Jia Kang: On the high-quality upgrading and development of China's manufacturing industry

Source: Jia Kang Academic Platform

Jia Kang is the founding president of the Huaxia Institute of New Supply Economics, a researcher and doctoral supervisor of the Chinese Academy of Fiscal Sciences. He served as the director of the Institute of Fiscal Science of the Ministry of Finance for a long time.

This article is based on Mr. Jia Kang's speech at the 2023 Annual Conference of the Guangzhou Forum on "High-quality Development of Manufacturing Industry in the Greater Bay Area" (2023.12.1).

Thank you, moderator. Dear Chairman Zheng Yongnian and all the experts, guests, friends, hello everyone! I am honored to have this opportunity to communicate with you, I would like to combine the theme of the annual meeting, with the title of "high-quality upgrading and development of China's manufacturing industry from the smile curve", to report some of their basic views.

First, let's sketch out the context in which this issue is being discussed. After 2010, China has actually entered a downward process of economic growth intuitively, and the expression of the decision-makers is to understand, adapt and lead the new normal, and to change from the original extensive development to intensive development, and the specific goal is to achieve high-quality development in the medium and high-speed range. So in the middle of this actual development process, from the perspective of the representative indicator - economic growth rate, we have been going all the way down to the present, if the data is even, the compound average growth rate in 2020 and 2021 is 5.2%, 3% in 2022 and this year, if we can complete it at 5% (now it seems that there is no suspense, the latest information shows that we are sure to reach it), then what is the two-year compound average growth rate? is 4%, if it is completed a little better, it can be slightly higher than 4%, and that's it. However, in the year of 2023, it has the significance of a year of opportunity, that is, with the year-on-year comparison of this year, it will stand at more than 5% (that is, it will stand on the lower edge of the medium and high-speed section as we generally understand it as researchers), and next year (the "14th Five-Year Plan" has two more years), if we look at it from a high probability, it is very hopeful to avoid a new low (like 2020, 2022 is the first and second lowest in decades), and it is a year that is expected to form 2023 as the inflection point of the "L-shaped transformation" of the entire economic downturn after avoiding new lows in the future. I think this is an opportunity that we should take seriously. Of course, starting from 2023, we will face a series of challenges and overcome many difficulties in order to achieve the medium-to-high-speed high-quality development of "from the new to the normal" in an L-shaped transformation.

Our conference focused on the high-quality development of such a manufacturing industry, which is obviously to deal with challenges and uncertainties in the future. At the same time, I believe that it is very necessary to clearly see from the perspective of research the certainty that China's economic development should grasp well due to its objective growth and our subjective continued unswerving implementation of the basic national policy of reform and opening up. This subjective aspect of the "do your own thing" efforts, combined with the situation, advancing with the times, we need to a long-term behavior model, and strive to achieve sustainable development in the upgrading and development, so that China's manufacturing industry, which has the status of "world factory", from the concept of "Made in China" to "created in China" and "intelligent manufacturing in China" - this kind of high-quality development falls on the upgrading and development is its inevitable demand.

In real life, I would like to use an empirical reality to show the smile curve, to make the most brief sketch, talk about how we understand the upgrading and development of China's manufacturing industry from the intuitive performance to the internal requirements of some relevant basic points.

The so-called smile curve is a curve form on the Cartesian coordinate system that can be described according to the experience of global economic development, and the horizontal axis is the source of socialized large-scale production at the beginning, and large-scale processing and production first need to have good creative innovation, which is specifically manifested in the formation of a customized solution, and this solution should be in the middle of market competition can establish its brand effect. According to such a creative and innovative successful and brand-effective specific solution, enter the mass processing and production, and then push to the end of the marketing, after-sales service and continuous market expansion on the market - the horizontal axis of the process can be expressed as the global supply chain and value chain in the socialized production of different positions. What does the vertical axis represent? It is the return rate at different positions. Extensive practical experience has shown that it is the two ends high and the middle low, like the shape of the mouth when people smile, so it is intuitively and figuratively called the smile curve.

On the basis of China's development in the first few decades of reform and opening up, the formation is that after the economy took off, the total economic volume has reached the second place in the world, and the scale of the manufacturing industry has become the world's first. I think this judgment is very important for us to pay attention to, if the Chinese continue to promote modernization, and look at the achievements they have made realistically, rationally and calmly, they must climb the hill in connection with the high-quality upgrading and development they want to pursue. This judgment is worth discussing a little more in connection with the smile curve.

A few years ago, there was a statement that China surpassed the United States in terms of comprehensive national strength, manufacturing strength, innovation ability, and so on, and became the world's No. 1 position. At that time, the incumbent Minister of the Ministry of Industry and Information Technology Miao Wei once came up with a series of indicators to show that China's manufacturing industry in the frontier innovation ability, competitiveness such an international comparison, not only did not enter the first camp, but even the second camp has not entered. I think his judgment is objective and realistic. After decades of development after the reform and opening up, we should say that China's manufacturing industry in the process of progress, and the international frontier level in general in the obvious narrowing of the distance, especially in recent years there are some local bright spots, should be said that it may have entered the second camp, and even in a specific construction field docking competitiveness is to enter the first camp (for example, China's high-speed rail to participate in international bidding as a whole, the competitiveness should be within the first camp; if from the latest phenomenon, although there are still various difficulties in 2023However, China's new energy vehicle export scale has come to the forefront of the world; these bright spots are, of course, to show that our reform and opening up to liberate productive forces continue to make some progress), but overall, I still think that China's manufacturing industry is now from the global comprehensive comparison, or "big but not strong" state, from the smile curve, a large number of our production capacity, is still in the middle of this position. What does it mean in the middle? That is, we are lagging behind in terms of competitiveness supported by real cutting-edge creativity and scientific and technological innovation capabilities. In the first camp, it should be said that in the ever-changing innovation trend of the digital economy era led by Silicon Valley in the United States, the United States still dominates, followed by some developed economies, such as Europe, Japan is on the track of development and continues to follow the wave of innovation in Silicon Valley, and they are also trying to keep pace with the times and form a second camp; China has made progress in the process of catching up, but we must also face up to some of our twists and turns in actual life, for example, I think that the main engine that leads the upgrading and development of the entire manufacturing industry is from the new economy, that is, the innovation of the digital economy and the industrialization of the digital economy and the digitization of the industrial economy. The performance of the competitiveness of the platform company in the market can be roughly judged from the evolution of its market value. A few years ago, statistics showed that the largest market value of digital platform companies in the United States was Microsoft, and the top four in China together were roughly the same as Microsoft's market capitalization; but the latest statistics I have seen show that after a few years of changes, the market value of China's top 100 companies, including the top 100 companies, including unicorn companies, is less than that of Microsoft. The judgment of the future is that Microsoft is more optimistic, and China is actually significantly wider than such a development trend in terms of competitiveness. Of course, this is also related to the fluctuations in our development and the rectification that must be completed. In 2023, the central decision-making level will personally chair the enterprise symposium by the new Premier Li Qiang, and clearly give a signal of "completing rectification".

In the middle of actual life, the promotion of upgrading and development with the integration of digital and real, that is, the combination of "digital economy industrialization and industrial economy digitization", of course, must fall in different fields and different tracks, which is a comprehensive process of promoting China's modernization in general. In this regard, I would like to take a look at the position of the production capacity of Chinese enterprises with a certain degree of universality and representativeness from some more intuitive cases. For example, many years ago, we knew that more than 85% of the global market share of children's toys was provided by local manufacturers in China. So think about it, after so many years of development, is there any local children's toy brand in China that can be called well? If there is a famous brand that can stand on its own in this regard, then it will naturally occupy the high-end on the left and right sides of the smile curve. Where is the mass production, is a secondary issue, by the front-end brand undoubtedly has a completely independent intellectual property rights to master, you can achieve the end of the brand marketing, after-sales service, market expansion of high added value and net profit realization. In this regard, China has been lackluster so far, we know more that in the international market, there are Barbie dolls that have been prosperous for decades in the world, and there are Lego bricks that children are playing with everywhere. Not long ago, I noticed that there is a Hollywood movie, that is, "Barbie", which has actually been a brand in the development process for decades, not only limited to the discussion at the level of "business", but even rose to a symbol of human culture and civilization, and rose to a cultural soft power phenomenon - in the discussion of the academic community, the "Barbie", a movie that tries to be appreciated by both the elegant and the vulgar, of course, has high and low evaluations, but what is it related to? There are already some more profound humanistic issues, involving the sexes in social life, feminism, how to better promote social harmony in the development of modern life, etc., and are related to these cultural concerns that deserve our more attention from the level of commercial operation to the level of human civilization and human development prospects. This is very worthy of our awareness in this regard, that is, to join the creation of a globalized "community with a shared future for mankind", which rises from a famous brand and from commercial behavior to a richer cultural connotation, and China's soft power in the future must be impossible to bypass.

For example, the smart phone that is now popular all over the world, its founder is everyone knows, now no longer alive Jobs, as a leader in supply-side innovation, he has formed such an effective supply of upgraded products that make hundreds of millions of consumers see after they see it, what does it bring? Of course, what is we talking about the public, the people's sense of gain and happiness will be improved, and it is to provide well-being for human society. In the early stage of Apple's mobile phone in iPhone4, the scene of Chinese marketing, I was very impressed, the Apple flagship store in Beijing Xidan Dayue Mall, it was already night and I saw that it could not close, and the crowd of black pressure was queuing up to buy the latest iPhone4 Apple products, it was very good to lead consumption with effective supply, and improve the user experience. So this Apple mobile phone is still leading the development trend of smart phones in the world, and some other competitors are now catching up, and where is the large number of OEM of this Apple mobile phone? After they came in with Taiwanese capital, they originally formed a large-scale processing plant area in Shenzhen, but later moved to the north due to various reasons. A few years ago, I went to see the processing plant area of Apple electronics (mainly mobile phones) near Zhengzhou, and said at that time that according to the order, more than 300,000 people should be employed, and these more than 300,000 people will continue to produce and supply Apple mobile phones to the world on the production line in a 24-hour three-shift continuous rotation mode, which will bring more than 300,000 low-end labor opportunities at the grassroots level that are very worthy of our attention, and the wages they get should be better than other jobs. For them, the state of higher satisfaction - there are relatively good employment opportunities for these low-end workers, and at the same time, it brings their expectations and expectations for the development of a better life step by step in the future, and they work harder to enter the process of getting rich. For the government, of course, there is tax revenue, which is indispensable for the fulfillment of its functions, and there is also the growth of GDP that our entire economic prosperity is very worthy of matching the concept of "guaranteed speed" in the development process. These are worthy of affirmation, but I'm sorry, China's position in the production process of Apple mobile phones and electronic products is low returns, according to Wu Jinglian teacher said a few years ago, if it is a little ugly, in the global division of labor we are doing "hard hard work". It is also necessary to make it clear that China will inevitably only start to cut in from this angle in the 80s after the reform and opening up of the last century, "three to one supplement", "two ends outside, big in and big out", so that we know what is the relatively high level of modern large-scale production, and know that it is taking advantage of China's own relatively low-cost, Competitive labor and land represent natural resources with low development costs to join the cooperative competition of globalization, and foreign capital can be brought in at the same time management experience and commodity economic awareness, especially knowing the rule system in the process of developing the global market economy for hundreds of years, what will be brought in the future is the process of "China's primitive accumulation", the process of economic take-off, and the current "world factory". But in the long run, we are always in such a middle position, in fact, we have no future, there will inevitably be a "stop, stop, stop, stop" in the United States as the boss of the containment and suppression of the second, the following emerging economies are trying to catch up (we all know that in recent years, Vietnam, India, Indonesia, etc. have become more and more ambitious and aggressive, and are trying their best to accelerate their development), we cannot simply continue to stay in the middle of such a position, so that we will make our development space narrower and narrower. In the process of promoting China's modernization, it must achieve upgrading in a sustainable manner. In terms of upgrades, there are already some notable examples of early movers.

I would like to give an example of upgrading, which is the car manufacturer in Guangzhou. In the past, the introduction of Japanese technology production "Guangben" - Guangzhou Honda, the market reputation is very good, I have been in the Ministry of Finance Research Institute for more than ten years, sitting in the Guangben has been driven to a cumulative mileage of more than 600,000 kilometers, no need to overhaul, usually rarely out of trouble, fuel-efficient, comfortable to sit, look also pleasing to the eye, of course, the market reputation is good, but sorry, Guangzhou manufacturers are in the middle of the position. Later, I also had the opportunity to investigate this manufacturer, and I knew that they set their own goal to introduce, digest, absorb and re-innovate to form a product series with completely independent intellectual property rights. Later, I learned that a few years ago, one of their GAC Trumpchi performed very well in the market, and it could ship hundreds of thousands of vehicles every year. Not long ago in Guangzhou, there was an automobile carbon neutrality forum, I participated, and saw the display of the latest GAC Trumpchi business car - it may not be the most prominent representative of China's automobile manufacturers such a competitiveness, but its performance of the upgrade, is real, has been in the strategic layout of the left and right high-end benefits at the same time, ready to move the production line to Thailand - This is completely consistent with what I said a few years ago that it faces a strategic opportunity, which is to move its production line to Southeast Asia, and then use a new multinational company structure to better reduce its comprehensive costs, while continuing to firmly grasp the high-end revenue. This is also the measure of "vacating cages for birds" that the Pearl River Delta has valued in previous years. This path is the same logic as Musk's decision to put Tesla's production line in China to form the world's largest foreign-invested single factory. Manufacturers in Guangzhou have taken this step, which is a successful case of pushing up to the left and right high-end on the smile curve, hoping that it can stably form such a multinational company structure. Musk's model has formed a very strong support for him, after the start of the Shanghai factory, he turned a profit on this track, this field is no longer simply dependent on venture capital, venture capital, angel investment, he has now further copied this model to Mexico and Europe. Our Chinese manufacturers will inevitably take such an upgrade road in the future.

In order to get through the road of upgrading, it is necessary to return to the concept of total factor productivity that Professor Chen Guangyan has emphasized earlier. The supporting force of our traditional factors of production is in decline, and there is more and more "migrant labor shortage" accompanied by the rise in labor costs, which will inevitably restrict us in the future; the comprehensive cost of land and natural resource development is already rising; however, we must rely on the institutional elements of institutional innovation and the application of scientific and technological achievements to this "primary productive force of science and technology" The elements of science and technology, coupled with the innovation of management (of course, accompanied by the innovation of ideas), form the total factor productivity for our upgrading and development of the support, which is the main line that China's modernization must grasp to bring out the quality and efficiency of the entire supply system with supply-side structural reform. That's where our hope lies. Of course, China's development is definitely not narrow-minded nationalism, but it is necessary to embrace globalization and continue to build a community with a shared future for mankind in the process of China's peaceful development, so as to enhance the well-being of the entire human race. Such a prospect requires us to truly overcome difficulties in the deep-water area of reform, and open up space for scientific and technological innovation and management innovation with institutional innovation. This is a point that I would like to emphasize in particular.

Thank you!