1. Industrial upgrading through moving up global value chains
International Conference 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

2. 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
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Prof. Dr. Shiwei Shi

3. Benefits of Chinese industries from integration into the global value chains (GVC) and its Position
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4. Three cascading constraints of globalization
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6. The estimated smile curve for China 's exports of electrical and optical equipment deepened 1995 and 2009
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8. 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.
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9. 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
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10. Source: National Bureau of Statistics of China
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13. 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.
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14. Share of Foreign Invested Enterprises(FIE) to China´s foreign trade( ) 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%
44.82%
43.08%
46.95%
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15. Source: MOST 2016
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16. Importance of industrial upgrading for Chinese economic development
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17. 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
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18. 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.
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19. Made in China 2025 – Strategy for industrial upgrading
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21. 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.
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23. Industrial upgrading under the conditions of GVC and its challenges for China
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26. What is Upgrading? Upgrading = Innovation to create value added
Different Forms of upgrading:
of processes
of products
functional
intersectoral
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27. Moving up the value chain
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28. The new strategy aiming at indigenous Innovation
The S&T Strategic Program ( ) 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.
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29. Model for a multi-layer innovation system
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30. 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.
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31. Source: OECD
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34. Triadic Patent Families, Total
Source: OECD
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35. Cases for indigenous innovation
Top-down approach (top level design):
High-speed rail
Supercomputer
UHV power transmission
bottom-up approach:
Huawei
Haier
Alibaba
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36. 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.
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37. 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
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38. Thanks a lot !
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