 Well, I would like to welcome everybody to this very interesting session here in Summer Davos. And personally, I believe the subject matter of this session, the future of Chinese manufacturing, is probably the single most important question for the Chinese economy, which is seriously slowing down right now. If we get this question right, we'll get many other things right. If we get this wrong, then nothing else really matters. And we're very privileged to have some very distinguished participants for this panel, and I'd like to introduce the model to you at the very beginning. Kevin Rod, who is a member of the Australian Parliament, also the 26th Prime Minister of Australia, who was also the very first Chinese-speaking leader of a major Western country. Mr. Kevin Rod. And Carlos Gong, a household name in the manufacturing, in the car manufacturing sector, who successfully turned around Nissan many years ago, the CEO of Renault-Nissan, Fika, who is a chairman and CEO of DSM, one of the largest chemical companies in Europe, and Mr. Xu Heyi, who is a chairman and CEO of Beijing Automotive Group, who is also the Chinese partner for Mercedes and Hyundai, whose company manufactures both Chinese local brands and international brands. And last and certainly not the least, Gary Coleman, who is the managing director of global industries of Deloitte, who is an expert in a lot of industries, particularly in the manufacturing world. And I would like to begin by throwing out the first question that most of the Chinese CEOs have right now. There's a big debate in China right now, which is also the reason why this team, our team at CCTV, which produces China's most watched TV show on business economy every day, chose the subject matter, because most of the CEOs in China have come to realize that first of all, we have to be very careful because the last 10 years, China has given a lot of resources, a lot of attention to the financial sector. And the manufacturing sector seems to have lost steam in certain areas. Many of the largest corporations in manufacturing in China probably made more money or profit from their financial investment rather than their core manufacturing business. This is a very dangerous trend, and this is certainly a trend that we're trying to contain as well. And secondly, there's been a national debate on what might be the right development model for China's manufacturing for the next 5 to 10 years. Should we continue what we're best at, which is our low-end, so-called low-end manufacturing? Our core competitiveness is still probably our more affordable labor cost, our favorable policies, that we should stay at this where we are in the distribution of labor. Or should we seek to transcend, making China to what we call the created in China format? So such is a big debate in the country, and increasingly more CEOs are saying that probably, particularly at a time of global downturn, we should focus more on the traditional strength of Chinese manufacturing, which brings us to our first question. We do have a piece of small board next to you, and if you can take it out, and there is a question, number one question, which is what do you think is the way out for Chinese manufacturing? Should we strengthen our low-end advantages, or should we move to the high-end model as quickly as possible? You also have a pen that we hope you can draw a circle of your choice, and your choices will be our first topic of discussion. If you have to choose one. We cannot choose none or both. You have to choose one. You have to choose one. You can't choose both. You have to be TV friendly. We don't have to worry about being politically correct or appropriate or diplomatic now. No, we have to be right. Transforming into high-end manufacturing. Mr. Xu, did you have an answer? Transforming into high-end and transforming into high-end. So it's pretty obvious that you all have the same conclusion. Whereas many of China's top economists, some of them here at the Samo Davos, believe the contrary, China should probably remain and stay where she is right now. Why don't we begin with Gary? So I chose high-end to put that into context today. China has probably close to 20% of global manufacturing output on a global basis. That's on par with the United States and that's something to be proud of and something that is competitive. China today has abundance of engineers and scientists. That's also good. You still maintain on a relative basis, maybe not where you were five or ten years ago, a low-cost environment. And that's why you've been competitive and that's why probably in the near term you're going to be competitive. But if you were to ask global CEOs around the world who manufacture and make product, what is the number one future criteria being successful in the future? They would probably tell you that it's talent and in particular talent that creates innovation. And when I use the word innovation, I don't mean just innovation around products. I'm talking about innovation for business processes, product development, marketing expertise, logistics expertise, customer support. And when I think about that future criteria, my answer comes out to be high-end manufacturing. Okay. I would like to provide some more facts and information for you to consider and play the devil's advocate here. The strengths of Chinese manufacturing have very often been exaggerated because the perception of China has a lot to do with size. China is now the second largest economy in the world and people see a lot of Olympics, the Shanghai World Expo, people see a lot of the most amazing, dazzling part of Chinese economy. But without realizing that in specific areas China is still far behind. For instance, I was telling some of the media people here at the conference yesterday that in China we have a national pastime, which is to make fun of our male soccer team who never made it into a major game of the World Cup. And the Chinese male soccer team currently ranks 87th in the world probably, which is very disappointing for Chinese people. But when it comes to manufacturing in many particular products, the Chinese ranking is well behind 200. And recently we had a forum in Beijing with the Vice Minister of Industry in China, together with the CEOs of 20, what we call the strategically important manufacturing business in China, i.e. the company is responsible for making heavy machinery, airplanes, et cetera, et cetera. And the conclusion was very disappointing. Our minister took out a small bearing, just a few iron balls and a metal cover. And for what we call the high precision bearing used in very important heavy machinery, China cannot make that or have to import those things. China does not yet have the core technology to make that bearing. It's the result a lot more disappointing than most of us think or would like it to be. So the challenge is while we're moving up the so-called value chain and try to be more competitive in the upper end, sometimes we forgot to build upon our strengths to the extent that we lost our competitive advantage. That's probably the reason why we saw quite a number of foreign businesses moving its factories out of China and setting up new factories in South America or some other Southeast Asian countries. What do you think, Fika? Well, first of all, I don't know how many Europeans are in the room because I feel a little bit awkward advising China what to do. And the reverse effect that could have if I give good advice for Europe. But let me start picturing the scene a little bit. You mentioned China's second largest economy in the world. I don't want to reduce the fund, but China is the third largest economy in the world. Because the first economy in the world is Europe, but they hide themselves very, very well. Nobody noticed that Europe is the first economy in the world. And being divided between 27 countries, if we continue with that, nobody will notice. Having said so, I don't know. China, as I see the development, went into four different phases. And the first phase is that China opened up after Denkoping with a big market and everybody said, hey, that's a big market to sell your products. Then China started manufacturing and became the manufacturing machine of the world and even reinforced in the third phase inviting other people to manufacture also in China like many Western companies do. Will that be the end game that China will only focus on manufacturing? Well, what is the core competences of China, especially low-cost? Low-cost manufacturing is the way China played the game. In the future, it will not only be about low-cost personnel or wages, which are, by the way, increasing in China, but also how you do that in an environmentally-friendly way. And that is a concern in China, and otherwise it will not be sustainable. What about energy? What about the cost of energy? We see at this moment that the United States has positioned itself over the last couple of years very well and some companies are rethinking their manufacturing strategy back to the United States. So the world is not stable and in terms of low-cost, China is increasing its wages and countries like Vietnam, etc., are coming up. So I think China is automatically moving into the force phase in which innovation brands will play a role. And I think it is almost inevitable for China to go that direction. That does not mean that China should forget. I've circled the first one also a little bit. China should not forget the first one, low-cost manufacturing, because at this moment that is quite a core of the business. And before you really move onto something else, keep also your current core. And Carlos, what do you think? Give us your explanation for your answer. Let me tell you that I obviously answered that we need to do both, but you said I need to focus only on one of them. Then I have to talk about the high-end manufacturing, meaning every single industrial power in the world started with the low-cost. This is the history of our industry. Japanese started with the low-cost, the Koreans started with the low-cost. Everybody started there and China started there. And they're doing it very well. But you can't stop there because if you want to continue to develop the economy, you have to move to the high-end manufacturing without abandoning your low-cost. So in a certain way you have to do both, but if we have to choose one, obviously the migration tower, high-end manufacturing is absolutely necessary. I think China has everything to be successful in this quest. This kind of transformation takes time. We have to be patient. It's not something which can be done in one generation. It often takes two or three generations before it's being done well. But I can tell you from the experience of, for example, car manufacturing, where we have to assemble many technologies and we have to compete against practically all the other car manufacturers in the world, particularly in China. The workforce is capable. The training is very efficient. There's plenty of investments and money. I think the policy of the government is encouraging a lot. Encouraging a lot the transfer of technology and this kind of move. So I don't see personally any big obstacle in front of this realization except the fact that we're just going to have to be patient. This kind of transformation takes a lot of time. And there is nothing wrong about what's happening today, just the process which is taking place. And it's going to be done by the Chinese companies and it's going to be done also by the foreign companies in China. It's interesting, even as an example, the car manufacturing, at the beginning car manufacturers started to do very low-cost price-sensitive cars. They moved up and now the luxury cars are coming into China. Which is in a certain way a translation of the fact that you can find the suppliers, you can find the technology and you can do a good job practically at all the levels of the chain of offer. Tell me, Carlos, is it now relatively cheaper to make cars in certain Southeast Asian countries or Latin America than in China already? Yeah, it is true. Yeah, it is true. That means you compare today the total cost of a car in China to the total cost of a car in Mexico. Take Mexico, or you can take even countries in Southeast Asia, it's cheaper. It's cheaper by taking the total cost of the car at the end of the plant but then you have to transport the car. That's why if you want to compete in China, you have to produce it in China. It doesn't make any sense to bring the car from the Southeast Asia to China or from Mexico to China, it doesn't make sense. But fundamentally, and in a certain way it's a normal move, it's maybe the translation of the fact that China is moving toward higher end manufacturing by leaving some of the other work move to Vietnam or move to Cambodia or move to the other countries. And now we would like to ask Mr. Xu He Yi to contribute. Mr. Xu is also the CEO, the leader of a major Chinese automotive company. But if we take a look at the automobile industry in China, I have to say it's quite disappointing for the patriots in China because the Chinese automobile industry started roughly at the same time with its Japanese counterparts and South Korean counterparts. And a few decades past, most of the cars in Japan and in South Korea are local brands, South Korean brands or Japanese brands. Whereas in China, probably most of the cars on China's roads are still foreign brands. And I remember that at the very beginning we have this assumption that we have to surrender certain market share or a lot of market share to foreign brands in exchange for core technology. But it seems that three decades or four decades have passed. We have surrendered most of the markets, yet we have not secured the technology yet. Well, back to the board, the question of the board. My question is very clear that it's transforming the high-end manufacturing. For this subject, as the China's manufacturing, including auto industry, and the question is how to make it sustainable, how to make it made in China to a strong manufacturing. And same with the auto industry. We should move to high-end. It has two contents. So the first meaning is that whether we are having high-end or low-end product and the other significance is that concerning about the whole product manufacturing chain, when we just starting from the low-end or high-end, for example, many of the iPads that we are using now, the iPhones, obviously they are manufacturing in the Cantonese area, but this is actually the lowest assembling end which are putting into China as the manufacturing center. Is it really high-end? Actually, we are still processing it. This is the low-end. And of course, there are some mechanical products whereby the low-end or the very low-end supply chain is doing China. We have been doing these types of low-end manufacturing for decades. Is it sustainable? I don't think so. So the answer is pretty clear. So in order to change China from big manufacturing to a strong manufacturing nation, we need to really move from the low-end to the high-end. So this is my answer. Concerning about the auto industry, let's have a look. Just now our anchor has clearly mentioned about the development 28 years ago, starting from 1984 when we started about Joint Venture. This indeed, Joint Venture brand is the monopoly in the market instead of the localized brand market. Of course, actually, there is an obvious trend of the downward decline of the market share of our localized brand for the last several years. This is really absurd. With the wave of the third industrial wave, especially with the restructuring and reshuffling of the industrialization in the emerging nations, in the advanced nations, I think we are facing a great challenge. So our answer is very pretty clear about the topic. So you're concerned about the problems that are facing now. We want to move up to the high-end. However, we couldn't really reach it and then we lose the advantages of the low-end. So that is how we put it in the Chinese proverb. We lose the acts and the chicken at the same time, especially when the low-economy experiencing a depression. Yes, indeed, during this process, there might be an area that we lose both. But we don't need to be panic. Because during this process, even though we have witnessed such phenomenon, however, it will be only concentrated in a very specific area. I believe the directions shall be correct and we shall be held true to our direction and we shouldn't just lose our clear directive, which is really very important. Kevin. I think there's a danger when we have this discussion in China that we are looking at it within a vacuum. The challenges to manufacturing are global. China's largest manufacturing country in the world is part of a global challenge to manufacturing, which is in itself in a state of revolution. There was a good piece, I think, in the Economist recently, a month or two ago, which referred to manufacturing's third industrial revolution. Therefore, all the technologies which are driving chain manufacturing are impacting here in China as well. The big drivers, the nanotechnologies, the new materials, robotics, artificial intelligence, also 3D printing. This is transforming manufacturing across the world and therefore, it's having its impact here as well in China. The second point I'd make is that I do not see China based on the analysis that I've seen is passive in responding to that. What I see in the part of many large-scale Chinese manufacturers is an active response in their own R&D programs. Robotics, for example, in China is not exotic, it's mainstream, and the large-scale input of megatronics and robotics in some of the large manufacturers is at world scale. I think the challenge for our friends in China is to make sure that the other inputs to productivity are also being met and that goes to the development of skills and enterprise for the future as well. I think this was touched on at the very beginning. If this revolution technology is underway, it must be accompanied by a parallel revolution and how you train your human capital to use it. That is a challenge for China right now. I think there's a third point I'd make as well. China, there is a core point about securing long-term finance also for these sorts of creative industries and their R&D components. This goes to the heart also of the encouragement of the non-state sector in this economy as well. State enterprises play a large role and there are some fantastic ones in terms of the quality of the product that they produce. I think if you're going to keep ahead of the creative curve and the cost curve, making sure that your private manufacturers and the private economy are having sufficient access to market and sufficient access to capital is equally important. My concluding point, Chengang, is this. That's why I agree with Kullos before. We tick both the boxes. China, while it is still part of the global manufacturing revolution, is itself unique. Let's just call it what it is. 1.3 billion people is unique in this world by a long, long measure. Therefore, the actual structure of China's domestic demand for its own manufacturing products will be such that it will continue to consume labour-intensive, low-end manufacturers and at the same time move across the rest of the manufacturing spectrum simultaneously. And similarly in terms of supplies of domestic labour, it is still at this stage relatively true that as you move from Yanhai and you move to Zhongbu and you go to Xibu, you are moving through the entire wage gradation and this will occur over time. That's why I believe intelligently planned but with a vibrant private sector in manufacturing as well, China is able to achieve the transformation with both industry elements, high-end and low-end, developing simultaneously but it cannot avoid the high-end because the technological revolution in global manufacturing is there for all of us, including the PRC. I think Kevin hit upon a very important accepted matter which is the so-called Third Industrial Revolution. There are some new technologies that are promising to be game changers and there are talks that probably the next wave of prosperity in manufacturing will occur back in the developed world, back in Europe, back in Japan, back in the United States. What do you think, Baika? Well, of course innovation and technology plays a key role and therefore also for China there is no way out. Technology development, innovation should play a key role. Coming back first on the first, the low cost was the driver. In the future for manufacturing you need to have your whole act together and that means also you need to be able to produce ecologically friendly in a sustainable way. You need to take care of low cost energy, real issue of Europe, some concerns in China, a great position at this moment in the United States, big concerns in Japan. So different situations in the world and your energy situation and your labor cost determine to a large degree also your manufacturing power, maybe even your whole success as an economy. So those kind of things, your logistical situation, your value change, your talent base, like you were saying, is very, very important. So please, those basic things need to be in order and it will not only be local striven. That does not take away that the technology development in innovation will play a key role in differentiating in the future amongst the different countries in the world. And it will be interesting to see how the next shifts will be. Not only about technology, but also the other elements I mentioned. And Carlos, you've been referred to as Steve Jobs of the car manufacturing industry by the press. If there's going to be a third industrial revolution, what kind of role do you think China will play in it? Well, you know, it's not if there is a third revolution which is taking place and it's due to the fact that oil is a problem and second, the environment is a problem and transportation, particularly I'm talking about my sector as an example, transportation is seen as part of the problem because it's a big consumer of oil and second, it's a contributor to the global warming through the emission. So you can't continue like this. You're going to have to come with a product, a technology, a way of manufacturing which addresses issues. And I must say that China will play a role and I was personally extremely encouraged when State Council take a very bold decision by saying in 2020 five million cars in China should be or electric cars or plug-in hybrids. Okay? Five million. Starting from quasi-zero today on a market of 18 million and with the capacity of production in 2020 of two million cars. So if, and there is no reason to doubt the fact that this is going to happen because China in the past have taken some bold objectives and made them happen. If this happened, China will be at the forefront of the revolution that will take place in the car industry by bringing massively zero emission cars or very low emission car to the market. And obviously these cars are going to be manufactured in China. So it's not a question of importing this car from outside. You're going to have to create suppliers of batteries. You're going to have to create suppliers of motors, of alternators. And this is going to help a lot the development of new technology and making China one of the largest base of the new technology that is going to be contributing to the market. So I don't think it's if it is happening but usually revolution when they take place whenever not it's them when they are taking place we notice them after they take place. But this one is taking place now and it looks like all the decisions taken in China are going in my opinion in the right direction. I would like to open the discussion to the floor and I would like to encourage all of you to give advice and suggestions for China on the subject matter of the manufacturing's next solution. And as Fiker has said the entire world has been offering advice for Europe and Europe has no problem with it. And China of course deserves some advice but maybe David and Michael can I have a microphone for first of all, the e-pad, the e-pad, thank you. Thanks, Chenggang. If I come back to the big question you posed at the beginning of the discussion which is what's the link between the health of China's economy generally and manufacturing. I think the missing word in the debate so far is the word productivity. China's manufacturing costs are going up but if productivity goes up faster than costs then the middle class grows, consumer power is there and China's competitive in manufacturing. So my question to the panel is what's the specific roadmap for China's manufacturing productivity to get better? What has to happen to make that work? Do we have another question or comment before we ask the panel to answer that question? You have a point to contribute. Thank you, Chenggang. Mine is not a question about comment. We are living in a very competitive and dynamic world and we have to win. If we lose, we are at mercy of the market and therefore we have to win, in order to win we need to have a strategy. In case of China, I think there is an advantage in terms of scale. No matter what you do in terms of high-end, low-end, the scale is so much important. Second is scope. Scope is so much important. By taking advantage of low cost, in case of China, there is an inland region as well as coastal regions so you can take advantage of regions as well as the speed. When I look back, I'm from Japan, when I look back in 1997, when there was Asian financial crisis, Korean friends told me that Korean will never be catching up with Japan. Now you look at what's happening in terms of Korean companies catching up. I agree with Carlos in a way that China should be patient as well. Think about strategy and the strategy to win. I think it's just a matter of time. Let's go back to the panel. There are certain economists suggesting that the labor cost in China is actually even higher than that of the United States because even though American workers might be paid with more dollars, but their productivity is much higher than in China. In total, it's actually cheaper than China. Let's address the gentleman's question and also answer why that is so. We talked about the third industrial revolution coming here and we talked about somebody that mentioned certain 3D printing, etc. Think about what that does to the actual shop floor or the actual production piece of the global value chain. What it does is it changes it and when you add to that the increasing trade proliferation that will occur and I use that in a very positive business sense, what you'll see is less people on the production floor and you'll see more people engaged in manufacturing enterprises who have skillsets around information technology around product development, market research, branding, logistics and customer support. So the result of all that is that the cost component of that piece of production is much, much less to the overall value of what's being created and that's going to cause that is why the cost advantage of production is becoming less than what it was 10 or 20 years ago when western companies came to China for lower production costs. It meant a lot that to the entire value chain but tomorrow with the trade and with the changing of the shop floor that piece of production is going to be less and so to the gentleman's question where is it that China is going to place its bet in that value chain? I don't see how it can be only in that piece of production there has to be something else along that entire supply chain whether it's product development whether it's market research, customer support somehow China has to find another piece of value in order to play in the game and not get left behind. I do endorse this gentleman's idea when we just talk about cost it is really not a single idea or a simple idea of a labor cost it is about the cost of the whole supply chain from this competitive economic world the labor cost of China is on a rise indeed however the competitiveness of the labor cost is still remained actually it is remained very competitive from a labor cost perspective these type of competitiveness I believe will continue unlike some area for example in certain region of China indeed we have a lack of labor there will be a rise in their salary and wages so people begin to create such high types of like rumors saying that there is a huge surging of the cost of labor cost I don't think so it is not as serious as that I don't know whether you have got the latest statistics some colleagues of mine is reporting the pressure of the downward trend of our economy in the Yanxi Daoda river area many traditional manufacturing industries is having kind of laid off search there is higher percent of 7% 9% even 10% some even higher model 30% of the workers laid off so people believe that the problem is that except that we are having economic downward cycle while at the same time it also mentioned about the lack of the labor itself and also the rising of the cost of labor and also about some mechanism in this regard so what is your idea I believe currently in the cultural areas there is such a downward trend some economy was experiencing a depression which leads to the laid off of the workers I think we have major influence by the international market which has a really effect to China because they are mostly export oriented they rely on the international market so I guess it is major mainly because of that and also in the Cantonese area in Guangdong there are some phenomena that some small and medium enterprises SMEs in the manufacturing industry the shortage of labor because of the insufficient supply of labor or workers or because of the intense competition there is a increase of the labor cost there is such a phenomena but we should not reduce as a major mainstream and some of the industries in coastal areas or enterprises are migrating to hinterland areas because they have a lower labor cost this is a trend but I still think the product and the market is important especially the central and west part of the country if their markets are overseas then they have the problem of logistic costs and decision making costs which are true to be a minus although they have a lower labor cost yet they have a increase of the overall costs any other comments? in terms of productivity you can look from different angles of productivity the output per labor or per person involved but at the end of the day that is also not relevant at the end of the day the only relevant thing is what is the cost per produced unit and to that extent you could say that China is producing too cheap at this moment or at least unsustainable cheap because the cost of the environment will go up the cost of quality will go up and the cost of energy will go up so those factors will reduce automatically the productivity cost per unit whilst maybe due to technology and other things the productivity go up if we come back to the debate I think there is no choice China need to debolts low end and high end however in one company that combination is not easy to manage so there will be all kind of debates that maybe certain companies can do this certain other companies can do that because two different cultures in one organization is different you can go further are two different cultures in one country possible I would guess that China is big enough to do that although Japan did not succeeded in doing that United States did not succeeded in doing that and many European countries did not succeeded in doing that in a country though I would say China is big enough to do both low end and high end but realize that not many countries did that successful combination this whole debate if I make my last statement seems to start from the premises and the assumption that anyway China will focus on manufacturing whether it is low end or high end and I find that an interesting observation and I think that is very good choice for China that is my big concern about Europe big concern about United States and maybe also Japan because those countries those societies focus on so called knowledge based innovation based economy and in many sectors in my belief innovation and technology can not do without manufacturing and if the manufacturing leaves then over time innovation and the R&D will leave because in many sectors those need to be combined and if China will choose anyway for manufacturing that is a competitive advantage which many other areas in the world should think about because at the long end that combination is needed you have a point to add just about the productivity in China today I think situation is today is very good again we have probably 50 plants in the world and there are United States in Europe in Japan, Thailand, Mexico etc every year we make a classification of all the plants by productivity this year our number one Renault and Nissan plant is Chinese number one and this is a plant which is relatively recent and this is very drastic KPI that we follow and it is not only based on cost so today's situation is very good for the future when you take a look about what are the key of productivity frankly I think at the end of the day it relies on are you still an environment who is learning and second are you an environment which is ready to implement if you say yes to the two questions you don't have to worry about it because at the end of the day the key of productivity is making sure that the best practices it's not only question of cost it doesn't make them very productive countries and we know a lot of them the basic is in a certain way the fact that you have the best practices you are capable to implement your best practices into the country and at the same time you have a reasonable cost environment and it is the case of China today and as long as China is willing to open up to the world bring foreign investments allow competition between Chinese and non-Chinese learn from the non-Chinese some of the best practices implement and have the courage to implement some of these best practices because it's not always easy I think China is going to be in great shape a lot of the problems that we are seeing particularly in Europe is not so much about learning because Europe has a lot of knowledge the problem is implementation from time to time you know that this is a best practice but for certain reasons you don't want to implement or you cannot implement so again learning and implementation if if we continue in China to have both then I don't think there is any worry about productivity and I don't think we should summarize it to only a cost issue but exactly as you said China has opened up to the the world's leading car manufacturers for decades and we have tried to introduce all the practices but still Chinese car manufacturers cannot make Chinese brands world-class engines or cars how so? first I think we have to be patient I personally have no doubt on the fact that within the next 10 years you're going to have one maybe two global Chinese car manufacturers popping up I think this will happen obviously but you have to it will have to take some time look how much time it takes to the Korean to generate one global car manufacturer how much time and how much failures that have been until they generate one large company which is global today look how much time the Japanese took before transforming their company and their name from low-end low-cost small cars to highly reliable and desirable brand it took a lot of time so I think we are looking we are in the middle of the movie we didn't see the whole movie yet so we just need to be a little bit patient to see the rest of it I agree Chenggang I agree with that I first came to China about 25-28 years ago the big cars in town were called red flag limousines and this is only 25 years ago for goodness sake 25 years ago I remember the first Korean brands arrived in Australia so the manufacturing history of this country is a relatively recent one at scale in terms of international market so I would agree I have no background in the automobile industry but if I look at other Chinese brands acquiring global status one will follow from the other can answer the productivity question as well I think there is a danger in us having a narrow view of productivity the productivity debate as you know is a complex one for economists is also a complex one for policy makers and for firms but to narrow focus it on labor costs or labor productivity is I think not productive itself obviously the total factor productivity equation is made up of labor, it's made up of technology and it's made up of skills of how you apply the technology in a given workplace or a given process that's the equation it's complex it will be different in one firm as opposed to another but the key is this if China continues to invest in the second element which is R&D so that the wave of disruptive change occurring across global manufacturing through the third industrial revolution is not going to hollow out Chinese manufacturing but China will remain ahead of the curve so long as it remains investing that R&D and applying it to its own manufacturing circumstances then there will be Chinese global brands and to add one further point so long as the other element of the productivity equation is also attended to which is the investment in human capital and the peace in that respect the training in that respect is not just mass training it is precisely applied to the models which were described before that is a given car a given product may require just two people working on it remotely semi-remotely but the skills componentary lying behind that will be huge so who wins this race those who invest in R&D and those who invest in the high end labor skills which are necessary to sustain that and China is pretty smart at adapting which brings us to our next question on the little board today we have a question which is which one of these choices do you think is the most important path for Chinese manufacturing to walk out of its current predicament number one is brand second is business model C is technological innovation quality of men power government policy and others you can only choose one and if you choose F you should tell us what they are what it is and actually quality of men power is also very important recently we had a show on CCTV discussing the differences between Chinese manufacturing personnel and overseas most of the Chinese viewers are surprised to know that in Germany only 35% of high school graduates go to universities 65% go to polytechnic schools or vocational training schools and I have personally visited some car manufacturing bases in Germany and I was surprised to see that the so called blue workers in Germany work in beautiful factories that resemble certain MoMA museums around the world beautiful wooden flooring robots, good coffee, resting areas they listen to music they work in an environment much better than many of those investment bankers on Wall Street it sounds like CCTV the blur between white color and blue color is there is no definitive line between blue color and white color whereas in China we have been building universities again and again and to the extent that whenever we have an unemployment issue we have too many white color college graduates were unwilling to take what they might consider to be blue color jobs can you show us your answers so that our camera can take a closer look at each and every one of them Kevin's choice is private sector others patience time is that C or D C including D technology innovation and Gary's choice is business model business model Kevin why don't we start from you why private sector well I've already in my remarks earlier today spoken a lot about the critical nature of investing still in technology and in labour skills I take that as a given why have I put a circle around and identified private sector is that as I said there's nothing inherently wrong with China's going to your state enterprises they do remarkable innovation and they have been remarkably successful but for there to be full domestic competition in this economy which means full domestic competition also in terms of access to capital markets and access to shall I say the sharpest competitive edge of R and D development which means a lot of competition between firms I think this is partly a missing element in Chinese economic policy equation I know it's a sensitive topic in China's own domestic political discourse but given that we're providing free advice today I thought we should do so and I think this will unleash a whole bunch of new productivity in this economy and a whole bunch of new innovation in this economy I haven't thought of yet but I think it's access to market access to capital and frankly the good edge of that will be a new competitive situation within this vast economy on the technological innovation front but Kevin didn't you realise that you made very frequent visits to China lately and didn't you realise that all of a sudden everybody in China is in the PE business we have a saying in Beijing that you have to roll a ball out of your window in one of the office buildings in the central business district of Beijing you'll probably hit 11 PE guys all of a sudden everybody wants to be the money guys particularly those private sector guys after they've made a lot of money from the manufacturing sector so many of them choose to invest a lot of money into financial investments or vehicles instead of investing on R and D but I agree with your point and that's why the people who impressed me in this country are small, medium and some large scale manufacturing manufacturers who are entirely privately owned and doing their own stuff I'm not talking about private financial markets I'm not talking about those who are engaged in PE what I'm talking about is people who are innovative in their businesses making things, innovating growing their businesses but who say to me I'm interested outside when I come here is listening to what they say about difficulty of getting access to finance difficult about access to markets and my own view is it'll work so enormously successfully for China over the next 10 years if this sector of the economy in manufacturing in industry, not in financial services that's fine to look after itself but if you're able to really take off that way you will have I believe a global Chinese brand for example in auto which may not be a state-owned enterprise could be some private firm is barely starting off in the back blocks of Hubei as we speak here today in that case your choice is actually E you're talking about government should provide more incentives for private sector to focus or return to the to the manufacturing sector access to what might be monopolized sectors by the state I think my view about government policy here is not about incentives my point about policy here is a complete level playing field for private sector players that is an element of government policy that's causing policy to run that is and to allow all these others to truly let a hundred flowers bloom in the economy and I think that is going to be enormously successful in manufacturing and the rest of the services sector as well as I said the going to year have a huge historical role they have reformed themselves enormously and are producing enormous innovation but I think the whole strength of the diversity of Chinese economy would take off if that occurs Carlos? I'm going to be short I think when you take a look at the development in many countries compare what China is today I think China is in a very good position the balance between government policy technology innovation adaptation of business model even evolution of the brand I think it's a good balance the risk is to become impatient that want to accelerate the move and then we start to fall into traps so I think by being patient and continue to do what is being done China manufacturing is going to be in great shape and when you take a look how many jobs have been created how much investment is being done in the manufacturing sector what is the offer of products offered to Chinese consumer today compared to 5 or 10 years ago I mean frankly you can't expect more or faster it's absolutely remarkable what has been done I'm not pushing for complacency I'm just saying just let's take a look to how China was what's the offer for consumer 5 years ago what's the offer for consumer today how many jobs have been created in the manufacturing sector how much investments have been done in the manufacturing sector I think if we continue on this trend China is going to be in good shape so patients do his time look at the other history of developing industry I think China is one of the best stories in fact when we compare to other cases and even when we compare to the other bricks of manufacturing in China to the development of manufacturing in India or the manufacturing in Russia or in Brazil I think we have a great story but do you think what I've been mentioning a Chinese phenomenon which is there are too many private businessmen channeling their money profit from manufacturing into the financial investments is that a global phenomenon as well for the past decade you know I think this is something which is very important to avoid that in the development process people start to diversify and then they come back to manufacturing I don't think frankly it's a major issue I think little by little it will get back to order what's encouraged me a lot is the fact that for example in the case of China whenever there is a so-called you know decline of the growth you know that this year the forecast 7.5% of growth for China which is already a great achievement but the government has announced another set of investments in infrastructure and I think it's very smart every time you develop the infrastructure you prepare the country for another leap in term of development and this is one of the main differentiator between China and the other developing market is how much China is putting focus on infrastructure you know and every single time there is an opportunity where investments are being done in infrastructure and that's a very good sign for the future and if I may quickly add most of the car companies in China are witnessing their sales going down what about Nissan they're the sales of most car manufacturers in China are going down right now that's a sign of the well unless my guys are showing me wrong statistics I think we're still going up we're still going up I mean the market is up the market is this year the car market is up 7% passenger car market light commercial vehicle is 0 and the forecast for the next year is still market going up 6 to 7% so people say yeah maybe 6-7% 6-7% is 1 million additional car every year 1 million additional car every year that don't exist today it's a lot of additional capacity it's a lot of work and I think the industry is fine obviously the industry has been used to grow 15-20% a year but this is unsustainable we all knew that it would be unsustainable but still 6-7% I think it's a great perspective thank you yeah I said I choose for C including D I said if China wants to move to high tech manufacturing more on the higher end innovation is inevitable so we need to invest in innovation technology new technologies need to be there also because China is so big China has a responsibility I think to contribute with innovation to the world if you take the billion richest people which are mainly not living in China to be honest in Japan Europe and United States the billion richest people in the world consume roughly 45% of all global resources and the thing is we are moving up China gradually to the same consumption levels step by step as in the West well this is an unsustainable model the West need to learn to do more with less and if not other countries will learn the West to do less with less because they claim 45% of all global resources which is unsustainable but also China cannot come to the same consumption level because the world is not one billion countries but also the Indians and other people are coming so we need innovation now having said so you need also people to do that innovation and here is I think a big task for China how to change the mindset of people in laboratories, people in research all kinds of people to do new innovations in a different way than maybe the low cost manufacturing mindset required in the past shift in mindset and we see that also in our own research laboratories that shift in mindset that will be the biggest challenge I think for China my answer is C technological innovation the reason that I wanted to see is because everybody knows that the manufacturing in China are facing the greatest challenges in the history that we do not have a very effective technology let me take the example of the auto industry even though we are the first manufacturing nation in this world but we lack of the core competitiveness for example the engines the automatic transmissions the electronic systems of the auto industries of others we should say we are very backward in technology in the core competitiveness we are only a little bit better than zero for example auto transmission we do not have any technology we can say that so the manufacturing industry lacking of the core competitiveness is the biggest challenge that we are facing now to realize our transformation in technology I guess this is the first important thing it shall be put high on the list you do not allow me to choose any answers but I still want to take this chance to share with you some of my observations which is policy support Chenggang some of your introduction has already introduced this question to us because for the past years the reform and open up in China for the past years have given us a boost in its economy however there is such a disturbing fact that we put a lot of input in infrastructure in the tangible industry but we did not really come through a very direct route there are some z-exacts nobody wants to put it in the tangible industry they all want to put it in the financial market to earn some hot and quick money they want to be speculative they want whatever industry which can give them some speculative interests however in the tangible industry we could say that no matter from policy, environmental perspective we are facing serious challenges I guess the policy support shall be regarded as one factor thank you that's for me so I chose actually what I was really going to do was strike F and put all of the above but I don't think I was going to be able to get away with that so I totally agree with my colleagues who chose other areas particularly innovation but I came across as I think there's more fundamental blocking and tackling around skill sets that might be more appropriate and technology could be acquired elsewhere so that was the logic for that I think when we look at business models I think it's instructive to take a look at what many leading global manufacturers are doing and in some sense the global manufacturers is really a borderless society right now they have assets placed all over the world for very specific competitive reasons assets in certain countries where they can campaign a competitive advantage around product development assets in other parts of the world where they can gain a competitive advantage around customer support or logistics and these assets have people also scattered all over the world that have different cultures and different skill sets and different philosophies and these are the leading global manufacturing businesses today and it just seems that Shawty needs to take lessons from that and find out where they can play and where they can get involved in the global market and make decisions about where is their sweet spot where are they going to choose to invest up and beyond their historic low cost production environment so business models is what I came up with Mr. Xi, I have two additional questions two follow up questions for Mr. Xu one is there are another two schools in China now about manufacturing I believe that Apple is a good model for Chinese companies manufacturing to study because it is not just offering a product it is offering services it is offering an experience so that even car manufacturers need to think about that how to offer services as well as experiences as well as product itself and secondly another topic for discussion is that increasingly we see some of China's largest manufacturers are setting up factories overseas as well they are expanding overseas Huawei obviously has done that extensively around the world and recently the novel has been setting up factories and plants around as well I know that your company has been doing the same is that part of the the strategy, the trend that other companies should follow suit actually two questions I would like to take the first question Apple except for providing product but also most importantly the services I have very deep experience even though I am not using any Apple product now but I do know that so many people are using iPhone after using iPhone especially in its functionality of the iPhone there are lots of obligations in the app store and there is a great potential such potential is enormous to imagine so it has radiating effect to all the other software developers providing services to Apple product and they are all using the Apple platform to develop itself so many users are using such a platform at the end Apple can also have some commission fees out of that through this platform so I think the business model of Apple is very effective and I was told recently that in China one of the very famous brand HIR the home appliance manufacturer in the future HIR will not produce products it will just provide services instead of refrigerators and air conditioners so I think this will be the future of our industry who is the CEO of HIR we all learn from him a lot just now you come to the second question about the overseas expansion of the Chinese enterprises and many people say that this is one of the must go path for the Chinese enterprises to be part of the globalization I think it really depends on your own enterprise and it really depends on particular sector I cannot make any comment on others but I can tell you something about bike, my companies if you want to expand overseas you need to do things well domestically you need to do a very good domestic market on the basis of the accumulation of talents, experience management skills product management then we can just expand overseas expanding overseas to me we are not trying to be so hot achievements or whatever we do not need to make ourselves flowery we do not need to be vanity we need to put ourselves down to earth and open the international market it doesn't necessarily mean that you need to expand to all the continents how many manufacturing centers do we have we have set up the headquarters in how many cities it doesn't really make sense to me some companies in China when they expand overseas some leaders of some corporations they do have such a pursuit of vanity and we want to establish a factory in the US or wherever I think this is totally unrealistic what is even more ridiculous is that they didn't even have a strong company in China overseas it's totally nonsense it says that international markets has a higher profit and bigger market and then it's better than Chinese market I really want to ask them do you have a reliable technology do you have a good management team if you go to the international market will you be successful yes indeed outside world is marvelous but it doesn't really mean that you just scratch your head and then everything is coming to you naturally so all the enterprises they need to have their own strategies it's very hard for me to comment on others bike my company want to put ourselves down to earth we want to maintain a good domestic market and then we expand to the world it's very much wonderful speech we only have two minutes left it's a shame that we couldn't interact more with the audience on the floor maybe we take two very brief questions the questions have to be shorter than 20 seconds the first communication communication and the answers will have to be in the lines of 20 seconds as well sorry but actually I have two questions take one my first question actually to Mr Xu 20 seconds I'll have to stop you just now you have mentioned Mr Xu mentioned that innovation will play a very important role in the transformation of technology in China we are very happy to get that answer but I want to know in bike your company what measures have you already taken to have the breakthrough in technology and what is the proportion of the input in technology and the other gentleman last question Mr Xu you'll have to be very short in answer you know Chinese government come up with a lot of new policies to encourage the development of the service industry so what's the relation between the upgrading of manufacturing and the development of the service industry and the kind of potential business opportunities that the upgrading of manufacturing will bring to the service industry thank you thank you very short question and then each of our panelists will give a short summary while answering the questions at the same time thank you just now you have been talking about the third industrial revolution especially this morning I have met Chairman Xu can you please just introduce the characteristics of the so-called third industrial revolution the lady I want to ask Chairman Xu about the institutional reform especially the reform of SOE do you think the reform of SOE will be the focus of our future economic reform Kevin after running out of time three of those questions went to Mr. Xu so over to you Mr. Xu one did not and it went to the whole question of service industry technological revolution and manufacturing and interconnection between the two my simple response to that is there has been a fashion in the west for the last 30 years which says that manufacturing ultimately is an old industry which will die and it will simply move across the world to lower and lower labour cost centres that model of thinking I always thought was wrong it's doubly wrong today for the reasons that we have gone through and secondly in terms of the future of the services industries what we can see is a fusion between high-end manufacturing and the services industries in a much more direct way which frankly is good in terms of high wage jobs but it's also good in terms of creative workplaces for people Carlos how about we give the word to Mr. Xu and then if some time is left we can answer three questions actually I just want to put it very simply the first about the technological innovation for us by has adopting such an integrated open model innovation I think your question especially what I learned about the senior government 18th party congress one of the subjects of discussion of the 18th party congress is the reform at SOEs this is a must yeah well come back to the question I think manufacturing and services go hand in hand and we have plenty of examples the telephone and all the apps going with the telecommunication the car and all the application now there's not a coincidence that today Google, Microsoft, all the companies are interested in the co-development with the car manufacturer because you see it as the next place where services can be sold so without any doubt we can illustrate in many areas of the industry that manufacturing and services go hand in hand FICA we may feel awkward giving advice to China since Europe needs urgently advices but I think all in all China is very well positioned because if local manufacturing will go together in the future with the high-end manufacturing together with R&D and technology you have the unique combination including it's not only division and the direction but the execution strengths to do something like that well this might be indirect also and advice to Europe then so quickly on the comment on overseas I just don't see how China can stay in the game if they do not have overseas exposure dealing with business partners with different business philosophies different business objectives different cultures the world has gone global it's going to continue to go global and I just don't see how China can stay in the game if they're not a part of an overseas activity thank you all gentlemen a really warm round of applause thank you