Industrial upgrading through moving up global value chains International Conference 20-21 June 2019 China’s Future: Domestic and International Contradictions and Challenges European Institute for Asian Studies, Brussels Industrial upgrading through moving up global value chains Shiwei Shi UIBE/FUB

Outline Benefits of Chinese industries from integration into the global value chains (GVC) and its position Importance of industrial upgrading for Chinese economic development   Made in China 2025 – Strategy for industrial upgrading Industrial upgrading under the conditions of GVC and its challenges for China Cases for indigenous innovation Conclusion 2019/6/20 Prof. Dr. Shiwei Shi

Benefits of Chinese industries from integration into the global value chains (GVC) and its Position 2019/6/20 Prof. Dr. Shiwei Shi

Three cascading constraints of globalization 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

The estimated smile curve for China 's exports of electrical and optical equipment deepened 1995 and 2009 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

Rapid growth of Chinese manufacturing Chinese economy achieved a very rapid growth in the last 40 years. The manufacturing industry is a main pillar for the national economy. Manufacturing industries are an engine of innovation, productivity growth, and exports. 2019/6/20 Prof. Dr. Shiwei Shi

How could the Chinese manufacturing get such successes? integration into GVC along its dynamic comparative advantages, so that Chinese enterprises could benefit from technology transfer from foreign sources to enhance the diversity and quality of its products. productivity-enhancing investment in infrastructure and basic industries The right sequence of opening-up policy of government 2019/6/20 Prof. Dr. Shiwei Shi

Source: National Bureau of Statistics of China 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

Challenges for Chinese manufacturing the most goods of Chinese foreign trade, including high-tech products, stemmed from foreign investment enterprises. Chinese manufacturing is still quite dependant from foreign inputs. 2019/6/20 Prof. Dr. Shiwei Shi

Share of Foreign Invested Enterprises(FIE) to China´s foreign trade(1987-2017) Source：Invest in China Year Share (total) Share (exports) Share (imports) 1987 5.55% 3.07% 7.81% 1991 21.34% 16.75% 26.51% 1992 26.43% 20.44% 32.74% 1995 39.10% 31.51% 47.66% 1999 50.78% 45.47% 51.83% 2005 58.49% 58.30% 58.70% 2008 55.07% 55.34% 54.71% 2011 51.07% 52.42% 49.60% 2012 48.98% 49.92% 47.93% 2013 46.13% 47.25% 44.86% 2015 46.30% 44.10% 49.30% 2016 45.78% 43.71% 48.52% 2017.1-11 44.82% 43.08% 46.95% 2019/6/20 Prof. Dr. Shiwei Shi

Source: MOST 2016 2019/6/20 Prof. Dr. Shiwei Shi

Importance of industrial upgrading for Chinese economic development 2019/6/20 Prof. Dr. Shiwei Shi

Recent trends in global trade and global value chains Rising tide of protection around the globe after the global finance crisis Substitution of domestically produced intermediate inputs for imported intermediate inputs in major emerging developing economies through local learning, forward and backward linkages Technology innovation and re-shoring (deepened the domestic division of labor) in the developed countries 2019/6/20 Prof. Dr. Shiwei Shi

Domestic challenges facing China Labor shortage as the consequence of demographic change and it pushes costs high environmental deterioration as the consequences of the extensive development model in the last decades China’s economy is in urgent need of a new innovation-driven growth model. 2019/6/20 Prof. Dr. Shiwei Shi

Made in China 2025 – Strategy for industrial upgrading 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

Four principles for implementation of Made in China 2025 Strategy Reliance on market forces to achieve the upgrading under the government guideline; Combination the longer perspective with the achievement in short run; Endeavour to advance a comprehensive, broad-scale technological upgrading across the Chinese economy with some focused breakthroughs; Combination of independent development with international cooperation on the basis of mutual benefits. 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

Industrial upgrading under the conditions of GVC and its challenges for China 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

What is Upgrading? Upgrading = Innovation to create value added Different Forms of upgrading: of processes of products functional intersectoral 2019/6/20 Prof. Dr. Shiwei Shi

Moving up the value chain 2019/6/20 Prof. Dr. Shiwei Shi

The new strategy aiming at indigenous Innovation The S&T Strategic Program (2006-2020) set up three overall goals: Building an innovation-based economy by fostering indigenous innovation capability Fostering an enterprise-centred technology innovation system and enhancing the innovation capabilities of Chinese firms. Achieving major breakthroughs in targeted strategic areas of technological development and basic research. 2019/6/20 Prof. Dr. Shiwei Shi

Model for a multi-layer innovation system 2019/6/20 Prof. Dr. Shiwei Shi

Policy tools used for indigenous innovation R&D, more money for S&T, to reach 2.5%by 2020. 16 Mega-projects aimed the core technology for strategic industries (large airplane, next generation of communication, chips, etc.) . Using standard setting and IPR as tools to promote innovation, such as to implement TD-SCDMA in China; Strengthening R&D infrastructure construction, including key labs, science parks and incubator. 150% tax reduction for R&D increasing in enterprises Financing for innovation (second board, or Chinese NASDAQ, more money for innovation fund, VC). Public procurement: new policy to support innovation for domestic company. Enriching human resource in S&T by nurturing scientific leaders and talent and tapping into the global pool of HRST, including overseas Chinese, reforming higher education, and improving public awareness of innovation. Improving the management of public R&D by introducing a new evaluation system and increasing policy co-ordination. 2019/6/20 Prof. Dr. Shiwei Shi

Source: OECD 2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

2019/6/20 Prof. Dr. Shiwei Shi

Triadic Patent Families, Total Source: OECD 2019/6/20 Prof. Dr. Shiwei Shi

Cases for indigenous innovation Top-down approach (top level design): High-speed rail Supercomputer UHV power transmission bottom-up approach: Huawei Haier Alibaba 2019/6/20 Prof. Dr. Shiwei Shi

Conclusion for building NIS and indigenous innovation Chinese NIS is becoming more enterprise-centered. The government has kept more balance between the state-led and market driven approach in its innovation policy (combining “top-down” with “bottom-up”) Aiming at lifting up China to an innovative country, the government will strengthen the indigenous innovation, while keeping the strategy of international cooperation in STI to mutual benefits further. 2019/6/20 Prof. Dr. Shiwei Shi

Reference China: Challenges and Prospects from an Industrial and Innovation Powerhouse./European Commission, Brussels, 2019 Global Value Chain Development Report 2017: Measuring and Analyzing the Impact of GVCs on Economic Development. /The World Bank, Washington, 2017 MADE IN CHINA 2025: The making of a high-tech superpower and consequences for industrial countries. / Jost Wübbeke, Mirjam Meissner, Max J. Zenglein, Jaqueline Ives and Björn Conrad, Merics Paper on China, No 2, December 2016 Shiwei Shi and Kou Kou: Comparision of National and Regional Innovation Systems between China and Germany. Beijing: Zhongguo Shehuikexue Chubanshe, 2018 2019/6/20 Prof. Dr. Shiwei Shi

Thanks a lot ! 2019/6/20 Prof. Dr. Shiwei Shi