nach oben

Open Access 2024 | Open Access | Buch

The Reshaping of China’s Industry Chains

verfasst von: CICC Research, CICC Global Institute

Verlag: Springer Nature Singapore

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Inhaltsverzeichnis

Über dieses Buch

This open access book offers a comprehensive analysis of the opportunities and challenges facing the development of China’s industry chains in a changing landscape. As the trend of deglobalization is intensifying, the global supply chain has suffered from external shocks, prompting both the private and public sectors to reflect on the stability of the supply chain. As such, governments are putting greater emphasis on the resilience and “security” of industry chains.

How will the changing circumstances across the globe affect China’s industry chains? This book suggests that amidst the trend of deglobalization, it is important for China to leverage its advantages in economies of scale to improve both the efficiency and security of industry chains. By examining the current state of global trends, international trade, and industrial policies, the book outlines potential pathways of the development of global supply chains, and provides insights on the challenges and opportunities for China. This book also focuses on strategically important sectors in the digital, green, logistics, and manufacturing industries, presenting an in-depth discussion of the prospects of each industry chain.

Being both readable and academically rigorous, this book is well-suited for readers from in the fields of public policy, economics, finance, and for those who seek to better understand the reshaping of China’s industry chains. The work cites information from various sources, including academic journals, policy institutions, and a network of primary sources such as industry experts and renowned academics.

Inhaltsverzeichnis

Frontmatter

PDF

Open Access

Chapter 1. Scale Matters: Industry Chain Restructuring Amid Deglobalization

Abstract

Since the outbreak of COVID-19, the global supply chain has been disrupted by three rounds of shocks. During the explosive spread of the pandemic in 2020, the halt in economic activity eroded production and inventory, while quarantine measures undermined employment. When global demand rebounded in 2021, the demand–supply imbalance deteriorated due to low inventory, weak production, as well as disruptions to transportation and logistics. In addition, the outbreak of the Russia-Ukraine conflict in 2022 also had major impacts on the supply of energy, raw materials, and food. These shocks to global industry chains and supply chains have exacerbated impacts of the pandemic and geopolitical conflicts on the world economy, prompting the public and private sectors to reexamine stability of supply. At the micro level, business entities are attaching greater importance to the stability of supply chains. At the macro level, governments stress industry chain resilience and view industry competitiveness from both efficiency and security perspectives.

The Report to the 20th CPC National Congress states that: “Pursuing high-quality development as our overarching task, we will make sure that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform; we will boost the dynamism and reliability of the domestic economy while engaging at a higher level in the global economy; and we will move faster to build a modernized economy. We will raise total factor productivity, and make China's industrial and supply chains more resilient and secure”. While China plays a key role in global industry chains after four decades of reform and opening-up with rapid economic growth, the country is confronted with new challenges as high-quality development calls for attention to both efficiency and security of industry chains.

The CICC Research Department and CICC Global Institute collaborated to publish The Reshaping of China’s Industry Chains, an in-depth report that provides a comprehensive analysis on opportunities and challenges for industry chain development in a multitude of aspects, including the macro economy, various sectors, technologies, policies, as well as domestic and international issues from both efficiency and security perspectives. In particular, the report suggests that China should take full advantage of its economies of scale to improve both efficiency and security of industry chains. In this preface, we provide readers with some of our thoughts about the future of global supply chains from a macro perspective.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 2. Overview of the Industry Chain: From Efficiency to Security

Abstract

Division of labor and the ability to facilitate transactions lie at the heart of industry chains, supply chains, and value chains. Two major factors that determine how the division of labor and transactions unfold globally are efficiency and security. We can see from the history of industrial development that companies and markets are able to continuously improve efficiency by optimizing the division of labor and transactions, through which they can dominate the development of industry chains. Differences in factor endowments and equalization of factor prices among countries determine how industry chains are developed around the world under the principle of efficiency.

China’s reform and opening-up have improved the efficiency of its industry chains both domestically and internationally. Domestically, reforms have enhanced China’s marketization and industrial agglomeration, thereby unleashing the country’s economic efficiency. Internationally, opening-up has propelled China’s participation in the global industry chain and its cooperation with developed countries, resulting in the country becoming one of the leading forces of globalization.

How should we understand the security of industry chains and supply chains? From the enterprise perspective, security is mainly associated with maintaining the stability of supply chains. From the perspective of governments, security is to ensure the country’s industrial and technological superiority as well as independence from international competition, which is to some extent related to the backdrop of rising geopolitical risks.

After years of efficiency gains, China and the US’s pursuit of industry chain security somewhat goes against the principle of efficiency in the context of global industry chains, thereby necessitating efforts from both countries to control the resulting loss of efficiency. The two countries need to maintain bilateral economic and trade relations as well as the global trade system at the economic level.

Technological decoupling between countries would hinder technological progress and economic growth on both sides. However, the fundamental factor that determines a country’s technological progress lies in its national innovation system, which consists of the government, the market, universities, and companies. Ultimately, industrial competition between countries is competition in innovation.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 3. New Advantages in Economies of Scale Amid Deglobalization

Abstract

Economies of scale refer to the phenomenon in which market agents (i.e., firms) at the microeconomic level increase economic benefits by expanding the scale of production, as evidenced by the decrease in average total cost due to increased output. Applying this to the macro level, a country's population or market scale expansion will drive more sophisticated division of labor and transactions, thereby improving economic efficiency.

According to the theory of economies of scale, large countries could undergo stronger industrial development and faster economic growth and achieve greater wealth than small countries. However, insufficient emphasis has been placed on scale in existing macroeconomic analysis, in our view, and the reality is that many small economies are wealthier than large ones. During the era of globalization over the past few decades, some small countries enjoyed economies of scale brought by the global markets through their participation in division of labor and cooperation in global industry chains.

In the era of deglobalization, however, small countries’ ability to participate in the global division of labor and to enjoy economies of scale at a global level becomes limited. Instead, the importance of statehood in political terms has increased, and large countries can accumulate stronger competitive advantages by leveraging their large scale. In addition, the development of the knowledge economy, especially the digital economy, amplifies the scale advantages enjoyed by large countries, in our opinion.

China is one of the biggest countries in the world in terms of population and economy, which we believe lays a foundation for it to leverage scale advantages under new circumstances. Developing a market economy and promoting internal market competition are key to translating large scale into economic growth, in our view, which requires an expansion of domestic consumption and development of a unified domestic market. We believe attention could be paid to address the market failure caused by distortions such as externalities (a cost or benefit caused by a producer but not borne by that producer) and monopolies and in particular, to improve governance mechanisms for real estate, finance, and the digital economy.

Against the background of deglobalization, scale advantages both provide a new source of economic growth for large countries and lay a foundation for cross-border cooperation. Large countries enjoy advantages in the new landscape of division of labor in global industry chains thanks to their larger industrial systems and tighter integration among different parts of their industry chains. Leveraging its domestic industrial system, China can strengthen industry chain integration with other countries, facilitate in-depth cross-border cooperation, and improve industrial efficiency and security, in our opinion.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 4. Pursuit of Prosperity Amid Changes: Evolution of Trade Rules and Global Industry Chains

Abstract

Trade rules refer to a series of agreements by which countries must abide in international trade. Countries around the world are recognizing the need to enhance their security as their industry chains become globalized. This is occurring amid widespread change spurred by geopolitics. We believe trade rules may gradually evolve from being dominated by the World Trade Organization (WTO) to a new stage of parallel development of the WTO and preferential trade agreements (PTAs). Looking ahead, we expect the WTO and PTAs to put pressure on each other and evolve simultaneously to reshape the global trade landscape. We think the WTO will continue to play the basic function of adjudication and facilitate basic consensus in a wide range of fields, while PTAs will play a more obvious leading role in rule-making in emerging fields. This should drive in-depth integration of regional economies and trade.

The evolution of trade rules could increase uncertainty in global industry chains in the near term and affect changes in the global industry chains in the medium and long term. First, the transition from offshore outsourcing to nearshore and friendly-shore outsourcing may become increasingly prominent along the industry chains. Second, as the influence of major countries on the evolution of trade rules increases, regionalization of industry chains surrounding major countries should become more prevalent. Lastly, some emerging industries may see opportunities for further opening-up under new trade rules. We expect labor-intensive industries to be relatively less affected by the evolution of trade rules, while capital- and technology-intensive industries such as machinery and electronics industries may be more severely affected as the global development of their industry chains is more susceptible to far-reaching PTAs.

Currently, we think China’s trade rule system is yet to fully support the efficient and safe development of industry chains. First, China’s influence is comparatively modest in the global multilateral trade system, so it’s hard for the country to provide strong impetus for WTO reform. This means the development of China’s industry chains is subject to external pressure. Second, some regional trade agreements China initiated or participated in are still in the preliminary stage of development in terms of depth and breadth, and could play a limited role in facilitating in-depth industry chain integration in the short term. Third, China’s institutional arrangements for opening-up still have room for refinement, and the country’s ability to align itself to high-standard international economic and trade rules remains limited. We believe this may hinder its further integration into global industry chains to some extent.

Looking ahead, we think China could adapt to the evolution of trade rules and facilitate complementary and common development of multilateral trade, regional trade, and domestic market rules. Under the multilateral system, China can actively participate in the reform of the WTO, seek common ground while reserving differences, build consensus, and drive a multilateral cooperation platform. In regional markets, China could adopt a multi-level development strategy and upgrade regional trade agreements. In the domestic market, efforts could be made to advance a high-standard institutional opening-up with pilot free trade zones acting as test fields.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 5. Digital Innovation Reshaping Industry Chains

Abstract

Digital technologies have had profound and far-reaching impacts on the global economy in the past three decades. They have facilitated the digitalization of trade, and the optimization and restructuring of global industry chains. With data and information as the core factors of production, the digital revolution driven by technological innovation has given rise to new industries, and fostered the restructuring of global industry chains via the improvement of information communication and logistics infrastructure.

Digital technologies have reshaped existing resource endowments and comparative advantages. First, data has become a new core factor of production and an essential means of production (i.e., the “new oil”). Data is characterized by its near-zero marginal cost, replicability, and non-rivalrous nature. Unlike traditional factors of production, the transmission of data is no longer restricted by time or space.

Second, emerging technologies such as automation, artificial intelligence (AI), and the internet, as well as the rise of digital platforms, have transformed factors of production, and physical distance has become less important in the organization of industry chains. Digitization has therefore fostered more decentralized production and a more complex industry chain structure. In addition, the economies of scale and economies of scope for large economies are crucial for the development of the digital economy and industry chains. The US and China have leveraged their economies of scale to become giants in the digital economy, enabling digital platforms to increase user traffic and harness the full potential of their network effects.

Comparative advantages and resource endowments remain important for the distribution of global industry chains in the digital era. However, digital technologies are reshaping the traditional comparative advantages among major economies. The emergence of new markets, demand, and technologies are driving the development of new products and new industries. Technologies such as AI, blockchain, cloud computing, and new forms of organization for production and trade such as digital platforms are changing trade patterns while reducing logistics costs and improving production efficiency at the same time. The global industry chains are also undergoing profound changes in the process of digitalization.

Geopolitical tensions and COVID-19 conditions have brought disruptions and uncertainties to global industry chains. Economic restructuring in the digital era brings new challenges and opportunities to upgrade and restructure industry chains. Amid intensifying digital competition, major economies are introducing new policies and measures to facilitate economic digitalization, and build or consolidate advantages in digital industries and trade.

Under complex international trade conditions, we think China can fully leverage the economies of scale for a large country, encourage technological innovation, foster new markets, strengthen the digital industry chain, and facilitate the digitalization of China's industry chains. In our view, China can enhance its digital and data security while also encouraging data flows and the growth of digital markets and economies. By improving the management of data and digital platforms and deepening digitalization, China is poised to boost the efficiency and optimize the structure of its industry chains.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 6. Global Industry Chains Amid Green Transformation: Opportunities and Challenges

Abstract

Environmental movements in the 1960s marked the beginning of green transformation, and expedited the shaping of today’s global industry chains. The international transfer of low-value added and high-pollution industries to developing countries created economic boosts as well as significant environmental pressure for these countries. What kind of changes would a new cycle of carbon neutrality-centered green transformation bring to the global industry chains? What challenges and opportunities would such changes bring to China?

We think the new round of green transformation may affect global industry chains in the following ways:

Rising energy consumption costs amid carbon neutrality. Over the short term, China’s energy-intensive industries will benefit from the regulation of energy prices and low carbon costs (Carbon costs refer to the overall cost to emitters brought by carbon pricing and non-pricing policies. Carbon costs include abatement costs and the costs of remaining emissions), but we believe that the limited increase in energy consumption costs will be unfavorable for energy conservation and low-carbon upgrades. The traditional energy industry should see a short-term boost from energy price rallies but experience long-term pressure from a decline in demand. Meanwhile, the alternative energy industry will continue to thrive on stable expectations, while competition between countries may increasingly intensify.

International policies on preventing carbon leakage, such as the introduction of carbon tariffs, may narrow the carbon cost difference between countries. Such policies may add to restrictions on energy-intensive industries transferred to China from countries with stringent environmental regulations.

A meaningful green transformation cannot be achieved overnight. The global industry chains may continue to face rising climate costs and more frequent occurrences of extreme climate events over the long term. Industries with high exposure to climate risks, such as transport and logistics, agriculture, and energy, would be affected over the long term, and the impact would extend upstream and downstream via industry chains.

China has switched focus from “prioritizing economic growth over the environment” to “putting equal emphasis on the economy and sustainable development”. Meanwhile, developed countries have started to protect their own green industries. This trend has led to fiercer international competition in global industry chains. Hence, we think that China’s role in this new cycle of green transformation is to balance the development of green and traditional energy intensive industries as it adapts to or even leads the change in global industry chains.

Specifically, we believe China’s goals of achieving peak carbon emissions and carbon neutrality should be in line with efforts to maintain energy security. While industrial competitiveness should be protected, energy price regulations should be gradually relaxed, and carbon restrictions tightened. Faced with an increasingly rigorous international environment, China could deepen international cooperation, and encourage the innovative development of green industries via sustainable financing and investment, in our view. Moreover, we believe China could fully leverage its economies of scale to strengthen the resilience and steadiness of industry chains when coping with climate risks. We think enhancing the competitiveness of emerging green industries will help improve industry chain efficiency as well as strengthen China’s overall industrial security.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 7. Industrial Policy: Proactive and Effective

Abstract

Despite a lack of consensus on its effects, industrial policy has existed for a considerable period of time and is now back in the spotlight amid the changing global landscape. In the 19^th century, Germany used industrial policies to cope with international competition. After the Second World War, Japan also actively employed industrial policies. Vertically, the US and Japan both used industrial policies to promote industrialization when they were at the stage of catching up with other economies. After becoming leading economies, they shifted the focus of their industrial policies to promoting innovation. Horizontally, the US as a leading economy often used industrial policies to compete with latecomer economies if the competitiveness of the latter improved substantially. The world today is undergoing profound changes (e.g., green transition, the COVID-19 pandemic, competition between large countries, and the growing gap between the rich and poor) which not only affect market efficiency, but also affect security in a broad sense. Therefore, US and European governments have stepped up efforts to intervene, and industrial policy is back in the spotlight.

Profound changes call for a new mindset. The theoretical basis for industrial policies is shifting from neoclassical economics, which took center stage in recent decades, to political economy, and governments need to take proactive measures rather than occasionally intervene in the market when necessary. According to traditional views, the goal of industrial policy is mainly to solve problems related to market failures, including monopolies and externalities. However, in an era of profound changes, industrial policies should not only focus on efficiency, but also pay more attention to security. After analyzing policy targets, policy tools, income distribution modes, competition, and innovation from the perspective of the government’s role, we believe the principles that industrial policies follow will change considerably. Industrial policies should shape and create new markets and be more comprehensive, focusing not only on manufacturing but also on service industries. Income distribution modes should also be improved as government investment increases. Industrial policies should not hurt competition while improving and strengthening industries and achieving economies of scale. Otherwise, they could be detrimental to innovation.

In an era of profound changes, China’s industrial policy is multifaceted, but promoting innovation remains crucial. Industrial policies have played an important role in China’s economic development, but they have also led to various problems. In the future, industrial policies should not only continue to improve efficiency, but also focus on social governance. For China’s industrial policies, we think promoting innovation remains crucial, whether from the perspective of coping with profound changes or from the perspective of catching up with other countries. To promote innovation, we suggest increasing support for R&D. We believe government-guided funds are a good effort, but the market-oriented operations of such funds need to be improved. In an era of deglobalization, economies of scale are an advantage for China, but efforts should be made to avoid exacerbating monopolies, and to avoid improving security at the cost of lowering efficiency. We think expanding opening-up and attracting foreign investment are of far-reaching significance.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 8. Vertical and Horizontal Risks Along Industry Chains and a Dual-Pillar National System

Abstract

International competition in trade has intensified since 2018, which we believe is determined by the objective, changing, and increasingly balanced strengths of countries. A shift from international competition in trade to deglobalization is being accelerated by the Russia-Ukraine conflict. The rollout of the US CHIPS and Science Act of 2022 has had further impacts on established patterns of cooperation, and international industry chains face security challenges caused by looming deglobalization. By examining horizontal and vertical risks, this chapter sheds light on the implications for the evolution of industry chains, financial reshaping, and institutions amid security challenges.

Vertical risks refer to the increased costs of transactions between all parts of industry chains amid deglobalization. The costs weigh on the existing pattern of serial production, and are essentially supply-side risks. Efforts to mitigate these risks require a centralization-based transformation of industrial organization. Specifically, vertical integration on the supply side of the chip industry and other high-tech industries and horizontal integration on the demand side of natural resource industries can help reduce vertical risks by utilizing the innovation capabilities of large companies and other organizations. Horizontal integration on the demand side of natural resource industries can also help improve China's bargaining power in international markets, thereby reducing vertical risks in natural resource industries.

Horizontal risks refer to the decentralization of China as one of the core nodes for global production capacity. Such risks are essentially demand-side risks and can be mitigated by diversification. Region-wise, we believe the moves to proactively switch the mature production capacity of textiles, home appliance, and other industries from China to Southeast Asia and surrounding countries, can increase regional cooperation. More importantly, we think competition among diversified small companies and “natural selection” can improve the capability of guiding innovation, and exports of the renewable energy industry and other industries in which China has advantages can build a new “China-surrounding countries” technology diffusion model. Domestic demand is insufficient in China, as shown by the country's low household consumption rate (household consumption as a percentage of GDP). In addition to eliminating consumption barriers in auto and other industries, greater importance should be attached to the efforts to propel fiscal and tax reforms so as to alleviate the effects of compulsory savings, build an “olive-shaped society” (CICC Global Institute, CICC Research. Building an Olive-Shaped Society (《迈向橄榄型社会》, Chinese version). CITIC Press Group. June 2022.) and tap the potential of diversification in consumption.

From the perspective of serving the real economy, we think the moves to propel restructuring of the financial sector should follow the principles of the separation of the financial business from industrial sectors and the separation of various financial sub-sectors from each other so as to support the co-existence of centralization and diversification of industry chains. Positive interactions between financial markets and the real economy are not spontaneous, and require policy intervention. This means that efforts should be made to build a national system that encompasses the strengths of governments and markets, and the strengths of financial markets and the real economy. A catching-up system for “big companies, big governments, and big banks” can help mitigate vertical risks, and a leading system for “small and medium-sized enterprises (SMEs), system construction, and capital markets” can help reduce horizontal risks. A dual-pillar national system, which is an important mechanism for efforts to cope with security challenges along industry chains, should be a necessary condition, rather than a sufficient condition. The two pillars play an essential role in dealing with security challenges, and efforts should be made to resolve boundaries between governments and markets, the metrics of monopoly and competition, and the relationships between large and small companies.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 9. Improving Supply Chain Ecosystem to Cope With Industry Chain Risks

Abstract

Global supply chains (GSCs) originate from the optimization of core enterprises’ allocation of factors and resources of production on a global scale. Compared with the research on industry chains, which usually takes a macro perspective, research into supply chains is at a micro level and emphasizes companies’ own management decisions. In this chapter, by looking at corporate decision-making from a micro perspective, we analyze the industry chain risks faced by Chinese companies amid the reshaping of GSCs, and examine how to improve China’s supply chain ecosystem.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 10. Raw Material Commodities—Supply Risks and Security

Abstract

The Russia-Ukraine conflict has dealt a major shock to the global commodity industry chain, which has worsened terms of trade and pushed up inflation, bringing supply chain security to the forefront of international attention. The commodity market is prone to a natural oligopoly, which underlies the supply security concerns among commodity importers. However, historically, countries—including those in Europe as well as the US, have not always been at a disadvantage for their reliance on commodity imports given their market dominance, which can be attributed to their technological and capital strength. Amid intensifying geopolitical conflicts and an accelerating green transition, we explore how a major resource-dependent country like China should build strength in the market to mitigate supply risks and ensure supply security.

The mismatches between demand and supply in China are due to strong demand for resources, high dependence on imports, and high concentration of supply. Such factors constitute the major risks facing China’s commodity market, and are further exacerbated by cost disadvantages and slowing technological substitution. Supply–demand dynamics may tighten further amid the evolving landscape of the global commodity market and bring increased uncertainties to China. Resource nationalism refers to government intervention through control and dominance of natural resources within the country’s jurisdiction for political and economic purposes) has flared up and competition has escalated among commodity importers as the green transition has tightened supplies and inflated the prices of traditional energy and metals for renewable energy in international markets. Tensions in the international political environment may further fuel resource nationalism, and resource-dependent countries with dominant market power have intensified competition for resources, leading to fragmentation of the global raw material commodity market. China has entered the later stages of industrialization and is pushing forward high-quality development. The country’s share of global demand for traditional energy and metals has declined, while demand for new energy metals has increased substantially with low demand elasticity. We believe that a resurgence of resource nationalism will result in higher concentration of commodity supply, further amplifying risks.

To cope with the challenges of raw material commodity supply, this report proposes measures at both the industry and national levels based on international experience and domestic reality. At the industry level, we think China could tap its domestic potential while expanding overseas channels, strengthening reserve capacity, and accelerating recycling and technology substitution. At the national level, we think China could continue to upgrade the security of its supply chains for strategic minerals, participate in global cooperation, and safeguard raw material supply chain resilience.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 11. Chemicals: Commodity Chemicals Industry Shows Strong Competitiveness; High-End Materials Industry Needs Further Improvement

Abstract

In this chapter we introduce China’s commodity chemicals and fine chemicals & new materials industries, review the driving forces of production capacity transfer as well as the development of representative chemical products, forecast the development trends of the two industries in China, and provide some suggestions for the future development of China’s chemicals industry.

Introduction to China’s chemicals industry chain: China is one of the world’s main producers and consumers of commodity chemicals, and has accumulated relatively strong competitive advantages. In the field of fine chemicals & new materials, new material-based downstream applications have recently emerged in China and the quality of these products is dependent on chemical materials. Currently, the new materials segment in China lacks a development trajectory of trial and error, feedback, technological iteration, and improvement. As a result, most Chinese materials manufacturers are only providing low-end and mid-range products, and the gap between these companies and their overseas peers in high-end materials segment that requires strong R&D and has high added value is large. China still relies on imported semiconductor materials as well as high-end display materials.

Review and outlook for China’s chemicals industry chain: We review the three rounds of production capacity transfer in the global ethylene market, and note that demand and cost are the main factors determining the industrial transfer of commodity chemicals once technologies mature. The development of Japan's photoresists and China's mixed crystal industries shows that downstream demand is a growth driver of the fine chemicals & new materials segment, while technological iteration also plays an important role in industrial transfer.

Regarding the development of China's chemicals industry, we expect China to further strengthen its competitive advantages in major commodity chemicals. However, due to trade barriers, rising labor costs, the green transition, and other factors, some commodity chemicals are facing industrial transfer-related pressure. As for the fine chemicals & new materials segment, we believe that the expansion of downstream industries in China could provide a favorable environment for the development of fine chemicals and new materials. However, factors such as technical barriers, the technological gap between China and other countries, as well as technological iteration may slow the localization of high-end fine chemicals and new materials. China has competitive advantages in the field of new energy materials, but may also be influenced by protective measures taken by developed economies.

In the field of high-end materials, in which the localization rate is low, China could concentrate on tackling technical problems, increasing efforts to facilitate downstream applications and tests for domestic materials, improving R&D capabilities, and strengthening cooperation and exchanges with overseas leaders. Regarding new energy materials for which China has strong competitive advantages, the country could accelerate the development of new-generation technologies and proactively build factories in developed countries. As for commodity chemicals in which China has gained some advantages, we expect to see green and sustainable development-oriented companies with global competitiveness. For industry chains facing transfer pressure, we suggest accelerating overseas expansion.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 12. Create Conditions for High-End Equipment Manufacturers’ Technological Accumulation

Abstract

Equipment manufacturing is the central part of industrial engineering. In the current international environment, we believe China is at risk of facing bottlenecks on key technologies. We think it is prudent for China to elevate the level of the domestic equipment manufacturing industry, segments of which generally have large scale owing to sizable market demand, a sufficient labor force including engineers, and advanced infrastructure. However, the competitiveness of these segments has diverged: China’s new energy equipment and high-speed railway (HSR) industries have secured dominant positions in the global market, while its machine tools and large aircraft industries lag that of other countries. We believe assessing the underlying cause of the imbalance is important to investors as it helps clarify the pattern of development and policy orientation of the equipment manufacturing industry. In this chapter, we analyze the factors boosting the equipment manufacturing industry’s development based on substantial evidence and theories, and we proffer policy suggestions.

Industry overview: Limitations in highly sophisticated equipment and core components apparent. Horizontally, China’s equipment manufacturing industry has a large output value: Real estate infrastructure equipment, metalware, flexible units, and energy equipment represent a relatively high proportion of global supply. However, we see an insufficient supply of high-grade, high-precision, and advanced products in China. Vertically, domestic suppliers generally have weak capabilities in core components despite the strong deliverability of complete machines, in our view. Most of the domestically made components are at the lower ends of the smile curves (The smile curve represents the seven-step manufacturing value chain, demonstrating that value across a production cycle is largely derived from early stage R&D, design, and post production activities (i.e., distribution, sales, and after-market service activities.) along the industry chain. We expect the added value to increase in the future.

Industry chain changes: Complete machine manufacturing being relocated from developed regions to China. Looking at the changes in representative industries over the years, we note that market demand has become a prerequisite for industrial layout, while supply capacity and policies affect the distribution pattern of specific industries or segments. China has received a large number of industrial transfers from developed countries as the domestic market expands; however, most of these transfers are complete machines. Core components are not available through industrial transfer and require independent R&D.

To chase the technological frontier, China must accumulate manufacturing techniques essential for the equipment manufacturing industry’s development, in our view. China’s success in this regard is dependent upon: (1) The initial technological gap; (2) characteristics of downstream demand; (3) core supporting resources and competitive pressure from foreign capital; and (4) relevant policies, which could bring changes to the former three factors and create opportunities for companies to accumulate technologies. These factors influence the development paths and outcomes of different industries.

Policies should be formulated based on actual conditions of industries. Looking ahead, with the restructuring of the global industrial value chain, we believe policies for industries with different strategic positions will vary based on industrial relocation. For weak industries, reducing the costs borne by downstream companies replacing overseas equipment with domestically made products (hereinafter referred to as “trial-and-error costs”) and strengthening supply protection could help enhance competitiveness, in our opinion. For robust industries, we think it is necessary to strengthen their technological leadership and ensure companies’ global expansion.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 13. New Energy: Security Issues Amid Green Transition and Energy Crisis

Abstract

Background: Amid the trend of deglobalization, the global energy industry should ensure the security of energy supply while enhancing efficiency. The world is shifting to new energy from fossil fuels. Unlike fossil fuels, of which supplies are limited, new energy comes from inexhaustible resources and depends upon the manufacturing of equipment. As a result, the global energy industry is shifting its focus to optimizing energy equipment manufacturing from simple resource consumption. Against such a background, new energy equipment manufacturing plays a more crucial role in energy security issues.

Security risks facing China’s new energy industry chain: We think the vertical risks in China’s new energy industry chain are generally manageable as the industry chain is comprehensive, with a high degree of vertical integration. Some raw and auxiliary material segments may be subject to constraints from overseas countries in terms of resources, technologies, and patents. For these segments, we expect related companies to reduce risks by upgrading technologies or developing alternative materials. Compared with vertical risks, we think that horizontal risks need more attention.

In 2021, China exported 55% and 20% of its photovoltaic (PV) and lithium-ion battery (LiB) products to overseas markets. However, with the trend of deglobalization, some countries have repeatedly imposed tariffs on China's new energy products to raise China’s trading costs, and have increased subsidies to local new energy industries after assessing the vertical risks their own industry chains might face. This may convert the supply–demand mismatch in China’s new energy industry chain into horizontal risks.

Solutions to mitigate the risks: Mature capacity is moving to regions with lower production and trading costs driven by market competition. We expect Chinese companies to move their mature capacity to Southeast Asia and maintain the competitive advantages of their mature capacity in the global new energy industry chain. In addition, we suggest that domestic companies maintain their leading positions and strengthen the competitive advantages of their advanced new energy technologies via incremental and radical innovations. In our opinion, the development and success of China’s new energy industry chain might be attributed to related companies’ cost and technological advantages amid policy tailwinds and economies of scale. Therefore, tapping domestic demand, breaking through the bottlenecks that restrict the growth of domestic demand, and enhancing China's position as the world’s largest new energy market are crucial to the new energy industry chain.

We expect the government to launch policies to optimize the trading and business environment required for the transfer of mature production capacity and to increase funds for skilled personnel required for the upgrading of advanced technologies in China. We also recommend policy support for the development of power infrastructure facilities and power consumption facilities as the development of the infrastructure could boost end-market demand. In addition, the government could also step up efforts to mitigate vertical and horizontal risks facing China’s new energy industry chain.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 14. China’s Auto Industry to Grow From Large to Strong

Abstract

The auto industry’s competitiveness relies heavily on economies of scale and technological advantages. As it pursues these twin goals, the auto industry has witnessed a century of production model transformations in brands ranging from Ford to Toyota to Tesla.

Deglobalization has posed major challenges to the global auto value and supply chains. The auto value chain is large and complex, relying heavily on global market demand and the integration of technology. As a result, trade frictions, the COVID-19 pandemic, and geopolitical conflicts may cause supply shortages in the global value chain, resulting in short-term production halts. China’s auto industry plays a vital role in the global value chain, and in the near term, we think its main goal will be to improve supply chain resilience and maintain scale advantage.

In the long term, the auto industry is undergoing restructuring as disruptive innovation is changing the industry’s technological foundation and market landscape. The smart electric vehicle (EV) technology revolution repositions vehicles as intelligent mobile terminals, overcoming traditional automakers’ technological barriers in engine and gearbox. In our view, an industrial landscape that is dominated by the traditional giants of the auto industry, including those headquartered in Germany, Japan, the US, and South Korea, is changing. This is creating opportunities for the emergence of China’s auto industry on the global stage, but we believe it may also cause overcapacity of outdated production model.

To develop its auto industry in the era of internal combustion engine (ICE) vehicles, China adopted a joint-venture (JV) strategy, attracting core automotive technologies and capabilities with its large market and localizing the production and assembly of overseas models. However, the Chinese auto value chain currently lacks core technologies, in our opinion, making it large but not strong.

In the alternative fuel vehicle (AFV) era, China has boosted domestic demand for AFVs through fiscal and tax policies, and by accelerating technological innovation and market competition in related fields, enabling its AFVs to gain scale and technological advantages globally. China now exports AFVs worldwide. In January–September 2022, the country accounted for 62% of global AFV sales volume, with Chinese brands accounting for more than 50% of the global AFV market. In the future, we believe that China may continue to leverage its economies of scale as a large economy and strengthen the technological accumulation of the auto industry by improving the national innovation system. In our opinion, these developments would cement the Chinese auto industry chain’s importance in the global market.

Amidst the backdrop of deglobalization, the Chinese auto industry’s weaknesses in key technologies are becoming more obvious. To improve China’s prowess in cutting edge technologies, the government and the market could work together. The technological transformation of the automobile industry will involve bulk raw materials, basic chemicals, machinery equipment, semiconductors, artificial intelligence (AI), and big data. Auto chips in particular may face a supply shortage. China's automotive semiconductor industry still faces challenges such as the low output of low-end products, mid-range capacity shortages, and a lack of advanced technology in high-end products. Improvements in these areas require advances in domestic technologies.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 15. Pharmaceuticals: Chinese Companies to Increase Efforts in Innovation and Expand to Higher-Added-Value Processes

Abstract

Given China’s aging population, the ability of the country’s pharmaceutical companies to provide high-quality products has become a critical issue. As the world's second-largest individual pharmaceutical market, China exhibits a competitive landscape in the pharmaceutical industry that still has room for further development compared to the US, the leading market in the world. In China, the contradiction between rising medical demand and a lack of innovation in pharmaceutical products may be one of the core issues affecting people's livelihoods. We believe it is critical for the government and public sector to improve the innovation capabilities of the pharmaceutical industry and to build value chains locally, expanding to processes with higher added value on the value chain and narrowing the gap with the world’s leading market. In this chapter, we analyze the Chinese pharmaceutical industry’s upgrading trend from the perspective of the pharmaceutical supply chain system and ecosystem innovation.

Pharmaceutical supply chain systems are classified based on the R&D process. Pharmaceutical R&D has a long cycle. It is relatively independent as it has to meet various types of needs. The economies of scale achieved from the division of labor in the R&D process can substantially reduce R&D costs. Therefore, core pharmaceutical supply chain systems are classified according to the process from R&D to production and marketing. Meanwhile, hardware such as equipment and reagents are used in R&D and production, and they constitute a secondary supply chain system.

Pharmaceutical R&D is an ecosystem in which the software is more important than the hardware. Given that every individual has personalized pharmaceutical needs, allocating resources to pursue breakthroughs in a single category cannot improve the competitiveness of the whole industry. Therefore, a well-balanced and evolving ecosystem is the key to competitiveness. The ecosystem includes systems for regulation, scientific research, payments, as well as the capital market, among other factors. Good products can only be continuously incubated to meet patient needs by achieving a dynamic balance of these factors and through market-oriented means. These “soft factors” are the key to competition between countries. Although hardware factors such as medical equipment and reagents are important, most weak hardware processes can be solved or replaced through R&D. As a result, software is more important than hardware in pharmaceutical R&D.

A new national system to strengthen the software of the pharmaceutical ecosystem; Chinese companies to increase their presence in higher-added-value processes. Since 2015, China has implemented a comprehensive reform of the pharmaceutical industry, aiming to improve the ecosystem’s competitiveness and to encourage domestic companies to expand into higher value-added processes. Regulation: R&D efficiency of new drugs has improved notably since the drug review reform, and integrating its drug review system with global standards has accelerated the integration of China’s R&D ecosystem. Market-based payment: The National Healthcare Security Administration (NHSA) is accelerating the exit of inefficient products so that more resources are channeled to high-quality products. Capital market: The introduction of Chapter 18A (The Stock Exchange of Hong Kong Limited introduced Chapter 18A to permit the listing of biotech companies that do not meet any Main Board financial eligibility tests.) and the establishment of the SSE STAR Market has made financing more convenient for innovative companies. The primary market has become more active in investing in the pharmaceutical industry, attracting a large amount of investment for innovative product incubation. Comprehensive reform has improved the pharmaceutical ecosystem, making it more competitive. We expect the domestic pharmaceutical industry to gradually shift from R&D outsourcing toward high-value-added innovative products.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 16. The Globalization of Chinese Home Appliance Brands: A Long Way to Go

Abstract

China is one of the world’s largest manufacturers of home appliances. The country’s home appliances market is dominated by domestic brands, which have started to gain an advantage over foreign competitors. The industry chain exhibits a smiling curve, with brand globalization and upstream core electronic components being the high value-added segments into which China’s home appliance industry has yet to venture. In this report, we analyze the development and characteristics of the home appliance industry, and study opportunities and challenges presented by the globalization of the industry, with a view to shedding some light on the path to its future growth.

China is one of the world’s largest manufacturers of home appliances but has weak brand visibility globally. (1) The world has witnessed the shift of the home appliance value chain from Europe and the US to Japan and South Korea, and more recently, to China. However, the overseas home appliance market is still dominated by global brands from Europe, the US, Japan, and South Korea, with Chinese brands having a weak presence. (2) Low labor costs, strong domestic demand, and well-equipped supporting facilities of the industry chain were major contributing factors to the rise of China’s home appliance industry, which is now facing mounting pressure from rising labor costs and relocation of production capacity to other countries. This has prompted China to move to higher value-added activities by globalizing its brands. (3) China has a comprehensive home appliance industry chain, but relies heavily on foreign companies for the supply of some components (e.g., chips and raw materials of liquid crystal display [LCD] panels), and could face critical technological hurdles in extreme cases. A lack of brand awareness may also bring volatility in demand.

Globalization presents both opportunities and challenges. (1) The US is one of the most important home appliance markets. The US tariffs have led to the relocation of some home appliance production capacity to regions such as Southeast Asia, where home appliance industrial clusters could potentially emerge to compete with China. (2) The Indian home appliance market has great potential, and the country is attracting foreign investment through tariffs. However, Chinese companies confront certain restrictions, posing challenges to their presence in the fast-growing Indian market. (3) Chinese home appliance companies are striving to globalize their brands through a variety of formats. Following rapid growth in 2020 and 2021, China’s home appliance exports are facing downward pressure as headwinds, including high inflation and energy crises, erode purchasing power and reduce at-home consumption in Europe and the US.

Thoughts and implications: (1) We believe Chinese home appliance companies might follow the industry trend of going global: By leveraging domestic success in the development of industrial clusters, China could collaborate with Southeast Asian countries on cultivating new home appliance industrial clusters in a way that benefits Chinese companies, and encourage large home appliance groups to lead and share their knowledge and expertise with inexperienced companies regarding how to build a presence in overseas markets. (2) China could adopt a tiered deployment of production capacity while continuing its opening-up policy in a bid to achieve a higher degree of import substitution. Home appliance manufacturing spans a variety of industries, with core technologies mainly originating from upstream segments. The restraints on China’s high-end technologies may undermine the innovation of China’s home appliance industry. (3) China can also turn technological advantages into standard advantages through active participation in the formulation of international standards.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 17. Textiles and Apparel—Expanding Production Bases Overseas While Moving Up the Industry Chain

Abstract

The textiles and apparel industry has long been a crucial part of China’s national economy, driving the country’s early development and continuing to be an important industry that generates a trade surplus. The production of textile intermediate goods requires significant investments in capital and technology, while apparel production is labor-intensive. China boasts an extensive, comprehensive textiles and apparel industry chain that shows significant potential for technological advancements in upstream sectors, and it leads the global market in terms of apparel manufacturing efficiency. Given the current global landscape, we believe it is crucial for China to make a steady transition from quantity-oriented textile and apparel manufacturing to quality-oriented manufacturing to ensure its competitiveness in the global economy. This chapter provides a comprehensive analysis of the factors driving the development and transformation of the textile and apparel industry chain, and offers insights to the future.

Changes in the industry chain: Driven by the impact of deglobalization policies, the apparel manufacturing industry is undergoing industrial relocation. The industry may also face new green trade barriers in the future. In response, China is addressing these trade barriers. Although it is currently the world’s largest apparel exporter, China’s export share has declined since its peak in 2013, with countries such as Vietnam and Bangladesh gaining the lost market share. Throughout history, the textiles industry has undergone five strategic shifts, all driven by the pursuit of cost reduction. In the current phase of industrial transfer, garment manufacturers are expanding to South and Southeast Asia. This strategic relocation is primarily motivated by the attraction of lower labor costs and more favorable tax policies. In addition, China’s robust competitiveness in textile manufacturing exports has made it vulnerable to the “decentralization” policies of developed countries.

We believe US-China trade frictions have accelerated the process of industrial relocation. We also think that China’s textiles industry is facing significant environmental pressure. In response, over the past decade, China’s textiles industry has taken measures such as expanding overseas while also developing textile intermediates and establishing close relationships with Southeast Asian countries along the supply chain. China’s textiles industry has also made significant progress in sustainable transformation.

Retaining key segments in China and expanding along the value chain to drive development. In our view, investing resources to retain the entire apparel manufacturing industry with the sole purpose of “safeguarding the security of the entire industry chain” may not be economically feasible as the industry has been steadily eroded its comparative advantages. The current relocation phase differs significantly from previous ones, mainly due to China’s substantial economies of scale within the industry, which has resulted in only some segments relocating to other countries. We believe China may prioritize retaining the textile intermediates and apparel segments that serve domestic demand. As for the segments that would be relocated, we believe Chinese textile companies have distinct advantages in terms of brand relationships and are adaptable to the ongoing trend of relocating.

As the textiles and apparel industry chain transforms, we believe the main challenges will be a shortage of skilled labor and limited employment opportunities. Within these challenges, however, we see abundant opportunities arising from technological breakthroughs and digital upgrading in key segments. We expect high-value-added upstream segments such as high-performance fibers, functional fabrics, sustainable textiles, industrial textiles, and local brands to be retained in China. We also believe that digitalization and automation will mitigate the labor shortage, create new competitive advantages, and facilitate the cost-effective development of the textiles and apparel industry chain.

CICC Research, CICC Global Institute

PDF Zum Volltext

Open Access

Chapter 18. Investment Amid the Evolution of Industry Chain

Abstract

In this chapter, we discuss the implications of the evolution of the industry chain for investments in the real economy and financial market.

The evolution of the industry chain has had profound effects on international investment capital flow. In the era of globalization, China’s inbound foreign direct investment (IFDI) and outbound foreign direct investment (OFDI) have grown rapidly. However, as economies gradually shift their focus from efficiency to both security and efficiency in the development of industry chains, international capital flowing in and out of China may also change. In addition to traditional economic factors affecting China’s IFDI and OFDI, we also investigate changes in international relations to analyze the trends of international capital flows, and come to the following conclusions:

In terms of IFDI, countries and regions that rely heavily on trade with China, those that fit well in China’s investment structure, and those with relatively stable or improving international relations may continue to increase their investments in China. Capital-intensive industries have become important directions for IFDI, and the proportion of IFDI in high-end manufacturing industries may continue to increase in the medium-to-long term.

In terms of OFDI, the proportion of China’s OFDI in countries and regions with sound economic and institutional conditions and stable or improving international relations may continue to increase. Low and medium value-added manufacturing industries which China is offshoring, natural resources industries, and industries in line with the direction of manufacturing upgrading may be the main directions of China’s OFDI.

The evolution of the industry chain also has important implications for financial market investment. The interregional relocation of industry chain hubs reflects changes in the comparative advantages of different economies, which affects the sustainability of investment. Based on historical data, we find that the relocation of industry chain hubs is often reflected by the distribution of each country’s share in the global market cap of said industry. Overseas investors prefer industries with comparative advantages, which ultimately leads to wider valuation premiums of such industries. Meanwhile, the position of an industry chain in its own life cycle affects the potential investment returns. Sectors that are in the growth stage or in the second growth stage present larger room for investment in our view. We assess investment opportunities in industry chains and look for those in the growth stage with competitive strength in the global market based on the following measures: technological intensity, structural complexity, and level of standardization. We believe these industry chains can offer high and sustainable investment returns.

Watch effects of economies of scale and the trend of deglobalization. The effect of economies of scale have been fully tapped in the era of the digital economy, but deglobalization may lead to divergence in relative economies of scale among different countries and regions. As a large country, China is relatively better positioned during this process. However, the positive effect of economies of scale may ultimately come to an end, after which global economic growth will become harder, depend more on, and eventually converge to the pace of technological advances. Improving technological innovation capability will become more critical. Against the backdrop of deglobalization, the focus of global industry chain development has shifted from solely efficiency to both efficiency and security. The escalating protectionism may also intensify competition. Increased consideration for non-economic factors may dampen the risk appetite of companies and investors and raise the risk premium of the financial market. This is also a key issue in the industry chain investment.

CICC Research, CICC Global Institute

PDF Zum Volltext

Titel: The Reshaping of China’s Industry Chains
verfasst von: CICC Research, CICC Global Institute
Verlag: Springer Nature Singapore
Electronic ISBN: 978-981-9716-47-0
Print ISBN: 978-981-9716-46-3
DOI: https://doi.org/10.1007/978-981-97-1647-0

Springer Professional

Über dieses Buch

Inhaltsverzeichnis

Frontmatter

Chapter 1. Scale Matters: Industry Chain Restructuring Amid Deglobalization

Chapter 2. Overview of the Industry Chain: From Efficiency to Security

Chapter 3. New Advantages in Economies of Scale Amid Deglobalization

Chapter 4. Pursuit of Prosperity Amid Changes: Evolution of Trade Rules and Global Industry Chains

Chapter 5. Digital Innovation Reshaping Industry Chains

Chapter 6. Global Industry Chains Amid Green Transformation: Opportunities and Challenges

Chapter 7. Industrial Policy: Proactive and Effective

Chapter 8. Vertical and Horizontal Risks Along Industry Chains and a Dual-Pillar National System

Chapter 9. Improving Supply Chain Ecosystem to Cope With Industry Chain Risks

Chapter 10. Raw Material Commodities—Supply Risks and Security

Chapter 11. Chemicals: Commodity Chemicals Industry Shows Strong Competitiveness; High-End Materials Industry Needs Further Improvement

Chapter 12. Create Conditions for High-End Equipment Manufacturers’ Technological Accumulation

Chapter 13. New Energy: Security Issues Amid Green Transition and Energy Crisis

Chapter 14. China’s Auto Industry to Grow From Large to Strong

Chapter 15. Pharmaceuticals: Chinese Companies to Increase Efforts in Innovation and Expand to Higher-Added-Value Processes

Chapter 16. The Globalization of Chinese Home Appliance Brands: A Long Way to Go

Chapter 17. Textiles and Apparel—Expanding Production Bases Overseas While Moving Up the Industry Chain

Chapter 18. Investment Amid the Evolution of Industry Chain

Premium Partner