Page last updated at 08:42 GMT, Thursday, 21 January 2010

China's challenge: Quality and quantity

By Chris Hogg
BBC News, Shanghai

Worker in Higer bus factory
The Higer bus plant saw business pick up towards the end of 2009

If you get on a bus in China, there's a good chance the workers at the Higer plant in Suzhou, a city in eastern China, built it.

In grey overalls, with bright yellow safety helmets, dozens of them swarm over the huge black metal chassis at the start of the production line.

It takes about 20 minutes to walk the length of the line from where the crane dumps the first metal skeleton that forms the backbone of the bus, to the other end where the fixtures and fittings are carefully placed in the finished model.

It takes three weeks for each bus carcass to make the same journey. This is heavy work, labour intensive, and noisy.

Last year started badly but finished well for the company, according to Wang Xin Liang, one of Higer's managers.

A fall-off in orders after the Spring Festival last January forced them to ask workers to work a four-day week for a while.

We sell our buses in the Middle East, Russia, South Asia these days, not just in China
Wang Xin Liang, supervisor at Higer Bus Company

It wasn't until the second half of the year that business picked up again.

The effects of China's huge economic stimulus programme began to be felt. Local governments used some of the money to replace their ageing bus fleets.

Returning to growth

By the end of 2009 Higer's order book showed growth of 10% year on year.

Chinese agricultural workers

Wang Xin Liang, one of the company's managers, says they've set themselves the goal of growing their business by the same amount this year.

"We have confidence we can meet the target," he says.

Higer is the kind of business that has helped China's economy grow to rival Japan's as an Asian economic superpower.

"We sell our buses in the Middle East, Russia, South Asia these days," Mr Wang explains, "not just in China."

"We're the second largest bus company in the country, one of the top 10 in the world," he declares.

After more than a year of declines in monthly export figures, China reported better trade data for December which showed the sector was recovering.

Sustainable or not?

Year on year export volumes were rising again. Month to month the figures were increasing too.

Eric Chen, Meder Electronics
The new China. High tech. High quality.
Eric Chen, sales manager, Meder Electronics

That has helped reinforce the view here that the country's economic recovery - earlier and stronger than anywhere else - is sustainable.

But, some analysts, like Dr J Therese Tong, an independent financial consultant from Shanghai, fear the country's growth model is not robust enough.

"The stimulus is only workable on a short-term basis," she says. "An export-driven economy is also unsustainable.

"Financial crises have been a recurrent phenomenon for the last four decades and therefore the question is not whether there will be another crisis but when.

"China will likely face another slump in exports [when it hits] which will affect her economic growth significantly."

China's latest economic data gives a strong indication that it is on course to overtake Japan to become the world's second biggest economy. That won't be confirmed until Japan reports its full-year GDP data next month.

Attention to detail

Many economists expect China to edge past Japan at some point during 2010.

At Meder Electronics, a Chinese joint venture with a German partner, housed in a small factory on the outskirts of Shanghai, sales manager Eric Chen talks with enthusiasm about the Japanese "mindset" of attention to detail, diligence and care for quality he would like to instil in the Chinese staff working at the bench in front of him.

He says the electrical component firm represents "the new China. Hi-tech. High quality".

Certainly the production line couldn't be much more different from that at the bus factory.

It's a fraction of the size. The operators are nearly all women. They sit on small stools, peering through microscopes at tiny coils of wire they are making into switches. It's a lot quieter too.

This is the sort of high value manufacturing that Japan has always done so well, the kind of work that China needs more of if its economy is to continue to grow.

Competing with Japan

Mr Chen admits that China still has to close the quality gap with Japan when it comes to producing the kind of complicated, delicate components they make here, "but we will achieve it", he says with a grin.

Top six global ecomonies' GDP

Meder is a modern enterprise that has learnt a lot from its German partners.

Higer buses say they too are putting a lot of effort into developing their own technology to supplement that they obtained from overseas when they first went into business.

So successful are they, the Higer manager Mr Wang says, that "during a recent auto show, Japanese experts came to inspect our coaches and test them. Afterwards they sighed and admitted that our technology is more or less the same as theirs now", he laughs.

Competition between the two countries will intensify as Chinese firms move up the value chain and start manufacturing more products for markets that Japan would once have never expected them to compete in.

But Dr Tong warns that Beijing should also study carefully Japan's experiences since its breakneck period of post-war growth slowed, to try to avoid suffering the same problems Tokyo's struggled to deal with.

"Despite strong economic growth [the Japanese face] a widening wealth gap, a reduction in income and consumption, disillusion and loss of hope triggered by the end of lifelong employment," she says.

China today is already facing some of these challenges. Tomorrow, it could get even worse.

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