Zhao Yang: What advantages can China play in response to changes in the configuration of the global industrial chain?

　　Editor's note:

　　The reconstruction of the global industrial chain and supply chain is accelerating, and the China New Observation column of Chinanews.com launched a series of reports on "Great Powers and Strong Chains" to gather wisdom from all parties for supply chain reform and industrial security development.

　　Chinanews.com, December 25th, title:

　　AuthorZhao YangManaging Director of CICC Research Institute

　　The core of industrial chain, supply chain and value chain is the division of labor and transactions.

The two factors of efficiency and security determine how the division of labor and transactions are carried out on a global scale.

　　China's reform and opening up has improved the efficiency of China's industrial chain both domestically and internationally.

The reform has promoted China's marketization and industrial agglomeration, and released economic efficiency.

Opening up, promoting China's participation in the allocation of global industrial chains, deepening cooperation with developed countries, and becoming one of the leading forces in globalization.

　　However, today's world is showing signs of deglobalization, and the configuration of the global industrial chain is facing a transformation from efficiency to security.

To cope with this shift, China can leverage its new economic and industrial advantages.

Zhao Yang, Managing Director of CICC Research Institute

Scale advantage

　　More than 40 years ago, the advantage of China's manufacturing industry was mainly cheap labor, but now the advantage is the advantage of scale.

China's scale advantage is reflected in three aspects.

　　First of all, China has formed large-scale manufacturing industry clusters in the Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei and other places.

This kind of agglomeration of industrial chains is rare in other parts of the world. The resulting agglomeration effect enables China's manufacturing industry to follow increasing returns to scale and gain a great cost advantage.

The low-cost advantage based on cheap labor has taken a backseat.

In the future, as China's economy continues to grow, labor income will also continue to rise, and the labor cost advantage will further fade.

However, the cost advantage of Chinese manufacturing will continue due to economies of scale.

Therefore, the main restrictive factor for multinational companies to move their industrial chains out of China is not because of labor cost considerations, but because once they move out of China, they will not be able to enjoy the low costs brought about by industrial agglomeration and economies of scale.

　　Second, China has formed a huge market size.

In the 1980s, China's domestic market was still very small, and multinational companies did not care about China's domestic market share when they entered China.

However, with economic development, the income of Chinese residents has continued to rise, and China's purchasing power has gradually emerged. The Chinese market has become increasingly important to multinational companies.

Therefore, it will be difficult for those companies that rely heavily on China's market share to fully move out of China, especially those companies that use China as their end market.

　　Third, China's scale advantage is also reflected in its population size.

New growth theories led by innovation and human capital all show that population size itself has a role in promoting growth.

Its mechanism mainly lies in the positive externalities of innovation and human capital accumulation.

The more populous an economy is, the greater the positive externalities it enjoys.

For example, innovative talents are likely to be born among the crowd according to a certain probability.

Countries with large populations have more innovative talents, and innovative talents are the direct force to promote scientific and technological progress. Therefore, countries with large populations have greater opportunities for scientific and technological progress.

　　Moreover, China's economies of scale advantage still has room to expand.

Comparing the spatial distribution of GDP between China and the United States, it is found that the GDP per unit area of ​​China's economic center cities is much smaller than that of the United States' economic center cities, so there is still room for improvement in China's economic agglomeration compared to the United States.

Node advantage

　　China already occupies an important node position in today's global economic and trade network.

This node advantage provides conditions for China to exert its trade influence under the post-WTO trade system.

Due to its node status in the global economy and trade, China has a large number of economic and trade partners. Therefore, in the post-WTO era of bilateral or multilateral preferential trade agreements, China will still become one of the few leading forces in the global economy and trade.

　　China's node advantage in the global trade pattern is also reflected in China's leading role in the regional economy.

An analysis of the added value of imports and exports between China and other countries found that the degree of industrial integration between China and its neighbors in East Asia is relatively deep, but the degree of industrial integration with the United States and Europe is relatively low.

　　Based on the deeply integrated industrial relationship between China and its Asian neighbors, China should make full use of its economic and trade ties with its Asian neighbors to play the role of "glue". "Agent" countries maintain necessary economic and trade relations with the United States and Europe, so as to minimize the efficiency loss caused by anti-globalization to China.

The comparative advantages of the digital economy and green transformation

　　The possible anti-globalization trend in the future cannot change the common trend of human technological progress.

Technological progress has various directions, but in the long run, there are two clear technological progress directions: one is digital technology, and the other is green transformation.

China has corresponding advantages in both aspects, and can combine with scale advantages and node advantages to continue to improve its own economic efficiency.

Due to China's huge economic scale, China will enjoy huge benefits and play an important role in the process of digital technology and green transformation.

　　Digital technology reduces transaction costs and management costs at the same time, and may play a role in promoting both horizontal division of labor (mainly product trade) and vertical integration (mainly factor flow).

Which one is more powerful depends on changes in cost items in the industry.

But one thing is clear, digital technology will further reduce information costs, expand the externalities of knowledge dissemination and human capital accumulation, and then strengthen the effect of increasing returns to scale, which is beneficial to super-large economies like China.

　　Green transformation is a sustainable energy use policy chosen by human beings in order to maintain the necessary living environment.

Green transformation itself is a global government intervention, which cannot be realized spontaneously through market activities, and relies heavily on the coordination and cooperation of governments around the world.

Therefore, the green transformation itself is a factor that delays or even hinders deglobalization.

Sound industrial structure advantage

　　An extension of economies of scale is economies of scope.

Due to its large scale and volume, China's economy naturally accommodates more industries and industries.

Chinese manufacturing covers most of the products in the world today.

This wide-ranging industrial structure itself provides a relatively high guarantee for the security of China's industrial and supply chains.

　　China's industrial structure is not only comprehensive, but also increasingly robust. In many industries, domestic technology has surpassed that of developed countries.

For example, in industries such as home appliances, excavators, high-speed rail, photovoltaics, and electric vehicles, domestic technology has developed rapidly, and domestic products have largely replaced imported products.

It should be pointed out that this large-scale successful domestic substitution is not a typical situation worldwide.

After World War II, many developing countries' domestic substitution strategies ended in failure.

Economies with successful industrial technology development, such as the four Asian tigers, mainly implement an export-oriented strategy to achieve technological upgrading and industrial catch-up through the international market.

China's success in catching up with the above-mentioned industries is largely due to its huge domestic market.

　　However, there are still some industries in which China has not achieved import substitution and catch-up, such as high-end machine tools, chips and other industries.

The characteristics of market users of these products are more complex, and at the same time, the technical accumulation required by the products is deeper, and the areas involved are also more extensive, including scientific principles, special materials, and processing techniques.

The complexity of demand and supply makes the technological progress of these industries require the coordination and cooperation between the government and the market, not only about the development and application of a specific product, but the related innovation system.

Only by establishing and improving the innovation system can we fundamentally solve the problems of personnel training, basic research and market promotion that these industries need to catch up with and surpass.

(This article is one of the series of columns of "Big Country and Strong Chain" launched by Sino-Singapore Finance and Economics and CICC)