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Strategic Adjustment and Challenges: the New Millennium


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Title: Strategic Adjustment and Challenges: the New Millennium

Strategic Adjustment and Challenges the New
  • Why decided on Endogenous innovation and
    harmonious development?
  • Miserable growth and structural unemployment
  • Global value chains and innovation rents
  • Example the emergence of vegetable sector
  • Example a new policy landscape
  • Discussion and summary
  • Questions
  • What has been changed of development environment
    in WTO regime?
  • Can export-orientation bring a NIS
  • Key words
  • Global value chains Innovation and system
    efficiency rents

Endogenous innovation and harmonious development
  • Guiding Vision for the 11th National Economic and
    Social Development Program (2006-2010)
  • gteconomizing material inputs
  • gtupgrading economic structure and innovative
  • gtenvironmental protection
  • gtbalance between urban and rural development
    and between the development in east, middle and
    west regions
  • gtjob creation and social equality

Rapid growth in the past 20 years however,
many limits to growth
  • Remarkable global impact and trade disputes
  • vJob less growth
  • Widening income gaps and negative environmental
  • vSlow pace in competence and competitiveness

Low pace in structure/capability upgrading China
in the global value-chain governance high-tech
and low-tech race to the bottom export (R
Both in the high-tech and low-tech, China is
locked in the low end of value chains except a
few segments Pursuing solely for high speed
growth of GDP proved to be a misleading
Learning potential, and capability/structure
upgrading is much more crucial
Employment issue Displacement of employment, or
jobless growth
Innovation is a two-edged sword in terms of
employment effect. Process innovation is easy to
realize upon international supply, it drops jobs
away, if without the capacity in capital goods
provision and engineering services (in
expanding/deepening system effects).
Increasing in energy consumption, security in
energy supply, emission of green gas, and
environmental degradation
Source IEA World Energy Outlook 2006
Structural unemployment and urban-
Industry-led solutions
  • Daunting Structural Unemployment, associated with
    development has been assumed towards solutions
    arisen from urban and industry development
    (together with emigration to the New World),
    assuming a passive agriculture people and active
    elite industrialists
  • South Korea had overcome the problem relying on
    the world market but very questionable as
    whether this is workable for China and India
  • Even for a small economy of S Korea, it is now
    faced with the pressure of agflation and hit of
    food security.

  • In theory, Washington consensus (Liberalization
    of international trade and FDI Deregulation and
    reduction of public subsidies Privatization of
    economic activities) and export-oriented theorem
    The WB summarized Asia Tiger Economies
    experience assume a perfectly competitive global
  • However, when the global market is derived far
    away from being perfectly competitive, as Global
    value chain theories indicatesources/reasons for
    capturing or being prevented from innovation
    rents (Gereffi,Kaplinsky, Cooke, UNIDO)

More on theory and history
  • Imitation to innovationthe experience summarized
    upon Asia tiger economies
  • How much space remained under the WTO rule? TRIPS
  • The need to try out new ways for capability and
    structural upgrading
  • The debate on appropriate technology
  • The key is to gain the capacity in developing
    technologies fitting to local needs/endowments
  • So that to be endogenous and inclusive in

  • What makes difference with globally dispersed
    value chain in comparison to the situation where
    value chains mainly restricted in country
  • Can capabilities for gaining technological rents,
    relational rents, organizational rents, and rents
    from system effects grow automatically through
    low-end activities in value chains?

Technological and structural complexity --Modulari
ty creates design/innovation options
Integrated design System option
Modular design (Design rules options at
Modules) gtMultiple options gtDecentralized
decision centers
Architectural Innovation in complex technologies
Rebecca M. Henderson and Kim B. Clark The case
of DVD machine
Two side effects from technological complexity
and modular structure
  • hidden design parameters
  • ? Open architecture in favor of global dispersion
    and entry
  • ? Complex design engineering raises barriers to
    move up in value and competence ladder
  • Only those who know more than they make could
    win the competition based on complexity
  • Example mobile phone set industry
  • Easy entry in the second half of the 1990s
  • ? Entrepreneurship down-stream advantages
  • ? Modular components production lines design
    and engineering services
  • 2002-03 at the peak of successes
  • 2004 encountered with setback
  • ? Multinationals take over again

Challenges to policy capacity Stages of ST
policy, illustrated from RD investment --1956-196
6 Establishment of the RD system --1966-1976
Cultural revolution --1985-1999 Redeployment of
the RD resources --Since 1999 Turing to
enhancement of knowledge infrastructure
Policies in 1999-2006 Development of high-tech,
promotion of commercialization
  • Decision on promotion of technological
    innovation, development of high-tech, and
    acceleration of commercialization 1999
  • National ST conference on technological
    innovation 1999
  • In response to challenges and opportunities of IT

Increase in RD expenditure since 1999
But innovation capabilities remain low and
segmented checked following capabilities in a
value chain framework
Sources Strength/weakness Illustration from North-east China Cite from Jon Sigurdson
Technology Rents M-L Relatively good high education Considerable industrial base
Organizational Rents L Planning instruments operate in vacuum Many plans, but with poor preparation and unrealistic expectation
Relational Rents L Lack of internal (in the region) economic cooperation/connections
Brand-name Rants little
Trade Policy Rents L Lack of awareness/regulatory development for the potential from a greater (cross-board) regional integration and complementarities
Value added from Assembly H
Systemic Efficiency M-L Weakness in infrastructure, especially banking and other knowledge-intensive services
Challenges to Policy checked following
development goals and a NIS perspective Gu and
Challenges to ST and innovation policy checked
following a policy landscape for the coming
years Specific, dynamic, integration capacity
Policy landscape Conventional Static, General
targets, and Central/top-down policies
Will it be a smooth and linear process?

  • Change in mindset
  • Renovation of policy institution and improvement
    in policy capacity
  • Government steering, but not government

Challenges to knowledge and innovation based
development Agriculture and traditional
sectors Important roles for sustainable
development insights achieved but yet taken into
mainstream policy
  • Job creation, poverty reduction, social equality
    A pivotal contributor
  • Food security/ Food quality The provision of
    basic necessities and raw materials for the
    population and for industry
  • Modernization of the rural, and the society by
    and large, by participation of farmers in
    learning and technological and institutional
  • Important player in the protection of
    environmental common goods
  • Altogether, the sector is central to economic,
    societal, and ecological sustainable development

Agriculture is natural endowments- and
consumption- shaped and restricted
The need for local conditions-appreciated WTO
regulationse.g. Shukla
  • China and India are in the group characteristic
    of limited land resource, high population
    pressure and small-holder farming organization
  • In contrast to the group with abundant natural
    resources and lighter population intensity, like
    United States and Brazil
  • Unified WTO AOA will destroy the agricultural
    sector in countries of the first group
  • Research and negotiation is needed for a WTO AOA
    which must appreciate very different local
    conditions among WTO members

Knowledge base is in rapid change becoming
modern ST knowledge intensive, under
intensifying global competition and global
knowledge flows e.g. bio-techfor new variety
breeding instrumentfood security testing and
environmental monitoring Preoccupation with
high-end of biotech has delayed agricultural
bio-tech capability building
Government initiatives Technologies and knowledge base
1988 Vegetable basket project starts Product (new variety) come from international suppliers
mid-1990 Agricultural restructuring Product tech from outside National ST Program invests in production and product tech.
2002 Quality of vegetable basket Standardization testing tech RD for agricultural biotech
Learning and adaptation of external knowledge is
essential-Locally developed greenhouse dominated
the production in mid-north China
Governance and farm organization matter
  • Governance concerns about the power of actors
    over the value chain, gives impact on
    distribution of learning and profiting
  • Smallholder farmers are (1) a reason for the low
    efficiency of the market structure, and high cost
    for quality production (2) of little power, tend
    to be squeezed and exploited
  • Exploration of multiple forms of farm
    organization in order to overcome the
    deficiencies under the specific conditions
  • Farmer cooperatives are one of the
    solutionsthere are different obstacles to this
    development in China and India

Innovation systems from imitative to innovative
Structural upgrading Firms become strong in
core capability Strengths in Capital goods
sectors and generic technology Engineering
capabilities and knowledge-intensive services
Systems efficiencyrely on framework conditions,
links and interactions, strength in science and
engineering base Capabilities in policy and
management steering technological and
institutional learning
Strategic Adjustment and Challenges the New
  • Why decided on Endogenous innovation and
    harmonious development?
  • Miserable growth and structural unemployment
  • Global value chains and innovation rents
  • Example the emergence of vegetable sector
  • Example a new policy landscape
  • Discussion and summary
  • Questions
  • What has been changed of development environment
    in WTO regime?
  • Can export-orientation bring a NIS
  • Key words
  • Global value chains Innovation and system
    efficiency rents

Thank you