Industrial upgrading through moving up global value chains

1. 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

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 Prof. Dr. Shiwei Shi

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

4. Three cascading constraints of globalization Prof. Dr. Shiwei Shi

5. Prof. Dr. Shiwei Shi

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

7. Prof. Dr. Shiwei Shi

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. Prof. Dr. Shiwei Shi

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 Prof. Dr. Shiwei Shi

10. Source: National Bureau of Statistics of China Prof. Dr. Shiwei Shi

11. Prof. Dr. Shiwei Shi

12. Prof. Dr. Shiwei Shi

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. Prof. Dr. Shiwei Shi

14. Prof. Dr. Shiwei Shi

15. Source: MOST 2016 Prof. Dr. Shiwei Shi

16. Importance of industrial upgrading for Chinese economic development   Prof. Dr. Shiwei Shi

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 Prof. Dr. Shiwei Shi

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. Prof. Dr. Shiwei Shi

19. Made in China 2025 – Strategy for industrial upgrading Prof. Dr. Shiwei Shi

20. Prof. Dr. Shiwei Shi

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. Prof. Dr. Shiwei Shi

22. Prof. Dr. Shiwei Shi

23. Industrial upgrading under the conditions of GVC and its challenges for China Prof. Dr. Shiwei Shi

24. Prof. Dr. Shiwei Shi

25. Prof. Dr. Shiwei Shi

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

27. Moving up the value chain Prof. Dr. Shiwei Shi

28. 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. Prof. Dr. Shiwei Shi

29. Model for a multi-layer innovation system Prof. Dr. Shiwei Shi

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. Prof. Dr. Shiwei Shi

31. Source: OECD Prof. Dr. Shiwei Shi

32. Prof. Dr. Shiwei Shi

33. Prof. Dr. Shiwei Shi

34. Triadic Patent Families, Total Source: OECD Prof. Dr. Shiwei Shi

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

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. Prof. Dr. Shiwei Shi

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. / JostWübbeke, MirjamMeissner, 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 Prof. Dr. Shiwei Shi

38. Thanks a lot ! Prof. Dr. Shiwei Shi