Southern China

Industry, Development and Industrial Policy

Marco R. Di Tommaso, Lauretta Rubini, Elisa Barbieri

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9780415684545
• eBook ISBN: 9781136240164
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

By concentrating on one of the key locations of global manufacturing, this volume offers a contribution to contemporary industry studies.

The rates of growth that have characterized the southern Guangdong province in the last three decades are unique, even with respect to the more general and often cited Chinese experience. But what role have governments played in these decades of growth? What are the aims and tools of industrial policies promoted in this core location of contemporary manufacturing? And what are the implications of the Guangdong experience of growth for the international debate on contemporary industry?

Referencing the international debate on industrial development, specialized Chinese academic literature, official government documents, statistics and in-depth fieldwork this book offers unique view on the complex set of long-term national and local government plans and policies that have gone hand in hand with the last three decades of impressive change in this highly industrialized region. In this framework, local industrial development policy, innovation policy and migration policy are carefully analyzed as three of the main strategic interventions selected by government authorities to promote the desired gradual structural change and technological upgrading in industry.

This book will be of interest to students and scholars of Chinese studies, economics and business, development policy and industrial policy. Furthermore, the volume presents stimulating material for both policy makers and entrepreneurs.

1
Introduction

1.1 Industry, policy and planning

1.1.1 The ‘invisible pendulum’: three decades of debate

It is well known that the issue of why, how and if government should intervene in industrial development has always been a very controversial topic. Looking at the last three decades, we have witnessed a periodic oscillation of dominant opinions and attitudes both in academic and policy-maker circuits. As if guided by an invisible pendulum, routinely, years of consensus have been followed by years of blame, while years of rethinking and support have been replaced by years of attacks and severe criticisms.

In the post-boom 1970s, the idea that governments might play an important role in promoting industrialization was quite common. The biggest European countries, struggling with oil shocks, high rates of unemployment and rapid deindustrialization processes, adopted industrial policy (IP) measures mainly to consolidate their post-Second World War production base, to encourage strategic structural adjustments and to relax the labour–capital conflict (Geroski, 1989; Kassim and Menon, 1996; Bianchi et al., 1994; Soete, 2007). In the same years, IP became a popular issue in the United States (Reich, 1982; Norton, 1986; Bingham, 1998; Ketels, 2007) because of the economic and social crisis and because of the Japanese challenge, its influential interventionist model and the ‘myth’ of the Ministry of International Trade and Industry (MITI) (Sakoh, 1984; Johnson, 1982; Okimoto, 1990; Di Tommaso and Schweitzer, 2012). In the other half of the industrialized world, the Soviet Union and its satellite countries controlled industry with even stronger tools, such as national planning (Lavigne, 1974; Amann et al., 1977; Nove, 1992). Finally, looking at the periphery of the industrialized world, post-colonial developing countries either adopted a Soviet-style industry planning or experienced import substitution (IS) strategies, suggesting the need for interventionist governments to be able to guide industrial development (Kirkpatrick et al., 1984; Wade, 1990; Colman and Nixon, 1994).

Then, at the beginning of the 1980s, the years of American Reaganomics and British Thatcherism rapidly arrived and the dominant policy message became ‘no government intervention’ and thus ‘no-industrial-development-policy’. These were the years that prepared for the consolidation of the Washington Consensus propelled by the dramatic fall of the Berlin Wall and the final debacle of almost all of the planned economies (with China – that passed through that ‘heavy storm’ without collapsing – as one of the most visible exceptions). For a long list of industrialized countries this debacle meant the end of industry planning, but the new dominant atmosphere also brought along very strong attacks against IP and more generally against any kind of government intervention. It was the triumph of the ‘getting-prices-right’ paradigm that was considered the best recipe for the so-called developed, developing and transition economies (Amsden, 1989; Stiglitz, 2002; Chang, 2001; Bianchi and Labory, 2006). Even the interpretation of the industrial growth of some Asian countries – ungenerously defined as a ‘miracle’ – was utilized in this perspective. In the view of many Western scholars and international institutions, in those years the most successful East Asian countries had experienced an incredible growth, thanks to a firm liberalization, the opening up of their economies to foreign capital and the withdrawal of governments from selective policy interventions (World Bank, 1993; Amsden, 1989; Colman and Nixon, 1994). The policy prescriptions for any industrialized, industrializing and transition country were clear: deregulation, privatization, liberalization and more generally the need to obtain the withdrawal of government from industries and markets. In a few years, the ‘pendulum’ completed its oscillation. It was a political turn supported by a vast academic consensus that had gradually shifted from traditional market failure arguments to more extreme government failure positions (Chang, 1996; Krueger, 1990). A new framework that, with well-defined simple pillars, could not tolerate industry planning and IP.

After at least two decades of generalized consensus, the ‘pendulum’ started to move back again. We began the first few years of this century with the 11 September 2001 shock and the initial reactions of Western countries that were blindly going in the direction of the forthcoming 2008 international crisis. These were years of confusion for ‘the West’ and years of growth and massive changes for some ‘emerging’ giants (China, Brazil, India, Russia) and other dynamic ‘emerged’ countries (South Korea, Taiwan) that progressively gained the status of international industrial powers following Western-consensus-independent planning and policy recipes (Chang, 1996, 2002, 2006, 2007). In 2008, the Lehman Brother failure was only the first signal of what was going to happen. The entire global economy entered the tunnel of the ongoing ‘big crisis’. These are years that have induced many governments in Western countries to give strong and immediate policy answers, years of a new rethinking of national development strategies characterized by the resurgence of a debate on IP (Aghion et al., 2011; Birdsall and Fukuyama, 2011; Lin, 2012; Wade, 2012).

1.1.2 The Chinese ‘long flight’: 1978–2008

In the same three decades, while the ‘pendulum’ was following its oscillations, the People’s Republic of China had progressively experienced its planned ‘long flight’. Even if (as we are going to argue) proof of correlation and causality are still difficult to demonstrate rigorously, there are two unchangeable facts. First, the ‘flight’ has been characterized by unique, unprecedented successful growth and industrial development performances. Second, these exceptional performances have been accompanied by an impressive battery of national and regional policies rooted in a complex set of long-term government plans, with the explicit aim of promoting growth, industrialization and gradual and continuous structural change.

The ‘flight’ initiated at the very end of the 1970s. While Western countries were entering the Thatcher–Reagan age, China began its first economic (and social) policy experiments. Experiments that were carefully controlled by the government, limited in extension (in terms of people, sectors and localities involved) but very innovative in terms of what was tested (Lardy, 1992; Krugman and Obstfeld, 1991; Wei, 1995; Napoleoni, 2011). It was the prudent take-off of ‘the long flight’, it was the beginning of Deng’s era of reforms. An era characterized by attraction of overseas capital and foreign direct investments (FDIs), export-promotion policies, establishment of some selected special economic zones where the opening up could be gradually experimented and carefully controlled: ‘closed islands’ allowing for what was not possible in the rest of the country, offering unique attractive characteristics (non-unionized and skilled labour; land, building and business facilities; logistic and transport infrastructure) and preferential policies (tax rebates and other financial incentives), all aimed at encouraging investment, technology import and export-oriented production (Yang, 1997; Ma, 1999; Wang and Hu, 1999; Démurger, 2000; Démurger et al., 2002).

Then, during the Western Washington Consensus era, step by step the Chinese government authorities further implemented their long-term plans of industrial development with the target of managing and controlling the gradual change of the Chinese economy. Fine-tuning (speed and time) the change was the main challenge, given that the process of opening up and reform implied enormous risk of social and political collapse. Thus, these were again times of gradual economic experimentation that started to involve a growing and carefully selected number of people, actors, sectors and territories (see Chapters 4 and 5), a complex process of radical and controlled change that people and regions experienced with different speeds, thanks to a set of orchestrated plans and policies at the national and local levels (Chapter 6). These were the years of the first stages of accelerated growth for China founded on the exploitation of its immense pool of migrant labour (Chapter 5) and the progressive opening up of its economy, with the aim of acquiring capital and new technology from abroad (Chapters 4 and 7; Nolan, 2001; Naughton, 2007; Napoleoni, 2011). Thus – exactly in the years when the Washington Consensus was at the top of its influence in the industrialized, developing and transition economies – the Chinese government made its biggest effort in encouraging and controlling the entire reorganization of its industry following its long-term outward-oriented strategy of change and development (US-China Economic and Security Review Commission, 2009; Nolan, 2001; Liu, 2005; ul Haque, 2007; Chang, 2002).

Following what was defined as being in the interest of the nation, the Chinese government selected a set of goals declared strategic (growth acceleration, technology upgrading, competitiveness improvements, structural adjustments in industry, territorial re-equilibrium, etc.). These were officially launched at the national level through the five-year plans. They were then adopted by the local authorities and supported by ad hoc industrial plans and policy interventions. Structural change targets and interventions were made in order to promote a gradual shift towards those activities considered strategic for the industrial development of the country. These were selective policies in favour of what were defined as the ‘pillar industries’ (Lan, 2008). ‘Sunrise policies’ were promoted in those industries that were defined strategic for the future of the country. IP programmes were implemented to protect and to encourage the development of infant industries or support national champions and interventions targeted to support selected incumbents or to encourage new entrants operating in strategic industries (Nee, 2000; Garnaut and Song, 2004; Rodrik, 2004; Chang, 2002).

The private sector – once labelled as the ‘tail of capitalism’ – was also encouraged and progressively legitimized by the government. Specific policies for the small- and medium-sized enterprises (SMEs) and for local development were implemented (Tsai, 2007; Zheng and Yang, 2009; Dai, 2005; Fang et al., 1999). The state-owned sector was not hurriedly privatized as was happening in those years, for example, in Eastern Europe following the Washington Consensus paradigm. On the contrary, state-owned enterprises (SOEs) were first forced to become champions of efficiency to be able to lead the country’s outward-oriented strategy (Abrami and Zheng, 2008). SOEs were not sold to foreign capital, and the Chinese government allowed overseas companies to enter China under some specific conditions [joint ventures (JVs) and other kinds of similar partnerships] considered useful for the future independent growth of the Chinese economy.

Finally, after a period of continued growth, the 2008 international crisis arrived. The dramatic fall of international demand had a clear effect on the sustainability of the model. The two-digit continuous growth had so far been the key factor that had made the transition and the opening up process sustainable in economic, social and thus political terms. The Chinese authorities officially declared that 8 per cent growth was the limit under which it was not possible to guarantee social stability (Chapter 4). Thus, the national authorities quite soon announced the need for adjusting the outward-oriented strategy, launching parallel go-domestic policies to meet internal demand. This was a new unexplored change that was announced as soon as the first few symptoms of the international crisis were perceived by national and local government authorities (Chapter 4). The announcement was immediate even if no genuine analysis could really assume that the new inward-looking strategy would really be implemented with the same speed. There is no doubt in fact that decades of outward-oriented development have made the entire industrial (and economic and social) system quite rigid and unprepared for the need to consider the domestic market as a possible engine of growth as well.

The social risks associated with the growth deceleration, the strong dependency on international demand and the rigidity of the outward-oriented model made immediately clear why China is also highly vulnerable to the international crisis arriving from ‘the West’. Moreover, after three decades of continuous changes, the demand of the leading segments of Chinese society has gone beyond the constancy of two-digit growth. There is an issue related to the ‘quality of growth’ that makes the entire process of development weaker than it was in the recent past. The new emerging middle class, the one that has led and driven the last decades of growth, today has great expectations in terms of quality of life and more sophisticated benefits associated with their growing income. Local and central authorities seem well aware of such a change, to the extent that the recent slogan referring to the creation of a ‘harmonious society’ while ‘making people happy’ can be read as signals of a political will to move forward in this direction (see Chapter 4) – signals that are explicitly sent by governments to the rest of the society.

1.2 Government and industry: 2012

At the end of these last three decades of debate and change, do we know more about what the optimal model of government involvement in contemporary processes of industrialization, growth and development would be? What about the role of industrial planning and IP in contemporary capitalism?

Observing China, the scenario is as follows: sustained growth, continuity in the way government intervenes with long-term planning and industrial policies. Looking at what ‘the West’ has become today, the picture can be drawn as follows: persistent slow rates of growth and a quite diffused reappearance of IP arguments and interventions (Di Tommaso and Schweitzer, 2012; Bianchi and Labory, 2011).

In other words, studying contemporary industry, it seems that today governments do play a role. This role undoubtedly varies across countries, but government involvement is one of the features of contemporary capitalism. This is true not only in the case of capitalism ‘with Chinese characteristics’ (Chung et al., 2001) but also in the case of many other industrialized countries.

It is important to underline that the ‘Chinese characteristics’ – including the role that governments (at local and national level) are playing in promoting industry – will continue to influence global capitalism and industry. We can no longer consider China to be a marginal ‘special case’. China is contemporary manufacturing. China is a relevant part of contemporary industry, China is a crucial part of the contemporary global economy. Thus, given that contemporary industrial powers have to play the game in the same global markets, China is implicitly forcing other countries to redefine their strategies and their institutions, to rethink the role governments play.

1.2.1 Western countries: 2012

Since 2008, in all Western countries growth has been very weak. After four years, the general situation is still extremely uncertain and all projections continue to confirm feeble rates of growth. At the same time, the possibilities for Western countries’ governments to continue to achieve wider development goals seem particularly low because of a general consensus on the need to cut expenditures in fields like education, transportation and health. In this context, if planning, as a means of governing the industrialization process, has definitively gone out of the picture, with regards to IP the scenario is more controversial. The first reactions to the 2008 crisis in Western countries were bail-outing, stimulus interventions and some surprising discussions about what would be the best government policy in favour of recovery and growth. After the first shock, in America and Europe we have witnessed a progressive resurgence of national IP positions serving as tools by which to offer national strategies to guide countries out of the crisis. However, these attempts continue to appear generally weak. There are two main groups of reasons. First, government failures are not just theoretical assumptions of the neoclassical schools. On the contrary, they are real-world phenomenon associated with government policy practices (Chang, 1996; Krueger, 1990). As market mechanism failures are vividly present in contemporary people’s ordinary life, so are government failures. Rent-seeking mechanisms, public bodies’ inefficiencies and corruption are diffused characteristics associated with government interventions that are rapidly communicated and stressed to citizens by contemporary aggressive media. If then IP is perceived as giving money and privileges to a few companies, government intervention in industry dynamics automatically becomes a source of concern. However, IP is not simply about giving money to firms and it is also reasonable to argue that in many circumstances government agencies have shown records of efficiency and effectiveness. Yet, in a simplistic and polarized media-led debate, IP often ends up being described as a waste of public money and a further burden to the government budget. In this environment it is clear that both in Europe and in the United States there is a lack of consensus which makes policy interventions weak even in the preliminary phases of definition and discussion. Moreover, because of the relationship with politics, policies risk being inadequate for current needs. Both in Europe and in the United States, policies fail to address long-term issues because every intervention is constrained by the need to manage the short-term demand of politics. In other words, we have what we could define as ‘poll-based industrial policy’ tailored to the short-term narrow political consensus; this policy is not suited to respond to complex social and economic long-term dynamics. Another factor that makes IP weak in Europe and in other Western countries is connected to the incapacity of national governments to manage transnational issues. In the majority of relevant problems related to contemporary industry, growth and development, the national governmental sphere of legitimation is too small. Clear examples are the management of transnational public goods such as knowledge or economic and financial stability.

1.2.2 China: 2012

Since the second half of 2008, China has also experienced a deceleration of its growth rate. However, although in 2012 most countries, i...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of tables
• List of figures
• Acknowledgements
• List of abbreviations
• 1 Introduction
• 2 The southern China engine: Guangdong province
• 3 The geography of industry in Guangdong
• 4 Industrial development policy in Guangdong
• 5 Migration policies and the role of migrant workers in Guangdong industrial development
• 6 Local development policy in Guangdong: the ‘specialized town programme’
• 7 Innovation dynamics and innovation policies in Guangdong
• 8 Policy effectiveness
• 9 Final remarks
• Appendix 1: Guangdong administrative division at county level
• Appendix 2: the township and village enterprises
• Notes
• References
• Index