Transcript Strategic adjustment of development goals in China

Strategic Adjustment and
Challenges: the New Millennium
• Why decided on “Endogenous innovation and harmonious
development”？
• Miserable growth and “structural unemployment”
• Global value chains and “innovation rents”
• Example: the emergence of vegetable sector
• Example: a new policy landscape
• Discussion and summary
** Questions:
What has been changed of development environment in WTO regime?
Can export-orientation bring a NIS upgraded?
** Key words:
Global value chains; “Innovation and system efficiency rents”
June 2008
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“Endogenous innovation and harmonious
development”
• Guiding Vision for the 11th National Economic and Social
Development Program (2006-2010)
=>economizing material inputs
=>upgrading economic structure and innovative capability
=>environmental protection
=>balance between urban and rural development and between the
development in east, middle and west regions
=>job creation and social equality
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Rapid growth in the past 20 years……
……however, many limits to growth
• Remarkable global impact and trade
disputes
• √“Job less growth”
• Widening income gaps and negative
environmental externalities
• √Slow pace in competence and
competitiveness upgrading
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Low pace in structure/capability upgrading
China in the global value-chain governance: high-tech and low-tech
“race to the bottom export” (R Kaplinsky)
China’s Domestic market
Both in the high-tech and low-tech, China is locked in the low end of
value chains except a few segments
Pursuing solely for high speed growth of GDP proved to be a misleading;
June 2008potential, and capability/structure
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Learning
upgrading is much more crucial
Employment issue:
Displacement of employment, or “jobless growth”
Figure 7 GDP Structure in Comparison
Figure 8 Employment Structure in Comparison
100%
100%
90%
23.7
80%
32
34.4
41.5
51
70%
62
65
59
43
40%
47.5
29
20%
25
18.1
12.5
9
5
First
1989
1997
2003
Brazil 1999
S Africa
1999
Second
Tertiary
7
India 2000
18
29.3
17.3
53.2
21.6
23.7
45
15
55
21.6
25
40%
70.5
Russia
1999
Source: For the data on China: Statistical Yearbook 2004 (http://www.stats.gov.cn/tjsj/ndsj/yb2004c/indexch.htm ), for the Data on Brazil, South Africa, India and Russia: World Facts and Figures at
http://worldfactsandfigures.com
23.7
67
60.1
30%
25
0%
1978
34
30
26.4
50%
24
46
30%
10%
18.3
60%
48.2
28.1
80%
70%
60%
50%
12.2
90%
49.9
20%
30
49.1
23.1
10%
30
15
0%
1978
First
1989
Second
1997
2003
Tertiary
Brazil 1999 S Africa India 2000
1999
Russia
1999
Innovation is a two-edged sword in terms of employment effect.
Process innovation is easy to realize upon international supply, it
drops jobs away, if without the capacity in capital goods provision
and
engineering services (in
expanding/deepening system effects).
June 2008
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Increasing in energy consumption, security in energy
supply, emission of green gas, and environmental
degradation
Source: IEA
World Energy
Outlook 2006
June 2008
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“Structural unemployment” and
urban- & Industry-led solutions
• Daunting Structural Unemployment, associated with development; has
been assumed towards solutions arisen from urban and industry
development (together with emigration to the “New World”), assuming
a passive agriculture people and active elite industrialists
• South Korea had overcome the problem relying on the world market;
but very questionable as whether this is workable for China and India
• Even for a small economy of S Korea, it is now faced with the pressure
of “agflation” and hit of “food security”.
Net total trade value US$ million
1979-1981 1989-1991 1999-2001
USA
France
Japan
S. Korea
China
India
Brazil
Thailand
-28417
-17753
-3436
-113204
-19154
64942
-427969
-1011
87083
-4983
-2717
-5099
-3391
-2615
-4523
16405
-4058
10702
-8275
15021
27776
-8891
-2474
5389
June 2008
2003
Agricultural net trade value US$ Million
2004
1979-1981 1989-1991
1999-2001
2003
2004
-580542 -706961
-6801
-16731
88010 110568
23214
3259
-16612
18284
9606
-27940
10913
9948
-33436
8825
11470
-35294
4019
12005
-39605
14991
34093
-14153
22419
3759
-2866
-5571
1096
6325
2853
-5446
-2727
1879
6330
4183
-6354
-6896
1352
10351
4641
-7761
-11427
1601
17314
6756
-8481
-20862
1950
23617
8096
29382
25741
-22272
30529
1682
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• In theory, Washington consensus (Liberalization of international
trade and FDI; Deregulation and reduction of public subsidies; Privatization of
economic activities) and export-oriented theorem The WB
summarized Asia “Tiger” Economies experience assume a
perfectly competitive global market;
• However, when the global market is derived far away from
being perfectly competitive, as Global value chain theories
indicate—sources/reasons for capturing or being prevented
from “innovation rents” (Gereffi，Kaplinsky, Cooke, UNIDO)
Technology rents
Organizational rents
Innovation rent or
entrepreneur surplus
MC
AC
P2
Price
d
P1
Brand name rants
Trade policy rents
June 2008
Systemic efficiency
Price
Relational rents
AC
MC
D
MR
Q1
Output
Power/policy rent
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System rent
05-4-26
(a)平衡竞争
Q2
Output
(b)垄断竞争
8
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More on theory and history
• Imitation to
innovation—the
experience summarized
upon Asia “tiger”
economies
• How much space
remained under the WTO
rule? TRIPS TRIMS SCM
• The need to try out new
ways for capability and
structural upgrading
June 2008
• The debate on
“appropriate
technology”
• The key is to gain the
capacity in developing
technologies fitting to
local needs/endowments
• So that to be
endogenous and
inclusive in innovation
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Questions
• What makes difference with globally dispersed value chain in
comparison to the situation where value chains mainly restricted in
country territories?
• Can capabilities for gaining technological rents, relational rents,
organizational rents, and rents from system effects grow automatically
through low-end activities in value chains?
Technology rents
Organizational rents
Innovation rent or
entrepreneur surplus
MC
AC
P2
Relational rents
Brand name rants
Trade policy rents
AC
MC
D
MR
Power/policy rent
Q1
Output
(a)平衡竞争
June efficiency
2008
Systemic
Price
Price
d
P1
05-4-26
System rent S GU Globelics Academy
Q2
Output
(b)垄断竞争
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Technological and structural complexity
--Modularity creates design/innovation options
Integrated design：
“System option”
Modular design：
(Design rules + options at Modules)
=>Multiple options;
=>Decentralized decision centers
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“GENERAL FEATURES OF COMPLEX SYSTEMS”
by Yaneer Bar-Yam
June 2008
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1970s
12
Architectural Innovation in complex technologies
Rebecca M. Henderson and Kim B. Clark
The case of DVD machine
Core concepts/ Components
Linkage between Core
concepts and components
Reinforced
June 2008
Unchanged
Incremental
innovation
Normal
Changed
Architectural
innovation
Overturned
Modular
innovation
Transitional
Radical
innovation
Transformational
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Two side effects from technological
complexity and modular structure
• “hidden design parameters”
• Example: mobile phone set
industry
• Easy entry in the second half
of the 1990s
▲ Entrepreneurship; “down-stream
advantages”
▲ Modular components; production
lines; design and engineering
services
• 2002-03 at the peak of successes
• 2004 encountered with setback
▲ Multinationals take over again
June 2008
▲ Open architecture in favor of global
dispersion and entry
▲ Complex design engineering raises
barriers to move up in value and
competence ladder
• Only those who “know more than
they make” could win the
competition based on complexity
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Year
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
June 2008
%
of National Income
0.1
0.2
0.3
0.6
0.6
1.0
1.6
2.8
2.0
1.5
1.9
2.1
2.0
1.6
1.0
1.0
1.5
1.6
1.8
1.7
1.5
1.5
1.6
1.6
1.6
1.8 (1.5 of GDP)
Year
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
%
of GDP
1.5
1.5
1.5
1.3
1.3
1.4
1.4
1.2
1.3
1.0
0.8
0.8
0.8
0.8
0.7
0.7
0.7
0.6
0.6
0.6
0.7
0.8
0.9
0.95
1.07
1.13
1.23
1.34
1.4
Challenges to policy
capacity
Stages of S&T policy,
illustrated from R&D
investment
--1956-1966 Establishment of
the R&D system
--1966-1976 Cultural revolution
--1985-1999 Redeployment of
the R&D resources
--Since 1999 Turing to
enhancement of knowledge
infrastructure
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Policies in 1999-2006: Development of high-tech,
promotion of commercialization
• Decision on promotion of technological
innovation, development of high-tech, and
acceleration of commercialization” 1999
• National S&T conference on technological
innovation 1999
• In response to challenges and opportunities
of IT revolution
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Increase in
R&D
expenditure
since 1999
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But innovation capabilities remain low and segmented
checked following capabilities in a value chain framework
Sources
Strength/weakness
Illustration from North-east China
Technology Rents
M-L
Organizational Rents
L
Relational Rents
L
=Relatively good high education
=Considerable industrial base
=Planning instruments operate in vacuum =Many
plans, but with poor preparation and unrealistic
expectation
=Lack of internal (in the region) economic
cooperation/connections
Brand-name Rants
little
Trade Policy Rents
L
Value added from Assembly
H
Systemic Efficiency
M-L
June 2008
Cite from Jon Sigurdson
=Lack of awareness/regulatory development for the
potential from a greater (cross-board) regional
integration and complementarities
=Weakness in infrastructure, especially banking and
other knowledge-intensive services
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Challenges to Policy checked following
development goals and a NIS perspective
—Gu and Bal
Address Domestic needs
Engage in product innovation and
improve engineering capability
Building user competences and
institutions supporting SME competence
Develop a responsive science and
engineering base
Develop new forms of participatory
governance of economic organization
Improving education and stimulating
the mobility of skilled labour
Develop networking and learning
regions
Improve Social Capital
June 2008
--how to manage public investment for
health care and environment protection
such as large public R&D project
management; and the management of
public procurement ?
--what might be new approaches of
learning/innovation at firm?
--what are, and how to develop
workable university-industry relations?
--especially in populous agricultural
regions
--labor mobility for learning based
development?
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Challenges to S&T and innovation policy: checked
following a policy landscape for the coming years
Specific, dynamic, integration capacity
==R&D
==”Matching” and efficiency
==Education and manpower
==Universal education and broad participation of people in learning and
innovation
==Balanced between sectors and between urban and the rural
==Social dimension of economic development, e.g. food security and
safety
Service sector policies
==Sectoral policies for
development

Industrial policies

Agriculture policies
==Regional development policies, Newly emerged
Regional development policies
Policies for Science Park and SEZs
==Social development
==Becomes equally important
Policies for medical development and universal health care
Policies on wealth allocation and employment
Policies for communities development and harmonious society
Policies and management of emergent event
==International dimensions
==Become crucial
IPR policies
Policies for collaboration in the development of global public goods,
such as those in order to control of global warming
==Policies for sustainable development
Policies for energy efficiency, renewable energies, reduction of
emission
Policies for reservation of ecosystem
Policies for remedy of social divides and for aging society
June 2008
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Policy landscape: Conventional
Static, General targets, and Central/top-down policies
==R&D policies
==Relatively independent of other
dimensions, with inadequate
management for matching R&D
with real needs (an exception is
military R&D)
==S&T education and manpower
policies
==”Elite education”
==Sectoral policies for development ==Industrial development (and
high-tech) central

Industrial policies

Agriculture policies
==Policies for social development
==Secondary to economic
development
==International cooperation and
technology import policies
==With limited scope; Innovation
system was largely closed
June 2008
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Will it be a smooth and linear process?
• Change in “mindset”
• Renovation of policy institution and improvement in policy capacity
• “Government steering”, but not “government controlling”
June 2008
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Challenges to knowledge and innovation based
development
Agriculture and traditional sectors:
Important roles for sustainable development
insights achieved but yet taken into mainstream policy
• Job creation, poverty reduction, social equality: A pivotal
contributor
• Food security/ Food quality: The provision of basic necessities
and raw materials for the population and for industry
•
Modernization of the rural, and the society by and large, by
participation of farmers in learning and technological and
institutional changes
• Important player in the protection of environmental common
goods
• Altogether, the sector is central to economic, societal, and
ecological sustainable development
June 2008
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Land endowment: per capita and pre agricultural capita arable land
1
0.9
30
per capita arable land (ha)
0.8
25
0.7
0.6
20
0.5
0.4
15
0.3
10
0.2
5
0.1
0
0
a
d
n
ia raz il
m
ca
ri a
nd
orl
fric ra tio
Ind
ige ha ila iet Na ta Ri
B
A
W
e
N
s
h
d
T
V
ut
Fe
Co
So
an
i
s
s
Ru Per Agricultural
of Land(ha)
Agri-population
in total population
2004
Per capitaShare
Arable
Capita
Arable Land (ha)
A
ce
an
US Fran
Jap
ina
Ch
70
65.7
64.3
per agricultural capita arable land (ha)
35
Agriculture is
natural
endowmentsand
consumptionshaped and
restricted
60
51.8
50
45.8
40.8
%
40
29.8
30
18.9
20
14.3
12.4
9.45
10
1.96
3.05
2.75
N
ld
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June 2008
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24
The need for local conditions-appreciated
WTO regulations—e.g. Shukla
• China and India are in the group characteristic of
limited land resource, high population pressure and
small-holder farming organization
• In contrast to the group with abundant natural
resources and lighter population intensity, like United
States and Brazil
• Unified WTO AOA will destroy the agricultural sector
in countries of the first group
• Research and negotiation is needed for a WTO AOA
which must appreciate very different local conditions
among WTO members
June 2008
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Knowledge base is in rapid change
becoming modern S&T knowledge intensive, under intensifying global
competition and global knowledge flows
e.g. bio-tech—for new variety breeding; instrument—food security
testing and environmental monitoring
Preoccupation with “high-end” of biotech has delayed agricultural biotech capability building
Government
initiatives
Technologies and
knowledge base
1988
“Vegetable
basket”
project starts
Product (new variety)
come from
international suppliers
mid1990
Agricultural
restructuring
Product tech from
outside; National S&T
Program invests in
production and product
tech.
2002
Quality of
“vegetable
basket”
June 2008
Standardization &
testing tech; R&D for
agricultural biotech
=Learning and adaptation of external
knowledge is essential-Locally developed
greenhouse dominated the production in
mid-north China
S GU Globelics Academy
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Governance and farm organization
matter
• Governance concerns about the power of actors over the
value chain, gives impact on distribution of learning and
profiting opportunities
• Smallholder farmers are (1) a reason for the low efficiency
of the market structure, and high cost for quality
production; (2) of little power, tend to be squeezed and
exploited
• Exploration of multiple forms of farm organization in
order to overcome the deficiencies under the specific
conditions
• Farmer cooperatives are one of the solutions—there are
different obstacles to this development in China and India
June 2008
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Innovation systems: from imitative to
innovative
Structural upgrading
Complexity
** Firms become strong in core capability
US
** Strengths in Capital goods sectors and
generic technology
Korea
** Engineering capabilities and
knowledge-intensive services
** Systems’ efficiency：rely on framework
conditions, links and interactions, strength in
science and engineering base
** Capabilities in policy and management:
steering technological and institutional
learning
June 2008
China
NIS in mastering technological and societal complexity
S GU Globelics Academy
28
Strategic Adjustment and
Challenges: the New Millennium
• Why decided on “Endogenous innovation and harmonious
development”？
• Miserable growth and “structural unemployment”
• Global value chains and “innovation rents”
• Example: the emergence of vegetable sector
• Example: a new policy landscape
• Discussion and summary
** Questions:
What has been changed of development environment in WTO regime?
Can export-orientation bring a NIS upgraded?
** Key words:
Global value chains; “Innovation and system efficiency rents”
June 2008
S GU Globelics Academy
29
Thank you
June 2008
S GU Globelics Academy
30