People's Observation: What Are the Difficulties in Domestic Production of Key Equipment?

Home>>Opinion

Last updated at: (Beijing Time) Friday, August 08, 2003

People's Observation: What Are the Difficulties in Domestic Production of Key Equipment?

DISCUSSION

CHINESE

SEND TO FRIEND

This is a string of cheering figures: in the first half of this year, the total output value of China's machinery industry neared 1.2 trillion yuan, a growth of 30 percent year on year; and profits earned by the industry in the first five months exceeded 56.6 billion yuan, a 93.09 percent rise.

Although the machinery sector has been performing quite well, the nation must not neglect the fact that China's independent production capacity is still fairly low. The nation's key technological equipment, as a major manifestation of the overall strength of a country, has long been depending on import, which is doubtlessly a hidden peril for the country's economic development and security, said Lu Yansun, vice-president of China Machinery Industry Federation (CMIF).

Key equipment is vitally important

Key technological equipment refers to equipment with a high technological content that is widely associated, and usually produced in complete sets; it's a knowledge-, technology- and capital- intensive product. The technological level of a manufacturing industry, represented mainly by key technological equipment, directly affects and decides the competitive power of other sectors.

China's machine-building industry grows at a high average annual rate of 17.6 percent, giving a powerful push to sectors such as iron and steel, power, coal and petrochemistry. Statistics show that 40 percent investment in power, metallurgical and petrochemical industries go to equipment purchasing. According to CMIF senior engineer Sui Yongbin, if we can produce key equipment by ourselves we could usually save money by one-third compared with importing equipment of the same type from overseas. What' more, when we import equipment we also import expensive spare parts along with them, which cost much for maintenance and therefore raise enterprises' operation costs.

However, compared with some developed countries, we do need to raise our standard in manufacturing key equipment, especially complete sets. For example, our thermal power generating unit (nearly 60 percent are home made) consumes an average of 414 grams of coal when providing a kwh electricity, while the figure for foreign equipment is 300 grams/kwh. On this item alone the nation not only uses an additional amount of 120 million tons of coal each year, but causes more environment pollution.

For a long time we paid more attention to hardware than software, to import than assimilation, as a result the nation's key equipment fell into an "import-backwardness-re-import" situation. Taking petrochemical equipment for example, during the past two decades we introduced dozens of large sets at a total cost of US$25 billion, but today the nation's petrochemical equipment of high technological level is still dominated by foreign products. "Facts tell us repeatedly that the latest and most sophisticated key products can never be bought, and our long-term dependence on imports will inevitably pose a threat to China's economic security", warned Sui Yongbin.

Research and development must be ensured

The Jinan No.2 Machine Tool Plant in east China's Shandong Province has always cherished the unshakable conviction that research and development should be given priority no matter how limited their funds are. Their self-developed series pressure gauge, with their pressure tonnage extended from 2000 tons to 6300 tons, has reached the advanced world level. They also provided General Motors with seven automatic punching lines.

But not many equipment enterprises pay such attention to research and development as does the Jinan plant, and over 60 percent of their spending on imports go to the purchase of drawing and technique patents, without intellectual property. The R&D funds of domestic enterprises only account for 1 percent of their sales income while the figure is 5-10 percent in foreign companies. China's key equipment enterprises must reform in technological innovation, incentive mechanism and fund channels if they want to get an upper hand in competition.

Some domestic enterprises lack an awareness of serving their clients and are weak in marketing capacity, many of them cannot actively form "alliance" with clients and engage themselves in the "designing" process of complete sets. Some of them, unable to win a bid in domestic key projects, are reduced to cheap laborers producing parts for foreign firms who have succeeded in bidding.

Effective risk sharing and credit support needed

"Who dare to touch the knotty problem of home-made complete sets? It involves too much risk, since a set of equipment could easily cost tens of millions yuan, or even hundreds of millions yuan!", said Sui Yongbin. On top of a lack of an effective risk-sharing mechanism, an unfair market competition environment also holds back the nation's key equipment industry.

It is known that the nation's financial and tax policies give more preferential treatment to the use of imported equipment than to domestic equipment purchased. On the contrary, domestic enterprises must face higher tariff when importing raw material and auxiliary parts in helping domestic production of set equipment, thus losing their price advantage over imported sets.

Whether developed or rising industrial countries, they all give full policy support to key equipment manufacturers, so as to share the risks and enable home-made sets to enter into the market, said Lu Yansun.

The manufacturing of key equipment usually takes a long time and large amount of funds, so the industry needs urgently effective credit support from the government, Lu added. Meanwhile, policy support must focus on some major manufacturers.

By PD Online Staff Member Li Heng

Questions?Comments? Click here

China's Machinery Enterprises Set Record High Overall Output in 2002

China to Promote Exports of Electronic, Machinery Products

Growth of China's Machinery Industry Estimated at 20%

DPRK's Kim Jong Il Elected Member of Parliament ( 2 Messages)

Main Party of China's First Euthanasia Lawsuit Dies ( 2 Messages)

For Whom Does Jackie Chan Feel Pity and Shed Tears? ( 5 Messages)

News Analysis: Bush's Political Fortune to Rise or Fall? ( 4 Messages)

Japan to Be Restored as China's Biggest Tourism Source ( 3 Messages)