One size not for all

The financial crisis has dealt a hard blow to low-end Chinese manufacturers with international demand declining sharply.

For many towns - which host a cluster of low-end manufacturing small and medium businesses - the real challenge is industrial transformation to determine whether they are able to withstand the dark times.

China has many such manufacturing towns, especially in Jiangsu, Zhejiang and Guangdong provinces. They tend to be named as "so-and-so town", because they are good at making a particular product.

Hangji in Jiangsu province for instance is known as "the toothbrush town", while Yongjia in Zhejiang province is known as "the leather shoes town". Similarly Xintang in Guangdong province is known as "jeans town", while Dongguan is "toy town". The products from these regions are mostly sold abroad, at low prices. They are sold in the domestic market at affordable price tags but the quality is often circumspect.

Though these towns are small in size, they often have a complete industrial chain that is able to manufacture certain low-price goods at prices that are virtually unbeatable.

Individually speaking, these towns are just small business clusters, but as a whole, they are the driving force of China's transformation from a poor, agricultural country to a manufacturing giant.

However, with demand from Europe and America waning, these low-end manufacturing clusters are now facing substantial pressures.

If the low-end Chinese manufacturing cluster does not do well, then the economy of that region will also decline. It is therefore important for the government to address these issues fast and promote restructuring these industrial clusters.

The government should also take steps to strengthen intellectual property protection. At the national level, the government also needs to crack down on brand, technology and design infringements. Such an action from the government would help enterprises achieve higher profits, and enable the companies to increase spending on technology and design.

In other words, only if companies obtain a reasonable profit by innovating can they move away from the traditional labor-intensive and capital-intensive manufacturing models and invest further in research and development.

The local governments must reduce the administrative impediments that hamper the growth of these manufacturing clusters. Local officials need to bear in mind the old adage of "survival of the fittest." They should avoid being involved too much in business decisions and not interfere with the economic system.

Executive power should be committed to maintaining a fair market and the market mechanism should be allowed to play its role in making small, scattered and random clusters come together to be a cohesive and formidable industrial cluster.

At the same time, the companies also need to have a clear vision on their further growth. Survival is, of course, the biggest issue for them. But to survive, they also need to be clear on the direction they are headed for. Companies can choose to focus on the overseas market or domestic markets, or have equal emphasis on both markets.

The author is an independent economics commentator.