China currently accounts for more than half of the emerging-market electronics production and 8 percent of the total global production. In the future, it will take a commanding lead in key value chain elements; for example, it will account for more than half of all final assembly activity by 2005. Higher-margin activity, such as design and engineering, will move there as well, but not as rapidly as production will.
Several factors explain Chinas attraction. First, it has made electronics a priority, and it is sweetening the pot with highly subsidized financing. In some cases, to draw multinational investment, the government even provides facilities and equipment. As a result, electronics production in China is expected to surpass Western Europes production, reaching $80 billion in 2005. Chinas growing base of talent and experience is also a lure; some Chinese who study engineering and other disciplines in the United States are now returning to China to provide leadership.
In addition, a cluster effect is taking hold: As the electronics industry in China matures, foreign manufacturers can find suppliers nearby, which makes manufacturing more efficient. The traditional fears of developed-country manufacturers operating there that China is too far from the markets to which they are selling, that their products are too high-tech to be produced in a developing country, that the transportation infrastructure isnt good enough, and that the necessary parts for manufacturing arent available are slowly disappearing.
Multinational electronics producers are also interested in China because they want to penetrate its huge market, now the worlds largest market for cell phones and color televisions, and the second largest for personal computers, after the United States.