becomes the major trend
The outbound investment of China’s manufacturing industry has been developing and implementing the strategy of diversification. During the three years from 2003 to 2015, China’s manufacturing industry invested into an increasingly diverse range of industries. In 2003, the industrial sectors outside China invested by China’s manufacturing industry mainly included electronic equipment manufacturing, textile industry, ferrous metal smelting and rolling processing industry, etc. After more than ten years of globalization, in 2015 the scope was expanded to cover electronic equipment, transportation facilities, general-purpose equipment, special equipment, medicine, textile manufacturing, non-ferrous metal smelting, rolling processing, metal product and wood processing industry, etc.
At the same time, in the continuously deepening globalization, the motivation of China’s manufacturing industry for overseas investment gradually shifted from pursuing foreign trade opportunities and natural resources to acquiring strategic assets such as technology and brands, etc. Among such motivations, technology acquisition was the most common one. Through Greenfield investment, establishing overseas parks and incubators, Chinese manufacturing industry tried to foster advanced technologies. By acquiring overseas high-tech institutions, building R&D alliance with overseas institutions, etc, Chinese manufacturing industry tried to acquire overseas advanced technologies. Among them, self-constructed overseas R&D institutions (Greenfield) and M&As with overseas high-tech institutions were the most common pathways. For example, SANY Heavy Industry built its R&D and manufacturing base in the United States in 2008. It developed new products such as rough-terrain cranes and crawler cranes widely welcomed in the North American market. In 2014, Wanxiang acquired Fisker, a company with complete new energy vehicle production capacity, at a price of USD 150 million. Wanxiang obtained the manufacturing technology and intellectual property rights for new energy vehicles, including 18 design patents, invention patents and brands through the acquisition. This completed the strategic deployment of Wanxiang in new energy vehicle field, and assisted Wanxiang in rapidly integrating electric vehicle manufacturing technologies.
1.3 Innovation capability building of China’s manufacturing industry
When confronting international competition in the global market, innovation capabilities will be the key factor for China’s manufacturing industry to win the future global competition. Currently, the Chinese government unveils many incentive policies, i.e. policies promoting innovative infrastructure construction projects, policies promoting evaluation system for enterprise’s innovation performance, policies encouraging R&D subsidies and tariff concession for high-tech companies as well as other incentive policies. These incentive policies are purported to encourage employees’ enthusiasm for R&D in manufacturing industry and improve its international competitiveness. According to statistics, by the end of 2015, China had built 132 national engineering research centers, 158 national engineering laboratories and 1,187 nationally recognized enterprise technology centers. The Venture Capital Program for Emerging Industries had spun off 206 venture capital firms, with a raised capital of RMB 55.7 billion yuan altogether and 1,233 start-ups invested. It therefore boosted the system construction for industrial technology development and corporate technological innovation, improving the technological innovation capabilities of the industry and enterprises.
China has placed innovation at an important strategic position in economic development. Being the “engine” for economic growth, technological innovation in manufacturing industry is particularly important. For the manufacturing industry, production and R&D are two key aspects for industrial transformation and upgrading, and innovation capability improvement. Therefore, in this section, both static and dynamic competitiveness analysis of China’s manufacturing industry are conducted from the two perspectives of production efficiency and technological innovation capabilities. Benchmarking the development of China’s manufacturing industry against the world level would provide some inspirations as to what is the correct choice of technology strategy for China’s manufacturing industry.
1.3.1 Production efficiency
Benchmarking China’s manufacturing industry’s production efficiency against the international standard. There are many indicators reflecting the production efficiency of the manufacturing industry. Three indicators, namely the labor productivity, value-added rate and labor remuneration to the value added, are often adopted to examine the production efficiency of the manufacturing industry. As for the manufacturing industry, labor productivity is the value added divided by the average number of employees in the industry (mean value of the number at the beginning of year and that at the end of year). It reflects the work efficiency of the labor force. In general, the labor productivity of the manufacturing industry is directly related to the capital intensity. The higher the capital intensity, the higher the labor productivity will be. If the capital intensity is relatively low, then the labor productivity will be low as well. The value-added rate in the manufacturing industry is a production efficiency indicator reflecting the labor productivity. It represents the ratio of the value added to the total industry output value and the intermediate or material consumption in the production process. It also tells the degree of deep processing and technical intensity of products. With big material consumption proportion, low processing degree and low technological intensity, the value added of the manufacturing industry will be low; otherwise, the value added will be high. The proportion of labor remuneration to value added (in manufacturing industry) is a productivity indicator related to the factor input intensity. Generally speaking, the higher the capital intensity, the lower the proportion of labor remuneration will be. A comparison of production efficiency of the manufacturing industry in China and other countries on the three indicators is shown in Table 1-5.
Table 1-5 Comparison of production efficiency of the manufacturing industry in China and other countries
Notes: 1. Value added of the manufacturing industry is converted by the exchange rate in July 2017;
2. Due to data loss, as for ratio of value added in the manufacturing industry, the total output value of China’s manufacturing industry is substituted by the main business income of manufacturing industry.
Data Source: World Bank’s website, UNIDO’s website, website of China’s National Bureau of Statistics, U.S. Bureau of Economic Analysis, Federal Statistical Office of Germany.
Overall speaking, there is still a huge gap between China’s manufacturing production efficiency and the world’s advanced level. Both labor productivity and value-added ratio of China’s manufacturing industry lag behind the developed countries like the US, Germany, Japan and the Republic of Korea. But the proportion of labor remuneration is relatively lower than that in the US and Germany. On the other hand, compared with India, another developing country, China’s manufacturing labor productivity is relatively high, but the value added is lower. In summary, the level of capital intensity in China’s manufacturing industry is relatively high, yet the level of product deep processing and technical intensity is far lower than the international advanced level.
A longitudinal comparison on production efficiency of China’s manufacturing industry. Internationally speaking, there is still a big gap between China’s manufacturing production efficiency and the world’s advanced level. From the historical perspective, we found that China’s manufacturing production efficiency showed a downward trend in the past decade, as shown in Table 1-6. Although the value-added rate in China’s manufacturing industry continued to drop for three consecutive years, the overall trend was still a rising one. From 2011, it started to plummet and kept dropping in the following four years. As for the labor productivity, the result was the same. Over the five years from 2010 to 2014, despite a “transient” rise in 2011, it dropped for three consecutive years thereafter.
