China is taking a lot of flak these days. The U.S. government wants the Asian country to let its currency appreciate against the dollar to help reduce the growing trade deficit the U.S. runs with China. Recently, the Semiconductor Industry Association called on China to eliminate tariffs on chips imported into the country. For many electronics industry executives, China is a puzzle. It is a potential revenue generator and a definite strain on resources. Tapping China's low-cost manufacturing opportunities requires substantial investment in personnel and other resources. Yet the payoff may be years
away in a country still struggling to put together the various elements of its supply chain. Last month, for instance, China agreed to lift restrictions on foreign ownership of import and export firms, which could help electronics OEMs seeking to lower their materials costs by procuring components in China. For major OEMs, this was a major victory. It does leave a bittersweet taste in the mouth of smaller OEMs, however. According to reports, foreign firms that want to benefit from this new program should expect setup costs to reach $3.6 million.
Despite such hurdles, it does appear that China is trying hard to meet its obligations under the World Trade Organization agreement. It is opening up sectors of the economy even more rapidly than required by the WTO. Even U.S. Treasury Secretary Snow received a sympathetic hearing from China to his calls for a fairer valuation of the yuan.
But China is not going to change overnight, and investments are not going to yield great results immediately. The only way to take advantage of the opportunities is to develop a two-pronged strategy of seeing China as a long-term opportunity while using it to satisfy demand elsewhere.
The SIA's tariff call, however, is a sign that perhaps things are shifting too rapidly in regard to China. China's share of the global chip market is rising, putting pressure on the largely Western chipmakers to sell to China and also situate plants there.
While organizations like the SIA are right to insist on fair terms for its members, it is also necessary for them to understand China's delicate situation. Its transition to a market economy can easily shatter, destroying the country's cohesiveness. Also, even as the West pressures China to open up its economy and devalue its currency, Western governments have kept in place restrictive terms on the export to China of certain types of dual-use technology, hobbling China while encouraging it to run faster in the economic sphere.
It's best to let China continue to take moderate steps toward economic development rather than push it to leapfrog into the developed world's faster market environment. The outcome otherwise may not be pleasant for either China or the rest of the world.
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