcome similar difficulties of low profits, Flextronics International, a large company offering electronic manufacturing services, is shifting its business to produce goods with low-yield, high complexity and high-integration.

The main products of the company used to be electronic circuit boards and some digital gadgets. Since it was the original equipment manufacturers (OEM), the company was at the bottom of the industrial chain, with an average profit rate of no more than 3 percent.

In recent years, the company has been transforming itself to process high-end products, for instance, to make system integrations for the auto industry, infrastructure companies, and others, with the average profit rate up to 15 per cent, said Edy Jianto, General Manager at Flextronics Electronics Technology (Suzhou) Co., Ltd.

Like many products China exports, such as the Barbie and iPhone, Jinghua's telescope and Flextronics' circuit boards are part of the complicated global industrial chain, with design, production and assembly involving several countries and regions. The meagre profits China made from those exports belied the country's huge trade surplus.

Experts have been arguing that by using the rules of origin, China's trade surplus has been exaggerated. The surplus of a Barbie doll exported from China was almost six times overestimated and that of an iPhone was 26 times amplified.

Statistics from China Customs showed 54.7 percent of China's total exports came from foreign or foreign-invested companies operating in the country during the first 11 months of 2010, and the value of their exports made up 66 percent of China's total trade surplus.

"While the volume of trade surplus is roaring on China's account, the actual profit flows to the developed countries, like the U.S.," said Zhou Shijian, a senior researcher with the Center for U.S.-China Relations at Tsinghua University.

"This has become a peculiar scenario in the international trade structure, which is neglected by many people, purposely or not." he said.

Crisis-stricken countries tend to advocate less imports and more exports when pursuing the rebalancing of their economies. They often resort to imposing pressure on China's currency and implementing trade protection policies, said Liu Dexue, a professor at Jinan University in Guangdong Province.

"It is pointless to take protection policies, as they collect the most profits. Those policies would actually hurt the interest of consumers in their own countries." said Liu.

Many OEM companies in China believed the root of the "high-surplus and low-profit" situation was the dominating power of multinational companies which control the world's processing trade.

The processing trade refers to the business activity of importing all or part of raw and auxiliary materials, parts and components, accessories, and packaging materials from abroad, and re-exporting the finished products after processing or assembly by companies within China.

Jinghua's Huang said his company bought the U.S. company Explore Scientific and also acquired the trademark in December 2009.

Huang said by purchasing the trademark, the company is trying to move itself to the forefront of the production chain and its goal is to become one of the world's leading suppliers of high-quality optics and electronics equipments within 3 to 5 years.

"We hope one day we can sell iphone-like products directly to consumers." said Huang.