China Center for International Economic Exchanges

Chen Wenling: We must handle six major relationships properly in order to achieve high-quality development in manufacturing
Date:Aug 02,2018    Source:CCIEE

At an interview with the Economic Information Daily, Chen Wenling, chief economist of the China Center for International Economic Exchanges said that we must adhere to the principle of high-quality development if we want to achieve the goal of building a great modern socialist country in all dimension by 2050, meet the people’s growing needs for a better life and adapt ourselves to the trend of the fifth round of global industrial transfer. The essence of achieving the high-quality development is to focus on the manufacturing industry and carefully handle the following six types of relationships.

The global significance of high-quality development in manufacturing

Chen Wenling believes that the special significance of high-quality development can be demonstrated in the following five aspects.

First of all, the international competition between major nations has become increasingly fierce and thus, achieving high-quality development is the only way to win the battle. In fact, the core of the competition can be summarized as hard power, sophisticated technology, and the combination of national strategy and economic strength. “In the future, the competition between big powers will focus on high-quality development, core technologies and manufacturing. In other words, the core competitiveness, high-quality development, advanced national governance and the ability to develop high-level national strategies will determine the outcome of the competition,” said Chen Wenling. Amid the current complicated international situation, we should accelerate the transformation of the economic development mode from high-speed growth to high-quality development.

Secondly, the fifth round of industrial transfer has already begun and in order to prepare China for the new global industrial transfer, we must create a strong industrial succession capability and form a more sustainable industrial competitiveness. Furthermore, we must move China’s industry up to the middle and high-end of the global industry chain and adhere to high-quality development so that we can enjoy a broader market.

Due to the rising costs in China’s labor market, land, resource and environment over recent years, some manufacturing enterprises have accelerated their pace of relocating their factories to Southeast Asia, South Asia, Africa, North America and South America. From January to April this year, China’s export surplus decreased by 24%, and 27% in May, implying that this round of industry transfer happened very fast. Therefore, China must move its industry to the middle and high-end of the global industrial chain and realize differential and complementary development to achieve sustainable development ultimately. The fifth round of industrial transfer has presented us with a very serious challenge and high-quality development is the only way to meet the needs of the industrial transfer.

Thirdly, the growing needs of the people for a better life require us to achieve high-quality development. Due to the insufficient supply of high-quality consumer goods in China, many Chinese consumers choose to purchase high-quality products from overseas through travel or cross-border e-commerce, which has now formed a huge industrial chain. In order to satisfy people’s growing demand for a better life and bring the overseas consumption back to China, we must work on high-quality development and ensure sufficient supply of quality goods.

Fourthly, adhering to high-quality development is the need to truly realize the goal of building a great modern socialist nation by 2050. The report of the 19th National Congress of the Communist Party of China states that China will realize socialist modernization by 2035 and fully build a strong modern socialist nation by 2050, which means that the GDP per capita and the average standard in other areas should reach the world-class standard.

Fifthly, high-quality development will help China to shape a good image. For a long time after the reform and opening up, Chinese goods did not have a good reputation in the international market. Although the quality of the goods has been improved later, they are all OEM products, which are often exported to other countries and bought by Chinese tourists. At present, the quality and price of some domestic products have already surpassed similar products in the international market, however, there are still a large number of Chinese consumers going abroad every year to spend their money overseas. Chinese tourists are sometimes called “the walking wallets” and they have driven the rapid growth of consumer goods in countries such as South Korea and Russia. Unfortunately, they do not get the respect they deserve. Instead, they are condemned and criticized by some people in these countries. Why can’t we find a way to bring this huge consumer group back to China to boost the domestic demand and promote economic growth? To achieve that and reshape the image of China, we must have high-quality products and a high-quality market that the world will praise.

The high-quality development in manufacturing involves six major relationships

Chen Wenling believes that in order to achieve high-quality development, we must deal with different types of relationships, especially the following six relationships.

The first one is to deal with the relationship between “big” and “strong”. A large economy does not mean a strong economy. The huge economy that is formed by simple expansion and extension is often vulnerable to risks. Only when we create a high-quality development, our nation will have the ability to withstand risks.

Secondly, we have to properly deal with the relationship between the primary, the secondary, and the tertiary industrial structures. In recent years, we over-emphasized the proportion of the service industry in the total economic output when adjusting the three industrial structures. Sometimes, we even used the service industry ratio as an indicator to measure local government’s adjustment of the economic structure, while ignoring the development and prosperity of the manufacturing industry, which is a misunderstanding.

When China became the largest trader and experienced rapid GDP growth, other countries did not treat China as a competitor. However, when we announced that we will transform and upgrade China’s manufacturing industry to the middle and high-end of the global industrial chain, and develop advanced manufacturing, many countries have started to see China as the main opponent and the object of containment. With a population of nearly 1.4 billion, the manufacturing industry should always be the foundation of the national economy and under no circumstances should we allow the hollow phenomenon to appear in manufacturing, otherwise it will be extremely difficult for China to reinvigorate the manufacturing industry. No matter what, China cannot undermine or give up its manufacturing industry. Instead, we must do everything possible to prolong the prosperity cycle of the manufacturing industry, build a stronger manufacturing industry, accelerate the building of a manufacturing power, and continuously improve the quality of economic development. Emphasizing the importance of the manufacturing does not mean the service industry is not important. The service industry must serve the manufacturing industry and satisfy people’s consumption needs.

Thirdly, we should properly handle the relationship between the whole industry chain and the division of labor within the global industrial chain. According to the global division of labor and trading theory, the global industrial chain will not be interrupted once the global industrial division of labor is completed. The global industrial chain, supply chain, service chain and capital chain have formed a global division of labor and transactions. After the ZTE incident, many people accused companies of not creating an entire industrial chain. Companies believe that in the division and cooperation of the global industrial chain, each company should only focus on producing the product they are good at because this is reasonable and conforms to the laws of economic globalization. Unfortunately, the sanctions imposed by the US disrupted the entire industrial chain. In response, we should move our industry to the high end of the global industrial chain as soon as possible. Regardless of what we produce, we have to produce with the best quality as this is the only way to meet all challenges.

For example, Mr. Cao Dewang, chairman of the Fuyao Glass Industry Group Co. Ltd once said, “I have done only one thing in the past 40 years: to make a piece of glass.” This kind of dedication has made Fuyao Glass the world’s largest manufacturer of automotive glass. More than 60% of the US automakers use Fuyao Glass and there are no other alternatives. This is the strength a company will have when it stands at the top of the global industrial chain.

Fourthly, we have to deal with the relationship between different types of innovation, namely, original innovation, introduction-digestion-absorption innovation and integrated innovation. In the past 40 years of reform and opening up, we paid more attention to bring innovation to China, improve it and make it better. Integrated innovation is also a high-level of refinement and imitation and we have many successful cases in this aspect, such as the high-speed rail. The high-speed rail technology we learned from Japan and Germany have a maximum speed of 250 km, but we made it better by increasing the top speed above 250 km. Original innovation is needed the most for China’s economy in the stage of high-quality development. We need to discover new, original and subversive technologies through theoretical innovation and invention. However, the original innovation is also China’s biggest shortcoming. In fact, many original innovations have no immediate benefits at the beginning and it might take decades for them to generate substantial returns. It is a long process and we need to stay calm and invest in original innovation.

Fifthly, we should aim to produce products with the best quality. Unlike many entrepreneurs from Germany and Japan, many Chinese companies lack the spirit of producing products with the best quality. There are 232 German-funded small and medium-sized enterprises in Taicang, Jiangsu and 38 of them are the world’s invisible champions. For example, a company which specializes in producing pencil sharpeners has a history of 236 years and their pencil sharpener has achieved the highest standard in the world, which is why the company never have to worry about how to sell their products. Another example is a Swedish company called Sandvik, specializing in the production of the drill bit and occupies 96% of the global market because the products it produces have a longer life and better quality than other manufacturers. As can be seen, it is very important to turn the invention into a good product and create a well-recognized brand, which requires years of effort. To achieve that goal, managers and companies need to adopt a pragmatic approach and be prepared to spend years of hard work and dedication to technological innovation and produce the best products.

Lastly, we have to properly deal with the relationship between productivity and production relations. The greatest achievement China has made during its reform and opening up is that it has recreated a microeconomic foundation. However, the superstructure, adjustments of production relations and reform are still seriously lagging behind, which hindered the development of many new technologies and business models. The insufficient supply of high-quality institutions is the biggest drawback of China’s structural reform. Without institutional changes and innovation, we cannot keep up with the pace of the new era. Furthermore, the mentality, management and behaviors of the government can not keep up with the development of productivity and the market, which made it very hard for us to achieve high-quality development. In order to unleash the creativity of our people, enterprises and local governments, we must conduct further reform and build new institutional mechanisms, otherwise we will not be able to achieve high-quality development. Therefore, to free people’s mind is very important. In terms of productivity, people are the most important element and we need to be people-oriented and give them a sound external environment.

Policy recommendations for high-quality development in manufacturing

To achieve high-quality development, China must promote improvement in quality and efficiency through innovation. In the future, the extensive, large-scale, quantitative, and epitaxial development methods will be abandoned, and the development model of high pollution, high energy consumption, and high-speed growth will become history. Creating greater innovation dividends, talent dividends, market dividends, regional coordinated development dividends through high-quality development will become a strong driving force for China’s long-term development.

To achieve high-quality development needs both the real economy and virtual economy. The two type of economies should complement each other and move forward steadily. We should rely on the development of the manufacturing industry, and try to extend the industrial chain and life cycle of China’s manufacturing industry. We should focus on the original innovation, occupy the high end of the industrial chain, attach more importance to talents, exert people’s enthusiasm and creativity. Moreover, all resources and assets that are able to create wealth should be able to flow freely, the institutional relations should be adjusted through institutional innovation and reform, and the productivity should be further liberated to build a better market and institutional environment.

 

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