Chen Wenling: Northeast China Should Seize Development Opportunities in the Changing World Manufacturing Industry

To implement the spirit of General Secretary Jinping’s speech at the Seminar on Promoting the Revitalization of the Northeast, meet the requirements of the Standing Committee of the Political Bureau of the CPC Central Committee to build a new development dual cycle of the domestic and international market, promote Northeast Asia Regional economic cooperation and the transformation and upgrading of the manufacturing industry, the international forum on “Regional Economic Cooperation in Northeast Asia and Revitalization of Northeast China” was co-hosted in Shenyang on 24 October by the Northeastern University and China (Hainan) Reform and Development Research Institute. China Northeast Revitalization Research Institute organized the forum while the State-owned Assets Supervision of the People’s Government of Liaoning Province was the supporting unit. More than 300 people attended the forum, including representatives from the central ministries and commissions, think tanks, departments of the local governments, senior managers of state-owned enterprises in Liaoning Province, experts and scholars from universities and research institutions in the Northeast region, diplomats from the Japanese and Korean consulates in Shenyang. Journalists from the People’s Daily, Xinhua News Agency, Guangming Daily, China Daily, CCTV, China News Service, Liaoning TV Station, Liaoning Daily, Northeast News Network, and Shenyang Daily also attended the meeting.

Chen Wenling: In terms of how can Northeast China seize development opportunities in the changing manufacturing, I would like to make the following three viewpoints.

First, revitalizing the manufacturing industry has become a major national strategic option for the world’s major economies.

All the major global economies have taken the revitalization and development of the manufacturing industry as an important national strategy. The United States has put forward relevant strategies since Bush Jr. and Obama. After the Trump administration took office in 2017, it has issued more than 50 technology and industrial policy documents, covering almost all areas of emerging technologies and high-end manufacturing. The United Kingdom issued new industrial strategic policy documents in February 2017 and Germany in February 2019. Also, Germany and France jointly issued a Joint Declaration. The EU attaches great importance to build a new industrial strategy system. Since the end of 2019 the European Commission has issued more than 30 industrial policies and documents, especially the artificial intelligence white paper, European data strategy, circular economy, the action plan, European new industry strategy, European energy system integration strategy, climate-friendly European hydrogen strategy and other documents. As can be seen, revitalizing the manufacturing industry is a very important strategy for most of the major countries.

Second, the new trend and characteristics of reconstructing global industrial chain, supply chain, service chain, and value chain.

The global manufacturing industry is very competitive, especially in the high-end manufacturing industry. The war in technology is actually about high-end manufacturing. The production chain, supply chain, service chain and value chains formed during the past decades are facing the risk of reconstruction and deconstruction due to America’s promotion of decoupling from China, the blockade of the global pandemic, the extreme national egoism, and the doubts about globalization. I think that reconstruction and deconstruction have the following five trends and characteristics.

First of all, more emphasis will be put on the strategic industrial chain and value chain. The European Commission put forward the concept of strategic value chain in September 2017. In 2019, it issued a research report on “Strengthening the Strategic Value Chain for the Construction of Future-oriented EU Industries”, proposing to build a strategic value chain in six areas: new energy automobiles, use of hydrogen energy, industrial internet, smart healthcare, low Carbon and Network.

The second is to pay more attention to the security of the value chain relating to national and regional security. Regardless of the United States, the European Union or China, the security and stability of the supply chain are the top priorities in restructuring the supply chain. Both Biden or Trump proposed that America’s manufacturing should remain independent, especially Biden, who advocates restructuring the value chain, the pharmaceutical, medical protection value chain and bring them back to the US.

Thirdly, more attention will be paid to the endogenous value chain driven by innovation. The endogenous value chain includes the digital transformation mentioned by Director Yiming, and the manufacturing transformation mentioned by President Zhao Ji. The endogenous value chain driven by innovation will maintain the stability of the traditional industrial chain to become a better one than the traditional value chain, which is based on the vertical division of labor, cheaper cost, and is controlled by developed countries or multinational companies. The innovation-driven value chain, however, is about the competition in innovation, digital infrastructure capability and transformation, industrial Internet and the Internet of Things.

Fourthly, supporting the industrial and supply chains with strong and controllable supporting capabilities. China has now the best industrial supporting capacities, which gives China the greatest confidence.

Fifthly, paying more attention to the consistent value chain of horizontal division of labor. The traditional industrial chain is a vertical division of labor and the profits are shared by participants at different levels, which means leading enterprises are generally at the middle and high end of the industrial chain. However, the industrial chain will be based on the vertical division of labor in the future. A few days ago, I went to Shenzhen for a fact-finding trip and there are several thousands of companies in Shenzhen supporting Huawei, apart from the 600 companies in Bao’an District alone. All the enterprises must meet Huawei’s product standards if they want to become its suppliers, that is what we called a consistent industrial chain. I visited a company called Zhaowei Group, which produces micro-drive gear systems. In the past, only developed countries such as Korea, Japan, and Italy could produce them but now, companies like this are everywhere in Shenzhen. Many companies, even if they are small companies, or just make screws and sensors, they have reached a consistent vertical division of labor.

Therefore, I believe that the restructuring of the manufacturing industry and the industrial chain may form three major sectors in the future. The Asian sector or East Asia sector is dominated by China, Japan and South Korea. The second sector is the industrial chain dominated by Europe and the third sector is the industrial chain dominated by North America. There is no doubt that the world’s major industrial chains will move eastward and with the strongest manufacturing supporting capacity, Asia will be the base for manufacturing restructuring.

Thirdly, the Northeast of China should seize the opportunities brought by the global manufacturing changes.

The Northeast is facing unprecedented opportunities. The United States used to be a major industrial country and a major steel country. Before 1971, the United States was dominated by the real economy and was the strongest country in the world. However, the US is now being questioned worldwide. I think the Northeast has the best opportunities to revitalize its manufacturing. Comparing with the US and the EU, it will be less difficult for China to revive the manufacturing industry because the United States and some European countries have hollowed out industries. Now, China’s manufacturing industry has the strongest supporting capabilities and it will not be very difficult to complete its manufacturing transformation and upgrading. The Northeast was once China’s manufacturing base and it still has a great advantage.

On the other hand, we need to create the integrated advantages of manufacturing in the Northeast. Shenyang will launch 100 “5G+Internet” industrial parks, APP platforms, demonstration factories, etc., and we also have a group of leading equipment manufacturing companies like Brilliance. There were many great equipment manufacturers in Northeast China but they went bankrupt because there was no assistance, which is a pity. Sectors such as digital manufacturing, intelligent manufacturing, and green manufacturing should seize the unprecedented opportunities this time.

The Northeast should also seize the opportunities in the restructuring of global industrial chains, supply chains, service chains, and value chains. It should cultivate a group of invisible champions and like “Zhaowei” I mentioned earlier. Without a group of outstanding manufacturers, it is difficult to support the entire industry chain.

Lastly, the development of manufacturing needs strong financial support and talents. The “Belt and Road”, RCEP and other changes in the international regional structure will also offer the Northeast great opportunities.

Q & A.

Li Xiaoxue: Dear Ms. Chen Wenling, could you please tell us specifically what are the historical opportunities for the Northeast of China?

Chen Wenling: Thank you very much for your question. In my opinion, the period of China’s strategic opportunities has been lengthened, not shortened. The economy of the United States is slowing down and will continue to decline after the COVID-19 pandemic. On the contrary, China will have the world’s largest GDP in the long-term. The output value of China’s manufacturing industry has ranked first for 10 consecutive years, accounting for about 30% of the world’s total; trade in goods also ranks first, accounting for about 13% of the world’s total, and RMB accounts for 10.92% of the IFM currency basket SDR. China’s manufacturing industry has risen from the low-end to the mid/high-end and has become an innovation-driven nation. Three sectors will be formed during the restructuring of the global industrial chain, namely, China, Northeast Asia, and Asia-Pacific. China has formed an industrial chain cluster and the following new trends are bound to appear during the adjustment of the manufacturing industry.

First, China’s current innovation and development has formed several particularly prominent sectors, such as the Zhongguancun in Beijing, the Semiconductor in Shenzhen, the University of Science and Technology cluster sector in Anhui, the Optics Valley in Wuhan, the Electronics sector in Chengdu and Xi’an. In the Northeast of China, there are now more than 500 universities and some of them have outstanding R&D capabilities. Although there is a gap between China and the United States in terms of original innovation, China is catching up quickly. In recent years, many talents in the United States have returned to China. Some of them choose to stay in Hong Kong, while others choose mainland China, we need to improve the supporting policies to help them settle down in China. Whether the Northeast can have a better institutional environment for attracting talents is crucial for its economic development.

Second, the world’s manufacturing will shift its focus to Asia, especially China. Generally speaking, China has the following integrated advantages: an innovation-driven economy, the world’s largest market, the strongest industrial supporting capabilities, abundant human resources, and huge potential in international trade.

Third, world manufacturing will inevitably shift to the place with the smoothest trade flow. 2/3 of the global trade is intermediate goods, and 4/5 of China’s trade with Northeast Asia is intermediate goods. At the China-Japan Track Two Dialogue held last year, a Professor from the University of Tokyo, Japan said that 89% of China’s trade with Japan is intermediate goods. The supply chain transfer will be closer to the place of trade, which is the place with the strongest manufacturing ability to produce intermediate goods.

Last, the world manufacturing will shift to a place with the best market environment, policy environment and national political stability. Relatively speaking, China has great advantages in terms of national governance, political, social and market environment. Therefore, the manufacturing transfer will choose China as the first choice, especially after the pandemic, which represents a huge historical opportunity for the Northeast of China.