There were once hundreds of local construction machinery manufacturers in China; now there are only a few leading names. Who decided which would fail and which would succeed? A few years ago, the government appears to have chosen a few promising organisations and stocked them with the research-institute talent and the money to raise them to a level of export quality. Others have been let to wither, says Stuart Anderson.
In foreign markets, Chinese cranes cost only peanuts, because the Yuan is set so low against the dollar. Who is in charge of the exchange rate? The government. It looks like the government supports an export market by stocking up the manufacturers and keeping exchange rates low.
In the domestic market, as well, the Chinese government protects its own. World Trade Organisation regulations prevent the country from discriminating against imports. But if a type of crane is already manufactured in China, then the government charges a 10% levy – and that’s before 17.5% tax.
Whether it is the market or the government doing the pushing, domestic manufacturers are certainly rising to challenge market segments where imports dominate by launching new products such as large crawlers. The tariff certainly does not help free trade. Also, government entities are surely the single largest shareholders in the Chinese construction machinery industry.
So it also appears that the government protects the domestic market for the manufacturers that it has stocked with money and talent by pricing out foreign competitors. It also creates domestic work by spending money on infrastructure improvements.
In the short term, Chinese companies may benefit from all of this intervention. And since the government has large shareholdings in them, the government wins. As long as the government keeps taking money out of one pocket and putting it in another, communism will remain. In the long term, sheltering Chinese firms will only hold them back from having to face, and adapt to, the harsh competition of the free market.