China has transformed into a trade powerhouse and a world factory with more than two decades of market reforms and opening up, but the country should not just be a world factory, said participants Sunday at China Business Summit 2004.

China Business Summit 2004, sponsored by the World Economic Forum and China's National Development and Reform Commission, is being held on Sept. 12-13 with a wide-ranging program focusing on balancing China's fast and smart growth.

"The challenge for China now is not just to be a part of the global supply chain, but to move up the value chain as well," said Frederick Hu, Managing director with Goldman Sachs.

China today is a vital part of the global supply chain for it is the world's largest producer in a range of products including textiles and clothing, telephones, color TVs and microwave ovens, with a third of global production, he said.

"To date, much of manufacturing in china is heavily concentrated on labor intensive, simple processing and assembly operations. It's not sustainable for China to rely completely on those low value added and low margin business," Hu said.

He suggested that Chinese firms must boost investment in research and development(R&D) and acquire and own intellectual property from brands, copyrights to patents and trademarks, and the country then will stay competitive in the global supply chain and even move up the value chain.

According to statistics, Chinese companies spent averagely one percent of its total sales on R&D in 2003, much lower than world average of five percent.

Scott Summerville, President with Rockwell Automation Asia Pacific also pointed out that China should recognize that low cost labor is not a permanently competitive advantage; innovations and product development are eagerly needed in the manufacturing process and supply chain integration.

He said, China should further promote a mindset among enterprises that manufacturing and the supply chain are vital areas of competitive differentiation and strategic advantage.

The companies should also deepen and widen the understanding that information is power and its pervasive acquisition and use in the manufacturing environment is critical to achieve manufacturing strength, he suggested.

He acknowledged that the country is already moving in this direction and it's good development that growing companies are beginning to learn the power of brands and building brand equity.

"But how long will China remain just a factory really depends on how quickly China can make the changes mentioned above," he said.