Should China’s Manufacturing Industry Transition Towards Both Ends of the “Smiling Curve”?- A Comparative Analysis between China and Traditional

Wang Qian 1  and Cheng Du 2

1 Department of Finance, The Graduate School of Chinese Academy of Social Sciences, Bejing, China
2 Chinese Machinery Industry Information Academy, Bejing, China

Abstract:  The manufacturing sector in China has surpassed that of the United States in terms of scale. Yet it still suffers from the shocks of an international economic downturn, the lack of core technologies, and the impact of “re-industrialization” of the developed economies. Based on an evaluation of the “smiling curve” theory and selected trade data from 1991 to 2011, this paper performs a comparative analysis of the differences between the manufacturing sectors of China and those of the traditional manufacturing powers in terms of product categories and architecture. This analysis is conducted in order to explore the question of whether China should transition from being the “world’s manufacturing plant” to both ends of the “smiling curve”. The paper then introduces Japan’s “inverted smiling curve” to explore whether profit margins remain in the manufacturing sector. Research shows that China’s manufacturing capacity, especially its “integrated” product assembly capacity, has not been fully realized, and that the development of the manufacturing sector can still yield high market returns. As a result, it is necessary for China to continue the path of being the “world’s manufacturing plant”.
Keywords: “smiling curve”, manufacturing industry, modular type, integration

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