Study On The Global Value Chain And Industrial Policies Of China’s Equipment Manufacturing Industry

Equipment manufacturing industry refers to a basic industry for providing machinery and equipment to the national economy production activities and defense construction, which is the core part of manufacturing industry, and plays an important role for economic growth and industrialization process. Since the foundation of China, China has been trying to set up an independent complete industrial system, however, if industrial system be independent, it would require advanced, independent and complete equipment manufacturing industry. So China was trying to promote equipment manufacturing industry development with different industrial policies. From the literatures, there are few scholars to do research on equipment manufacturing industry policy. Thus, this article focuses on this topic. Moreover, Vertical specialization is an advanced and high efficient production mode, so it is a great challenge and an opportunity to participate vertical specialization for the development of equipment manufacturing industry in China. Challenge is lies in the impact of domestic existing equipment manufacturing enterprises for this production mode. Opportunities are mainly for improving the position in the international specialization of equipment manufacturing industry by dynamic learning and innovation mechanism in the global value chain. There are few literatures on the status of China’s equipment manufacturing industry in the global value chain, so it is necessary to study the whole equipment manufacturing industry as well as various types of equipment manufacturing enterprise upgrading and position in global value chain, and provide a reference for the future policies and measures which promote this industry upgrading.This paper is comprised of 7 chapters, the content and viewpoints of each are as follows:Chapters 1 and 2 are the introduction and literature review for theories of related industrial polices and global value chain(GVC) separately.Chapter 3 contains a concept of public production elements first by borrowing the definition of public goods, namely, there is a kind of production factor, once it’s to be supplied(developed), which used by another manufacturer and there doesn’t generate additional costs, this kind of production factor is called public production elements. Such as technology, knowledge, experience, standard, design and so on. Economy development is derived from more advanced public production elements on stream, as well as the wider use of public production elements. The paper makes analysis on supply of public production elements by using graph and mathematical model; based on comparative analysis between enterprises supply only and joint supply by government and enterprises, the paper points out the change of public production elements quantity and social welfare. Result shows that the proportion of coordination management fees is low as joint supply by government and enterprises, which can improve the supply amount in equilibrium and social total welfare. So, the government or joint venture jointly provides public production elements with important value.Chapter 4 constructs an industrial policy analysis method based on the public production factors, and made an analysis on its advancement, budget’s abundance, competitiveness and its market size for promoting public production elements supply on industrial policy view. We analyzed all industrial policies of the equipment manufacturing industry since the founding of new China. There are three stages for the industry policies adjustment since then. Firstly, the foundation of new China to the reform and opening era, the industry policy equipment manufacturing was a kind of import substitution policy – using our domestic production to replace the need to import goods, due to less public support from the government, the design of industry policy in this field was not good. Secondly, the following years before accession to the World Trade Organization(WTO), the industry policies were diversified, which was comprised of import substitution, export-oriented and strategic trade policy which promoted sophistication, aim and strength of supply of public production factors,but had a serious problem of its supply repetition. The plan of the industry polices during this stage was getting a bit better than the last stage’s. Thirdly, after accession to WTO, the diversification of the policies was the same as the second one, but the degree of import tariff protection has fallen sharply, export-oriented policy is restricted, and strategic trade policy was more adopted than before at this stage. With the rapid development of the overall economy in China, plus the lessons from previous industrial policies’ failure, more and more focus have been on the effect caused by scientific and technological innovation to promote economic development. This stage these policies started urging the above aspects of the public production factors except its repetition. So the policies’ plan of this stage is sound which can be proved by the following: CRH’s is up gradually towards the world, regional aircraft and large aircraft are also in progress quickly, ship manufacturing level is being improved, Beidou navigation service has been covering the Asia-pacific region, and communication 4G adopted as the international standards and so on.Chapter 5 uses Kaplinsky upgrading index and the relative unit price of intermediate goods exports versus imports which are calculated to demonstrate the upgrading trend and the current position of China’s equipment manufacturing industry in the global value chain. Data used for the analysis is based on the HS six-digit code numbers from the UN Comtrade database from 2002 to 2011. The results suggest that approximately 50 percent of China’s capital goods exports, measured by the Kaplinsky index, showed significant trend of upgrading, and the trend is most noticeable in the sectors of telecommunications and shipbuilding. Only a small portion of the products, roughly less than 7 percent of the total export value, showed a downgrading trend which accounted for less than 7 percent of the total export value. The overall performance of China’s equipment manufacturing industry had far exceeded that of the US, Japan and Germany. In term of the position in the global value chains, China still remained at the relative low-end compared to the developed countries such as the US, Japan and Germany because China tended to export low-price intermediate goods and import high-price ones. Using export unit value relative to the unit value of the world for components and parts, it is found that the unit value of components and parts exported from China was only 66 percent of the world average, whereas the unit value of the same goods from Japan, Germany and the US was 243 percent, 158 percent and 142 percent, respectively. However, it should be noted that China’s equipment manufacturing industry had significantly improved its position in the global capital goods value chain as the ratio of the average export unit value relative to the world increased by 43 percent from 2002 to 2011.Chapter 6 measures GVC upgrading and position index accordingly first and then analyzed on the upgrading performance of various types of equipment manufacturing enterprises in China, the volume of parts and Components upgraded from those joint-venture and sole-venture equipment manufacturing enterprises(foreign-invested enterprises) is the highest from 2002 to 2011 regardless of general trade or processing trade among all manufacturers this industry. Exports contributed for 57% and 70% of the total export value for general trade and processing trade respectively from the foreign-invested enterprises which demonstrated the trend of upgrading, and 54% of the trade value from private enterprises in China had the same upgrading trend in the general trade. Then state-owned manufacturers performed not too bad in processing trade export and 51% of the average export of its export value presented the upgrading tendency. With respect to the GVCs’ position for the above three type enterprises, Kaplinsky upgrading index of foreign-invested enterprises are higher than that of domestic enterprises. In 2011, the index of joint venture, sole-venture, state-owned and private enterprises in general trade are 0.84, 0.66, 0.65 and 0.57 in turn, and the one in processing trade are 0.92, 0.88, 0.60 and 0.82 respectively. When compared with the changes in their GVC positions, we found all upgrading index of the above enterprises increasing promptly, The index in general trade for the joint-venture enterprises and private manufactures rose 53% and 46% separately from 2002 to 2011, but its index in processing trade for the state-owned companies rose rapidly which changed from 0.3 in 2002 to 0.6 in 2011, increased by 50%.Chapter 7 summarizes the main research conclusion for this paper and the outlook of this research followed by some suggestions based on the China’s equipment manufacturing industry policy and the exact situation of global value chain upgrading and position: First, the industrial policies may focus on promote the supply of advanced public production elements and widen its use. Second, the government may keep supporting its supply of those production elements of this industry which contains high value in the market.