Description
While the central government of China controls the economy, the local governments play a critical role in China’s industrial growth, which is somewhat underestimated. Specifically, the local governments are not merely supporting the central government but rather actively developing policies based on their unique provincial settings, industry profiles, and foreign investment flows. To really understand China’s economic growth, according to the researchers, it is necessary to understand the local governments.
This research focuses on Kunshan and Dongguan, two cities in China where both local governments focused on developing their Information and Communication Technology (ICT) sector. While both cities were pursuing the central government’s goal of industrial expansion, how they pursued these goals varied greatly. Dongguan initially partnered with Taiwanese and Hong Kong investors in the 1980s to 1990s who focused on desktop PCs and computer peripherals, and many of those Taiwanese investors relocated to Kunshan in the late 1990s and 2000s, where they became the backbone of developing the laptop computer export industry in China. In the 2000s, Kunshan continued to specialize in the ICT industry and moved higher up in the computer manufacturing Global Value Chain (GVC), while Dongguan diversified its manufacturing base and lowered the relative significance of its ICT industry.
In the 2010s, with the shift in the Information Technology (IT) GVC from laptops to smartphones and international protectionism, China’s central government shifted its emphasis to internal growth and domestic innovation in emerging industries. Dongguan, with its broader manufacturing base, facilitated the expansion of domestic telecommunication firms and became a key advantage in China’s shift to domestic-oriented development, while Kunshan, with its highly specialized ICT industry, couldn’t adjust to the shift in the IT GVC and lost its competitiveness.
Overall, this research suggests that combining city-level analysis and key global technological trends could fundamentally help understand how industrial development strategies in China are shaped.
Methods and Results
The GVC framework focuses on how countries and firms operate across multiple value-added stages of an industry and together produce efficiency and value. This paper uses this framework to examine Kunshan and Dongguan’s position and activities carried out within the global value chain of the ICT sector and reveals the very different outcomes experienced on the local level.
First, they used firm-level data from the China Annual Surveys of Industrial Firms (ASIF) to analyze both the relative significance of the ICT industry and the distribution of output within the ICT industry of both cities between 2000 and 2010. In Kunshan, the ICT industry rose from less than 20% of total manufacturing output in 2000 to over 60% in 2009 and dominated Kunshan’s manufacturing sector, while over the same period in Dongguan, the relative significance of the ICT industry fell from over 40% to less than 30%. Then, within the ICT industry, researchers noticed that although Kunshan’s heavy reliance on computer manufacturing in the 2000s allowed Kunshan to move up to the higher value-added stages of the computer manufacturing GVC, this continuous specialization sacrificed other types of manufacturing output and hindered Kunshan’s flexibility for industrial transformation. Meanwhile, Dongguan’s ICT production diversified into network equipment and finished computer manufacturing, setting the foundations for its industrial upgrading in the following decade.
Entering the 2010s, Kunshan’s dependence on computer production was vulnerable to the rise of smartphones, while Dongguan’s diverse emphasis on more standardized segments (peripherals and telecommunication network) of the ICT industry facilitated the expansion of domestic telecommunication firms and became a key advantage in China’s shift to domestic-oriented development. Researchers demonstrated that advantage by calculating the FDI dependency of the ICT industry as the percentage of contribution to the Manufacturing Value Added (MVA) of FDIs to the total MVA of the ICT industry. As it turned out, the rise of domestic telecommunication firms helped reduce Dongguan’s FDI dependency from over 80% in 2010 to less than 30% in 2020, while Kunshan’s FDI dependency remained at over 80%. This divergence in data further illustrated how cities and local governments confronted the changing political environments and global technological trends with different sets of strengths and weaknesses.
Note: This analysis is part of a larger work, China’s New Development Strategies: Upgrading from Above and from Below in Global Value Chains.
Team
Members
Xun Zhang (Duke University), Gary Gereffi (Duke University), Cassandra C. Wang (Zhejiang University)
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Related Links
Economic Governance, Global Value Chains, Governance, Business, Economic Development, China