Global Manufacturing and Secondary Innovation in China. Xiaobo Wu

      Notes: 1. Value added of the manufacturing industry is converted by the exchange rate in July 2017;

      2. Due to data loss, as for ratio of value added in the manufacturing industry, the total output value of China’s manufacturing industry is substituted by the main business income of manufacturing industry.

      Data Source: World Bank’s website, UNIDO’s website, website of China’s National Bureau of Statistics, U.S. Bureau of Economic Analysis, Federal Statistical Office of Germany.

      Overall speaking, there is still a huge gap between China’s manufacturing production efficiency and the world’s advanced level. Both labor productivity and value-added ratio of China’s manufacturing industry lag behind the developed countries like the US, Germany, Japan and the Republic of Korea. But the proportion of labor remuneration is relatively lower than that in the US and Germany. On the other hand, compared with India, another developing country, China’s manufacturing labor productivity is relatively high, but the value added is lower. In summary, the level of capital intensity in China’s manufacturing industry is relatively high, yet the level of product deep processing and technical intensity is far lower than the international advanced level.

      A longitudinal comparison on production efficiency of China’s manufacturing industry. Internationally speaking, there is still a big gap between China’s manufacturing production efficiency and the world’s advanced level. From the historical perspective, we found that China’s manufacturing production efficiency showed a downward trend in the past decade, as shown in Table 1-6. Although the value-added rate in China’s manufacturing industry continued to drop for three consecutive years, the overall trend was still a rising one. From 2011, it started to plummet and kept dropping in the following four years. As for the labor productivity, the result was the same. Over the five years from 2010 to 2014, despite a “transient” rise in 2011, it dropped for three consecutive years thereafter.

       Table 1-6 A longitudinal comparison on production efficiency of China’s manufacturing industr y

      Notes: 1. Ratio of industrial value added = industrial value added/gross industrial output value.

      2. Since 2012, due to the adjustment of statistical indicators, gross industrial output value has been substituted by the overall main business income of the industry.

      Data Source: China Statistical Yearbook and Statistics Yearbook on Science and Technology Activities of Industrial Companies issued by China’s National Bureau of Statistics.

      By internationally and longitudinally comparing on the labor productivity, value-added ratio and labor remuneration’s percentage of value added of China’s manufacturing industry, it can be seen that China still lags far behind the developed countries in labor productivity, but stays relatively ahead of the emerging developing countries. As for the ratio of industrial value added of the manufacturing industry, there is still a big gap between China and developed or some developing countries. This is caused by the limited technology capabilities of China’s industries, which leads to the over-proportioned industrial material consumption and relatively low value-added ratio. Compared with the advanced industrial countries, China’s manufacturing industry has low labor productivity. However, China’s labor costs are relatively low. Therefore, the proportion of total labor remuneration in the entire value added becomes an important factor in determining the overall level of production efficiency. International comparison shows that the proportion of labor remuneration to value added of China’s manufacturing industry is relatively low, much lower than that in the developed countries such as the US and Germany. This suggests that the overall input-output ratio of labor in China’s manufacturing industry is relatively high and has comparative advantage in global competition. China’s manufacturing labor productivity and proportion of labor remuneration in value added show opposite results. On the one hand, it’s because Chinese manufacturing companies are gradually transforming from labor-intensive to capital-intensive, yielding the preliminary results of transformation. On the other hand, Chinese manufacturing companies are generally low in production and technology capabilities and weak in independent innovation.

      From the perspective of historical development trend of production efficiency in China’s manufacturing industry, there has been a big drop of China’s ratio of industry value added in recent years. The labor productivity also dropped year by year. Reasons for such drops are: Firstly, the slowing down of China’s overall economic development in recent years leads to the weak growth in demand; secondly, over-investment and overcapacity leads to the continuously declining factor productivity. The long-term high investment rate causes serious overcapacity and idle resources. As a result, the ROI has been continuously dropping and the capital has been fleeing the real economy. In the long run, only through making technological progress and improving factor efficiency can we stabilize the growth of the industrial economy and enhance the international competitiveness of the manufacturing industry.

1.3.2 Technological innovation capabilities

      Study of technological innovation capabilities (TICs) at the industrial level is a systematic work involving many aspects of technological innovation process. There have been a number of studies on the evaluation index of industrial technological innovation in China and other countries. Different evaluation systems have been formed, based on the indicators including technology R&D investment budget, research personnel, research outcomes, technology transfers, new product sales, new product exports and other indicators. This book evaluates the innovation competence of the manufacturing sector using the indicators such as science and technology investment as a percentage of GDP, numbers of patent application filings and the proportion of new & high-tech products in exports.

       Table 1-7 A Comparison of science and technology investments between China and other countries