OECD head praises China's manufacturing upgrade

The head of the Organization for Economic Cooperation and Development praised China's "success" in upgrading from low-end processing to value-added manufacturing.

OECD Secretary-General Angel Gurria said China's transformation will help "balance the sources" of economic growth by boosting exports and imports as it creates more wealth for companies and their workers to spend on consumption.

For three decades, China has been a major engine for global economic growth but manufacturers are gradually losing advantages due to rising labor costs and the global economic slowdown.

The government has repeatedly called for industries to upgrade and for economic transformation.

"I think right now you're facing particular challenges," Gurria said.

"Transformation means either specializing in certain exports, developing as much technology as you can or adopting foreign technology for Chinese purposes but with your own inputs on the innovation side," he explained.

And low-end manufacturers, unable to absorb rising costs, should consider relocation as other Asian, African and South American countries will have cheaper costs, he said.

Since the second half of last year, China's export growth has been declining, slumping to 1 percent in July.

To prevent exports from slowing further, China launched a series of measures, including tax rebates and credit lines.

But experts believe that the new measures will not be enough, on their own, and point out that exporters must improve competitiveness and innovation.

China set a target earlier this year of 10 percent for its foreign trade in 2012.

For Gurria, "deliberate policies are required to move in the direction" of transformation.

"Education, innovation, training, universities, research and development, all the tax credits, the whole thing has to be addressed in this way," he said.

And training, in particular, is needed.

"Preparing the workforce for a more knowledge-based economy" is important.

"You still have a lot of reserves of labor that are relatively low-skilled," Gurria said.

They will be moving into an era of innovative manufacturing and training is important if they are to reap the full benefits.

A recent report by Manpower, a human resources company, showed that China's manufacturing industries are well positioned to produce high-end products but the workforce has still to catch up on these skills.

As part of its 12th Five-Year Plan (2011-15), China has vowed to expand domestic consumption to transform its economic growth model.