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As China’s economy continues its move toward market-based competition, some elements remain under the control of the central government. Thus, when the Ministry of Industry and Information Technology recently released a policy statement mandating that China’s electronics sector should seek to become a global powerhouse, companies both inside China and beyond its borders sat up and took notice.

1574R-0751AThe mandate is relatively specific: By 2015, China’s economy should feature at least five to eight electronics companies with annual earnings of at least 100 million yuan (or around US$16 billion). Today, it hosts only two: Lenovo, which makes personal computers, and Huswei, a maker of telecommunications equipment.

To support the growth of other firms, Beijing recommends active merger and acquisition activity by the firms. It also plans to offer infrastructural support, such as encouraging China’s top 10 steelmakers to increase their supply and demanding that miners of rare earth metals (which are critical to the production of high-tech products) coordinate their activities to prevent price deflation spreading to global competitors. Furthermore, several economic agencies have begun readying regulations that will force companies to expand.

Unfortunately though, the growth of China’s electronics industry might be hampered by internationally competitive dynamics. The industry already has developed a reputation for low cost, simple manufacturing, whereas Beijing hopes to transform it into a branded, high-end producer of more expensive, finished products. In addition, some global buyers—especially those whose political relations with China have been tense at times—express mistrust in China’s true intentions, suggesting that some of the electronics equipment being pushed actually could be used to spy on unsuspecting consumers.

China and its companies has been quick to deny such allegations. But to grow, the industry must find ways to convince buyers its options are the ones they really want to buy.

Source: Chuin-Wei Yap and Paul Mozur, “China Plans to Create Electronics Giants,” The Wall Street Journal, January 22, 2013