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China is the world's largest emerging market economy, both in terms of

population and total economic product. The country is arguably the

world's most important manufacturer and industrial producer, and those
two sectors alone account for more than 40% of China's gross domestic
product, or GDP. China is also the world's largest exporter and the
second largest importer, and it contains the fastest-growing consumer
market. Major industries include manufacturing, agriculture and
telecommunication services. As of 2015, the Asian giant is among the
most important economic powers on a global scale.

China's communist government began to institute capitalist market

reforms in 1978, and over subsequent years, the Chinese have taken a
sharp turn away from state-owned enterprises, or SOEs. As of 2013,
SOEs only accounted for 45% of all Chinese industrial output. That
figure was nearly 80% in 1978; the remaining 22% were "collectively
owned" enterprises. The result is an economic explosion that
catapulted China to the second largest economy in the world, trailing
only the United States

Between 1978 and 2008, the size of the Chinese economy multiplied
nearly 50 times over, and average annual GDP growth was approximately
10%. The initial reforms focused on agriculture but soon spread to the
services and light manufacturing sectors. All of these were precursors
to banking reforms, which led to perhaps the most important
transformations in the Chinese economy in the 20th century

1. Manufacturing

China makes and sells more manufacturing goods than any other country
on the planet. The range of Chinese goods includes iron, steel,
aluminum, textiles, cement, chemicals, toys, electronics, rail cars,
ships, aircraft and many other products. As of 2015, manufacturing is
the largest and most diverse sector in the country.

China is a world leader in many types of goods. For example, almost

80% of all air conditioner units are created by Chinese businesses.
China manufactures more than 45 times as many personal computers per
person than the rest of the world combined. It is also the biggest
producer of solar cells, shoes, cellphones and ships.

The Chinese car industry grew out of a national focus on automobiles

in the 1990s, a decade when Chinese manufacturers nearly tripled total
car output. Though car consumption eventually caught up after 2005,
most of these early cars were destined for the export markets because
the vast majority of Chinese citizens were too poor to purchase the
products themselves.

2. Services

As of 2013, only the United States and Japan boasted a higher services
output than China, which represents a significant shift for the
country. A healthy services sector is a sign of healthy domestic
consumption and per capita wealth increases; in other words, the
Chinese people are gaining the capacity to afford their own output.

A 2010 world study found the services sector accounted for 43% of
total Chinese production, slightly less than its manufacturing sector.
However, there are still more Chinese employed in agriculture than in
services, which is a rarity for more developed countries.

Before economic reform in 1978, shopping malls and private retail

markets did not exist in China. As of 2015, however, there is a young
and burgeoning services market. This has bolstered tourism and led to
a proliferation of Internet and phone products.

Large foreign companies, such as Microsoft and IBM, have even entered
the Chinese service markets. These kinds of moves help to jumpstart
the telecommunications industry, cloud computing and e-commerce.

Another area where the Chinese set the global standard is in
agriculture. There are nearly 300 million Chinese farmers, larger than
the entire population of every country except China, India and the
U.S. Rice is the dominant agricultural product in China, but the
country is also very competitive in wheat, tobacco, potatoes, peanuts,
millet, pork, fish, soybeans, corn, tea and oilseeds. Farmers also
export large amounts of vegetables, fruits and novel meats to nearby
countries and regions, Hong Kong in particular.

Trading standard of China

The Standardization Administration of China (SAC) is the central body

for all activity related to developing and promulgating national
standards in China. The China National Certification and Accreditation
Administration (CNCA) coordinates compulsory certification and
testing, including the China Compulsory Certification (CCC) mark.
Following a recent reorganization of China’s government agencies, SAC
and CNCA are sub-agencies under the State Administration of Market
Regulation (SAMR), a government agency that includes the functions of
the former General Administration of Quality Supervision, Inspection
and Quarantine (AQSIQ), among others. Standards in China fall into at
least one of five broad categories: national standards, industry
standards, local or regional standards, enterprise standards for
individual companies, and association standards. National standards
( also called “GB” standards) can be either mandatory (technical
regulations) or voluntary. Either way, they take precedence over all
other types of standards. Association standards are a new concept
established as part of a reform to China’s standardization system (see
below for more information on this reform) and are intended to be
driven by industry and other stakeholder organizations.

Exporters to China should be aware of a few regulatory requirements in

the standards and testing area. First, it is important to note that
laws and regulations can reference voluntary standards, thereby making
the voluntary standard, in effect, mandatory. Second, for certain
products, such as some electrical products, information technology
products, consumer appliances, fire safety equipment and auto parts,
China requires that a safety and quality certification mark (the
aforementioned CCC mark) be obtained by a manufacturer before selling
in or importing to China. This process can take some time. Third,
numerous government agencies in China mandate industry-specific
standards or testing requirements for products under their
jurisdiction, in addition to the GB standards and the CCC mark
described above. This often leads to onerous and duplicative testing


China is in the process of significantly reforming its standardization

system with a stated goal of decreasing the number of mandatory
standards and employing both a top-down standards development system
like the European Union and a bottom-up system like in the United
States. China’s revised Standardization Law, which went into force in
2018, along with subsequent implementing measures, defines a new
system that includes national standards development by technical
committees (TC) and allows for other standards setting processes. TCs
developing national or GB standards must be accredited by the SAC.
These TCs are comprised of members from government agencies, private
industry associations, companies (sometimes representatives of
foreign-invested companies may participate, but often do so with
limited voting rights), and academia.

Under recent reforms to China’ standardization process, industry

alliances are also being formed to develop association standards,
which are intended to be developed according to processes such as the
market-driven system in the United States. Some business community
experts are concerned about the independence of the process for
setting association standards and about potential mechanisms for
association standards to become national standards.

Additionally, government agencies such as the National Development and

Reform Commission (NDRC), and the Ministry of Industry and Information
Technology (MIIT), can approve and promulgate technical regulations
that may reference voluntary standards, rendering them mandatory.

In 2018 and early 2019, Chinese regulators issued further policies to

implement standardization reform, including guidelines for proposals
to draft national standards, a plan to provide incentives for
“pioneering” enterprise standards, and a plan to draft or revise over
500 recommendatory national standards in 2019. In addition, China has
embarked on a long-term research project that aims at developing a
national standards strategy, called China Standards 2035.
China has repeatedly stated that it intends to become a significant
player in international standards organizations and has made efforts
to increase its profile in the international standards development
organizations. Recently, these efforts have included hosting the 83rd
International Electrotechnical Commission to be held in October 2019
and encouraging standards cooperation and harmonization efforts in
neighboring countries.

Testing, inspection and certification

Conformity Assessment
CNCA is the primary government agency responsible for supervision of
China‘s conformity assessment policies, including its primary safety
and quality mark, the CCC mark. CNCA supervises the work of the China
National Accreditation Service for Conformity Assessment (CNAS), which
accredits certification bodies and laboratory and inspection

Product Certification

The China Compulsory Certification (CCC) mark is China‘s national

safety and quality mark. The mark is required for 19 categories of130
products, ranging from electrical fuses to toaster ovens to automobile
parts to information technology equipment. About 20% of U.S. exports
to China are on the product list. If an exporter‘s product is on the
CCC mark list, it cannot enter China until CCC registration has been
obtained, and the mark is physically applied to individual products as
an imprint or label. Domestic products also cannot be sold in China
without obtaining registration and applying the mark on individual

After years of U.S. government advocacy, Chinese regulators have

streamlined CCC management. In2018, the SAMR and CNCA published two
lists of products to be removed from the existing CCC catalogue, and
lists of existing CCC products that will subsequently be considered
CCC compliant through self-declaration. In addition, starting April
1, 2019, SAMR took over the approval of CCC exemption applications
from the General Administration of Customs of China (GACC). Exporters
should carefully review China’s CCC catalogues as China continues to
make modifications to the list of products requiring a CCC mark.

Obtaining the CCC Mark involves an application process with authorized

Chinese certification bodies. At present, five foreign testing
organizations have been designated to test certain categories of
products to CCC mark GB standards.

The application process can take several months or more and can cost
upward of $4,500 in fees, in addition to inspectors’ travel costs. In
2018, the State Council called for an increase in the number of CCC
certification agencies, in an effort to reduce CCC compliance costs
and in turn improve China’s business environment. The CCC process
includes sending testing samples to a Chinese laboratory and testing
in those labs to ensure the products meet safety and/or electrical
standards. Applicants’ factories are also required to undergo
inspection to determine whether the product line matches the samples
tested in China. Finally, Chinese testing authorities approve the
design and application of the CCC logo on the applicant‘s products.
Some companies, especially those with a presence in China and with a
dedicated certification/standards staff, are able to manage the
application process in-house. Other exporters can tap the expertise of
standards consultants based both in the United States and in China who
can provide application management services and handle all aspects of
the application process.

The U.S. Department of Commerce maintains a comprehensive CCC mark

website to help U.S. exporters determine whether they need the CCC
mark and how to apply.
Though the CCC mark is China‘s most widely required product
certification mark, other product certification requirements exist.
These include, for example, requirements for boilers and 81 pressure
vessels, under a product certification regime administered by the
Special Equipment Licensing Office of SAMR. Another product
certification scheme is required for certain measurement equipment,
known as Certificate of Pattern Approval, which is also administered
by SAMR.

Conformity Assessment

CNCA is the primary government agency responsible for supervision of

China‘s conformity assessment policies, including its primary safety
and quality mark, the CCC mark. CNCA supervises the work of the China
National Accreditation Service for Conformity Assessment (CNAS), which
accredits certification bodies and laboratory and inspection


The China National Accreditation Service for Conformity Assessment

(CNAS) is the national accreditation body of China solely responsible
for the accreditation of certification bodies, laboratories, and
inspection bodies as authorized by the CNCA in accordance with the
Regulations of the People's Republic of China on Certification and
Accreditation. The list of accredited bodies can be found on the CNAS

Over the past few years, CNCA has gradually designated a few foreign
organizations for testing certain categories of products for the CCC
mark. For example, in 2014, UL was designated for testing HVAC
equipment; in 2016, it was designated for testing motors and audio and
video products; and in January 2017, it was designated for testing
wire and cable. Additional foreign lab designations will likely make
the CCC process much less cumbersome and expensive.

Publication of Technical Regulations

China is obligated to notify other World Trade Organization members of

proposed technical regulations that would significantly affect trade.
Notifications are made through the Technical Barriers to Trade (TBT)
committee notification point. All members, including China, are
required to allow for a reasonable amount of time for comments to
proposed technical regulations (i.e., compulsory standards).
Historically, China habitually only allowed comment periods of a few
weeks, as opposed to the standard of 30 to 60 days practiced by other
nations and recommended by the TBT committee.

Benefits of transformation-

Much higher labor productivity (increased by 30-50%);

More flexible production, lower MOQs;

Less quality problems, much less rework or reproduction;

Less working capital eaten up by inventory;

Less employee turnover rate, because work is more varied and there are
more opportunities to learn (modular manufacturing).

Steps to improve the production -

Step 1: stabilization of processes (it takes up to 2 years)

The goal of this first step is to achieve consistency in production,

and to show everybody in the factory that changes are not threatening.

These two conditions are necessary before reducing inventory levels

and before re-organizing the material flow in depth.

How to achieve consistency?

1. Standardized work instructions

Each operator should be given a standard, and be trained to follow it.

Be very clear about the right way to perform each operation on each

2. Jidoka

What are the components of jidoka (a coined word in Japanese that is

often translated by “automation with a human touch”, by opposition to

Stop assigning 1 human operator in front of each machine. Make sure

each machine doesn’t need constant supervision, and free humans to
perform value-adding work;

Operators should tend to a machine only when needed. This way, they
can supervise several machines;

Right-size the tooling;

Reduce setup time;

Use several small machines, rather than one large machine.

3. Product-oriented production flow

Chinese factories are often specialized in one product line only. When
this is not the case, it is best to specialize the machines by product

Machines that are used for making the same product should be placed in
an adjacent manner.

4. Preventive maintenance
Make sure machines don’t stop unexpectedly. You will need them to run
without a fault when they are needed.

5. Mistake proofing

Certain causes of problems can easily be eliminated thanks to simple

“poka yoke” devices. Sometimes, the best solutions are the simplest
and the least expensive.

6. 5S

After you have remodeled the production flow, you can do some

Remove from the shop floor the items you don’t use routinely,

Have assigned locations and labels for everything you retain on the
shop floor,

Have production operators clean their workplace at shift end, so that

they notice details like spills, frayed cables, or broken lamps

Use checklists and audits to monitor daily practice of the above three

If possible, make the first three steps a habit of every worker (no
need to audit them any longer).

Do not start with a 5S program. It will not bring impressive cost

reductions, and operators will resist it. It should come after jidoka
was introduced.

Step 2: improve the product flow

Production should run as continuously as possible. Reduce batch sizes

and in-process inventory.

If you have made tooling changeover faster and if the machines don’t
break down frequently, it is possible. But keep making efforts to
drive batch sizes down.

Step 3: the products follow a certain sequence

Organize delivery from one station to the other in the exact sequence
in which it is needed.

This logic should not only apply internally. Work with sub-suppliers
if possible, and purchase components in smaller batches. The suppliers
need to trust you before they make efforts, so go for single-source
and long-term contracts — even if the unit price goes up a little.

Control the components, and send them back if they are defective. Ot
seems obvious, but it is very rarely done in China. The boss should
not purchase components from his friends!

If critical component suppliers have minimum order quantities that get

in the way of lower batch sizes, try to find a way to reduce them.

Step 4: pull, don’t push

Each material should be replenished by upstream processes. Use pull

signals (such as “kanban” cards), rather than high-tech solutions.

Remember, you don’t need computers to organize the production flow.

There are often no computers on the production floor of many Toyota
factories. Make everything visual (place graphs on walls…).

Step 5: try to level production

Produce a leveled quantity and mix of products across all the value

Leveling production is a constant battle if demand needs to be

forecast. But it is actually not that difficult for manufacturers that
produce only after they receive orders, as is usually done in China.