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This is the first English book that presents a professional analysis of the recent dynamic movement of the Chinese economy by focusing on the Yangtze River Delta region, which is the main engine of the Chinese economy. The impact of the international financial crisis on China’s economic development requires a change from the first wave of economic globalization oriented toward exports to the second wave of economic globalization characterized by expanding domestic demand. Taking this economic aspect into consideration, the following are proposed in this book: 1) expansion of the level of openness in the process of increasing domestic demand means shifting the industrial focus from manufacturing to the service industry; 2) promotion of the globalization of local services should be based on the globalization of local manufacturing; 3) the Yangtze River Delta region should aim at its own strategic positioning under new, changed circumstances and should achieve modernization in advance with the concept of integrative development; 4) Establishment of a support system is essential meanwhile for this area to develop an innovative economy and to promote the transition from manufacturing to promoting emerging industries, including a modern service industry. The book has an underlying concept, namely, that the key to economic transformation is to start the development of modern services and that only by transforming the development pattern of the service industry can the transition and upgrade of the economy be effectively achieved. For this purpose further urbanization and advancing the transformation from low-tech to high-tech industries by the effective development of industrial clusters is advocated. To ensure that these conclusions are based on a solid analysis, the authors draw heavily upon empirical analyses employing modern econometric methods and make use of economic theories such as endogenous growth theory and spatial economic theory.



Chapter 1. Development Strategy, Restructuring and Upgrading, Innovation-Driven Development and Transformation of the Development Mode of Service Industry

Economic transition and upgrading is directly related to the characteristics of national development strategy. Therefore, to promote economic transition and upgrading effectively, to avoid falling into the middle-income trap, and to switch the driving force of development successfully, the Yangtze River Delta (YRD) region must change its development strategy from the “late-developing advantage” one into a “first mover advantage” one. The former strategy prioritizes learning and imitation while the latter stresses innovation. At the industry level, this is to concentrate resources on the modern service industry and strategic emerging industries that represent the national competitiveness and discourse power, and climb to the top of the global value chain and become the chain advocate. The most important move, and the most critical issue, in accelerating economic transition and upgrading is sound and rapid development of modern service industry and the construction of a service-based modern industrial system. Under the condition of insufficient investment, high administrative barriers, and inadequate globalization of service industry, the YRD region should pay as much attention to the development of the service industry as it did in the industrialization before to take lead in changing the development mode of service industry. Moreover, a globalization view under the support of information technology, an endogenous development in the expanded domestic demand, an enormous market demand and the correlation effect between manufacturing and service industry are also required to develop the modern service industry.
Zhibiao Liu

Chapter 2. The Spatial Distribution of Industries: From “Massive Economic” to Industrial Cluster

The transition from “massive economic” to industrial cluster is conducive to improving economic efficiency by optimizing spatial allocation of resources. Comparing mechanisms between “massive economic” and industrial cluster, this paper expounds requirements of this shift in the Yangtze River Delta. Through analysis of industrial concentration degree, industrial Gini coefficient and spatial autocorrelation index, we investigate characteristics of spatial distribution among different industries (high-tech, mid-tech and low-tech industries) in the region. Specifically, mid-tech and low-tech industries are transforming significantly from “massive economic” to industrial cluster while high-tech industries are still in the emerging stage of agglomeration. Multi-regression model is used to test determinants of industrial spatial distribution, the results show that in Yangtze River Delta, natural resource dominates the spatial distribution of resource-oriented industries; for high-tech industries, transport infrastructure favors industrial agglomeration resulting in these industries clustering in principal cities; for the mid-tech industries, most factors have close impacts on industrial agglomeration causing well-distributed feature in the region; for low-tech industries, industrial agglomeration is significantly determined by market size, which generates an uneven spatial distribution. To optimize industrial distribution, integrated regional economy should be further encouraged in the Yangtze River Delta.
Shouhua Wei, Xinlei Lv, Haiyan Cong

Chapter 3. From Global Manufacturing Center into Global Innovation Center: The Case of the Yangtze River Delta

We theoretically explore the dynamism of transformation from global manufacturing center into global innovation center, and empirically examine how manufacturing agglomeration affects innovation output of the Yangtze River Delta, employing expanded Feldman and Florida’s geographic innovation function (1994). The results demonstrate that manufacturing agglomeration significantly enhances innovation activities, such as industrial R&D activities and technology transaction, and at the same time R&D activities of enterprises, universities and research institutions interact and reinforce with each other. Regional innovation capability is jointly determined by all R&D activities within the region as well as international and interregional technological spillovers. This paper attempts to investigate the progressive and systematic transformation of the Yangtze River Delta from global manufacturing center to global innovation center.
Shouhua Wei, Xiaojing Liu, Mu Cheng

Chapter 4. Industry Selection: Evolution from the Undertaking of Manufacturing Abroad to the Innovation and Entrepreneurship of Emerging Industries in the Yangtze River Delta

Due to its abundant resources and favorable policies, the Yangtze River Delta has attracted large amounts of foreign direct investment (FDI) and brought its comparative advantages into full play, attaining the upgrade of technological process and products. However, it has not yet gained the functional upgrading, what’s even worse, this region has become locked in the low-end industries arranged by multinational enterprises. In view of this situation, the Yangtze River Delta should evolve from the undertaking of manufacturing abroad to the innovation and entrepreneurship of emerging industries so as to achieve regional sustainable development. This study analyzes the competitiveness of products and technology in the Yangtze River Delta, and then probes into the development stage in both emerging industries and traditional industries, pointing out that it is a strategic selection for this area to shift from undertaking manufacturing overseas to innovation and entrepreneurship of rising industries. Based on the research, the author studies the framework and approaches of this transfer in the Yangtze River Delta. Eventually, recommendations are put forward, including industrial application of new and high technology, supporting measures for emerging industries, mechanism of orderly exiting and obsoleting, industrial application of science and education resources. Besides, in order to accelerate the transformation and upgrading of the industrial structure in the Yangtze River Delta, corresponding security mechanisms are required, such as cultivating national value chain (NVC), promoting open innovation, strengthening interaction of industries, supporting entrepreneurship, introducing the latest technology and so on.
Jianghuai Zheng, Yongchun Huang

Chapter 5. The Transformation from Factor Input-Driven Growth Model to Innovation-Driven Growth Model

Since reform and opening up, the economy of the Yangtze River Delta has developed rapidly, driven by the county economy and the export-oriented economy. Despite whether growth is promoted by the county economy or the export-oriented economy, the economy of the Yangtze River Delta has always been driven by factor inputs. With changes in the world economic environment and the development reality of the area, the development advantages of both the county economy and the export-oriented economy are no longer obvious. We therefore need to seek new economic development impetus and create new competitive advantages. This new impetus and advantage is the innovation-driven economy. This paper discusses the evolutionary history and development basis of the innovation-driven economy in the Yangtze River Delta region and analyzes empirically the fact that this area’s economy is innovation-driven while researching the support system for the development of innovation-driven economy in this area.
Yang Ge, Ling Guan

Chapter 6. Analysis of the Transformation of Production Factors in the Economic Transition in the Yangtze River Delta

For a long time, both labor supply and capital investment, including foreign funds, have been abundant in the Yangtze River Delta, and this has guaranteed its economic development over the past decades. However, economic scenarios have changed dramatically at home and abroad in recent years. For one thing, the “demographic dividend” of China gradually disappears; for another, the global financial crisis and the European debt crisis have led to a slump in foreign demands. Consequently, the growth model consistent with the reliance of economic development on plenty of factor inputs, including labor and capital, cannot be sustained any longer. In relation to sustainable economic development in the Yangtze River Delta, this paper discusses the necessity and possibility of transformation of production factors in this region, and explores the direction of the transition.
Xiaochun Li, Juan Xia

Chapter 7. Local Government Competition and Industrial Structure Convergence

This paper has carried out statistical analysis about deviation degree of the share of the gross industrial output value, similarity in industries structure coefficient, and location quotient of industrial enterprises above designated size, choosing 27 manufacturing industries in the Yangtze River Delta (short for YRD) region from 2001–2007 as the research object, based on local government competition, industrial structure convergence and industrial division of labor evolution. Results show that since 2000, industrial structure has evident differences and complementarity in the two provinces and one city of the YRD region and is moving in two directions, isomorphism and collaboration, and the differences in the provincial city and county are very obvious. The main conclusion is that industrial structure and the pattern of industrial division of labor in the YRD region do not come from the competition between local governments, but are mainly driven by market forces. The existence of the difference of industrial structure derives from differential positioning, the enterprises’ initiative choice under open conditions of international division of labor.
Fuxiang Wu

Chapter 8. Industry Coordination in the Integration of the Yangtze River Delta: Analysis of Endogenous Relationship Between Manufacturing and Service Industry

Industry coordination is an important content in the economic integration of the Yangtze River Delta, as well as an important carrier and an effective approach in realizing this area’s economic integration. Industry coordination includes not only endogenous interaction between the advanced manufacturing and modern service industry, but also the degree of self-reliance in the development of service industry. Based on the input–output table of Shanghai, Jiangsu and Zhejiang province in 2002 and 2005, this paper finds out that the industrial linkage between manufacturing and service sector is endogenous, and they serve as intermediate factor inputs to each other. The development of service industry, as an advanced factor input, enhances the development of manufacturing greatly in the Yangtze River Delta, but not vice versa. By building a simultaneous equation model, the empirical analysis supports our conclusion, which is based on the panel data of 16 cities in the Yangtze River Delta from the year 2001 to 2008. The research results of this paper provide new analytical insight and policy basis in realizing industry coordination between manufacturing and service industry as well as promoting economic integration in the Yangtze River Delta.
Jing Jiang

Chapter 9. Reverse Outsourcing of Research & Development: A Growth Path of Chinese Firms—Based on the Case Study of Automobile Self-Brand in the Yangtze River Delta Region

Prior research has often regarded outsourcing as a one-way game led by enterprises of developed countries. This paper presents a new pattern of outsourcing appearing in practice, referred to as reverse outsourcing. Reverse outsourcing means that firms in low-wage countries become project owners and firms in high-wage countries are vendors. Establishing the game model, we find that the market volume of developing countries and the fierce competition in markets of developing countries and developed countries are preconditions of reverse outsourcing, as proved by the example of two Chinese auto manufacturers, Chery and Geely. Studying the progress of independent technology through reverse outsourcing, we also find that reverse outsourcing is a feasible strategy for firms of developing countries.
Danlu Liu, Zhonggang Yue

Chapter 10. The Development of Low Carbon Economy and the Policies of Environmental Protection Under Selective Opening

Since the reform and opening up of the economy, the Yangtze River Delta Area has not only been experiencing rapid economic growth but also facing many problems about environmentally sustainable development. This paper makes an empirical research on the influence that economic opening up has on the ecological environment of the Yangtze River Delta area, using regional panel data and survey data of micro-enterprises. It turns out that on one hand, along with industrial transfer of manufacturing industry in developed countries, the energy consumption and all kinds of pollutant emission tend to rise; on the other hand, low carbon idea and responsibility of protecting the environment have spread among the global value chain and that does help increase the environment performance of enterprises which embed themselves into the global value chain, so as to improve regional environmental quality macroscopically. According to the empirical results above, we raise feasible countermeasure thoughts about how to develop low carbon economy and protect environment in an open economy, based on the background of the Yangtze River Delta area’s embedding into the global value chain and enterprises’ behavior characteristics at micro level.
Maoliang Bu
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