China moving up the value chain: What can be learned from the Asian NICs?

Abstract

The excess supply of labor in China will be exhausted in the near future as the growth of the population slows down and the share of working-age people shrinks. Once the country crosses the “Lewis Turning Point”, the mobilization of resources can no longer drive growth. In order to compensate for the increasing labor cost and sustain its growth, Chinese firms will need to increase profitability by moving up the value chain. Although the overall strategic objective of upgrading is widely shared and the logic of the globally fragmented production system is now well understood, a strategic impetus is missing to make the transition happening in China. The article contributes some ideas to this debate. Since the challenges that China faces today are similar to the ones faced by South Korea and Malaysia 30 years ago, their experience can shed light to help China find a solution to upgrade its industry. As an impetus, China needs to shift its emphasis from “opening the market in exchange for technology” to “exchanging advanced technologies for other advanced technologies”. It is crucial to give priority to establishing a leading position in several technology-advance frontiers. This will require the Chinese government to take a proactive role in market orientation, resource allocation and the promotion of close collaboration between the public and private sector.