Varieties of Global Capital and the Paradox of Local Upgrading in China

Abstract

Over the past two decades, China has launched a nationwide endeavor to push domestic firms up the value chain. This article explores why, in some localities, Chinese firms had significant success in upgrading, while in other localities, firms were paradoxically trapped in a race-to-the-bottom competition. Drawing on national economic census data, a firm-level survey, and in-depth interviews, the article conducts a controlled comparison of China’s largest electronics manufacturing bases in the Yangtze and the Pearl River Deltas. It argues that the local government’s choice of global business allies shaped the upgrading behavior of domestic firms. When local governments allied with large multinational corporations (MNCs) at the top of the value chain, they reinforced the hierarchical structure of production, shrank the upgrading space for domestic firms, and squeezed them to the bottom of the value chain. In contrast, alliances with small foreign invested firms at the bottom helped break the hierarchical segregation and held more potential for local learning and innovation. The article sheds new light on the question of when industrial policies succeed or fail to facilitate domestic upgrading in a globalized era.

Hunger Reduction in China: An Analysis of Contextual Factors

“…The total value of China's exports accounts for 35% of the GDP, which is far greater than those of other large economies in the world, such as the US (13%) and Japan (18%). Many economists and sociologists have shown the positive contribution of openness to economic growth (Chen, ; Jacob, ; Sheng, , ; Shin, ). Curtis () concluded that institutional reform, such as land reform, was the primary factor in the remarkable growth in agricultural output between 1978 and 1984, accounting for 40–60% of that growth.…”

From foreign technology dependence towards greater innovation autonomy: China’s integration into the information and communications technology (ICT) global value chain (GVC)

“…These varying frameworks have given rise to extensive and fruitful debates about the most effective ways to explain these dramatic changes in the economic geography of economic activity, with some scholars emphasising the role of firms within value chains of production, and particularly how value is generated and captured in different regions (Gereffi, 2014). Others have focused more on the role played by particular locations in these developments as regions have competed for investment and sought to integrate their economies within the value chains of TNCs, seeking at the same time to promote upgrading of their own technology sectors while avoiding the negative effects of becoming entrapped in low value added functions (Chen, 2014;Liu, 2016). Others have placed an emphasis on the growing role of innovation as a major component of competitiveness and have tracked the increasingly dispersed geography of innovation networks internationally as TNCs extended their production to new regions (Ernst, 2009).…”

“…This lack of integration, for a variety of reasons including the low absorptive capacity of Chinese firms, has been a major subject of interest in many studies. The contrasting fortunes of Suzhou and Shenzhen, with Shenzhen being more successful in developing linkages between foreign and local companies than Suzhou, where local government policy favoured foreign companies at the top of the value chain, which created barriers to involvement by local companies because of their weak technological capabilities (Chen, 2014). In Shenzhen there was a strong bias in favour of foreign invested enterprises (FIEs) with the result that the complete supply chain was dominated by foreign companies and domestic suppliers were left at the bottom of the chain involved in low cost component supplies.…”

“…Integration of regions within the ICT GVC can result in a complex landscape of both foreign and local companies playing a variety of roles either within or outside supply chains which tend to be strongly influenced or controlled by either lead or key supplier companies (Yang, 2007;Chen, 2014). The factors which influence the composition and profile of these supplier networks may depend on cultural affiliation, technology ability, quality of production and issues of trust such as in the area of intellectual property (Wei et al, 2012).…”

Global and local governance, industrial and geographical dynamics: A tale of two clusters

“…On the contrary, it plays a very hands-on, critical role in industrial development, but just not in the apparel industry, since the latter has not been treated as a key or ''pillar'' industry. In some other regions, even though local governments have been especially active in ''pushing'' forward certain industries by offering generous financial and technological supports, financial aid and supports have been disproportionately assigned to foreigninvested enterprises (Chen, 2014;Wei, 2010). These regions fall into Ningbo's model, as little source of upgrading has been created by local governance for domestic firms to climb up the value chain.…”