Accelerating the Transformation and Upgrading of Industries

From: English Edition of Qiushi Journal Updated: 2012-07-04 14:01
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At the Central Economic Work Conference, clear requirements were set forth for steady efforts to develop the real economy, which constitutes the foundation for China’s overall development. Industry is both the foundation of the national economy and the primary component of the real economy. Therefore, during the Twelfth Five-Year Plan, we must take the Scientific Outlook on Development as our guide, accelerate the transformation and upgrading of industries, and seek to make substantive progress in our search for a new approach to industrialization.

August 26, 2011, a technician from the Suzhou Genepharma Co., Ltd. inspects a testing instrument in Suzhou’s BioBay Industrial Park. The BioBay Industrial Park is home to more than 200 hi-tech research and development operations. Several industry clusters have emerged in the park, including pharmaceutical R&D, biological reagents, medical instruments, R&D outsourcing, and nanotechnology. The biological and nanotechnology industries have emerged as the leading emerging industries in the Suzhou Industrial Park. / Xinhua (Photo by Shen Peng)

I. The strategic significance of transforming the pattern of industrial development

China’s industries witnessed considerable development during the Eleventh Five-Year Plan (2006-2010), a period in which the overall quality of our industries was improved and the international status of Chinese industry was enhanced significantly. In terms of overall output, China’s industrial added value grew at an average rate of 11.3% per year during the Eleventh Five-Year Plan, reaching 16 trillion yuan in 2010, which accounted for 40% of the GDP. As of the present, of the 500-plus industrial products that China produces, the output of over 220 has climbed towards the top of the world rankings. The added value of China’s manufacturing industry accounted for 19.8% of global industry value-added, higher than any other country. This shows that China is indeed a global manufacturing base and the world’s factory. In terms of structure, good progress was made in the elimination of backward production capacity, key industries became significantly more concentrated, and the contribution of central and western regions to China’s total industrial added value constantly increased. In addition, energy consumption per unit of added value for large-scale industrial enterprises dropped by a total of 26%, water consumption dropped by 36.7%, and chemical oxygen demand (COD) and the volume of sulfur dioxide emissions dropped by 17% and 15% respectively. At the same time, China’s capacity to engage in independent industrial innovation saw remarkable increases. New breakthroughs were achieved in major equipment and key technologies regarding manned spaceflight, lunar exploration, and high performance computers. These advances have created favorable conditions for China to seize the high ground in global industry and develop new advantages in international competition. Moreover, in response to the international financial crisis, we took resolute action to implement the stimulus package of the central government, achieving a sharp turnaround in industrial growth within a relatively short period of time. By doing so, we made an important contribution to maintaining rapid but stable economic growth.

The Twelfth Five-Year Plan is a key stage for China’s industrial development. On one hand, the global economy is undergoing great changes and shifts, which will bring about profound changes to the environment and situation in which China’s industries develop. The growth pattern of the world economy is also undergoing major changes. The impact of the international financial crisis has yet to be dispelled, sovereign debt crises are continuing to spread, the pace of global economic growth is slowing down, and trade protectionism has emerged. In addition, China’s industrial development is also under the pressure posed by the trend of reindustrialization in developed countries and homogenous competition among emerging economies. All of these things have presented new requirements for China’s industrial development. Profound changes in the global industrial structure are also being fueled by technological innovation. In recent years, as global technological innovation and the technical revolution have stepped up, new breakthroughs are set to occur in fields such as information networks, biotechnology and renewable energy. Major countries are moving quickly to develop emerging industries that are green, low-carbon and high-tech, and under such circumstances, international competition in emerging industries is set to become increasingly acute. Changes in the mode of industrial production have also accelerated. The wide application of IT and network technologies has driven the rapid development of producer services industries, with flexible manufacturing and virtual manufacturing becoming the next major trend in advanced manufacturing worldwide. Amidst this backdrop, the globalization of production and organization has become the key to controlling the global value chain.

On the other hand, deep-rooted problems that have built up over time in China’s industries are now becoming increasingly prominent, and are seriously constraining the transformation of our pattern of industrial development and the transformation and upgrading of our industries. The main problems are as follows. Our capacity for independent innovation is insufficient. Our large-scale industrial enterprises spend only 0.69% of their income from major business on R&D, and we are still heavily reliant on imports for key and core technologies and equipment. The structure of our industries is irrational. The degree of concentration in certain industries is low, surplus production capacity is still a major problem, the distribution of industries is unsuited to the carrying capacity of regional environments and resources, and small and medium-sized enterprises lack the impetus for development. We are overly reliant on investment and exports for industrial growth and overly dependent on the consumption of resources and energy and the deployment of low cost factors of production. At the same time, energy consumption per unit GDP remains high, and we are under enormous pressure to protect ecological environments. Our enterprises lack core competitiveness; productivity and efficiency remain low; and China still lacks globally influential brands and large enterprises with a strong capacity for overseas operations. Our foundations in industrial administration are still weak. Management measures pertaining to energy conservation, eliminating backward production capacity, and promoting the merging and reorganizing of enterprises are in urgent need of improvement. We need to give more play to the basic role of the market in the allocation of resources.

Although we are facing a number of challenges in the transformation of our pattern of economic development, the long-term outlook for China’s economic growth remains favorable, and there is enormous potential for China’s industrial development. During the Twelfth Five-Year Plan, the rate of urbanization in China is set to exceed 54%. Policy measures aimed at expanding domestic demand, stimulating consumption, and improving public well-being will boost the spending power of residents and help to optimize and upgrade the structure of consumption. This will create great potential for the transformation of our pattern of industrial development. In addition, the application of IT, the development of the market, and the process of internationalization are all set to accelerate as China’s open economic system continues to be improved during the Twelfth Five-Year Plan, and will promote the thorough application of IT in the process of industrialization. This trend will provide a strong intrinsic driving force for the transformation of the pattern of industrial development.

II. General approach to the transformation and upgrading of industries during the Twelfth Five-Year Plan

The accelerated transformation and upgrading of industries is not only the fundamental requirement of the new approach to industrialization with Chinese characteristics, but also the path that China must take in order to transform itself from a major manufacturing country to a manufacturing power. During the Twelfth Five-Year Plan, our efforts should revolve around the theme of scientific development and the goal of accelerating the transformation of the pattern of economic development. On this basis, we should promote the transformation of our industrial development from a model that emphasizes scale and speed to a model that places emphasis on quality and efficiency; from a model that relies on the consumption of traditional productive factors to a model that relies more on advances in science and technology, the improvement of labor, and innovation in management; from a model driven by investment and exports to a model underpinned by a rational balance of consumer spending, investment, and exports; and from an extensive mode to an intensive mode. On this basis, we should strive to make our industrial development innovation-driven, intensive, efficient, environmentally-friendly, beneficial to the people, and self-sustaining. Doing so will allow us to constantly increase the core competitiveness and sustainability of our industries, thereby laying down stronger foundations for the establishment of China as an industrial power. Therefore, we should focus on the following five areas and formulate rational goals for the transformation and upgrading of industries during the Twelfth Five-Year Plan.

First, we should focus on enhancing quality and efficiency. Efforts to promote the transformation and upgrading of industries must be balanced with efforts to maintain the pace of industrial development. To do this, we will need to comprehensively employ indices such as the growth rate of industrial added value, the proportion of industrial added value in the total industrial output, overall labor productivity, and the development of quality and brand. The effort to boost the quality and efficiency of industrial development requires that we maintain the rapid growth of industry whilst striving to increase industry value-added.

Second, we should focus on independent innovation. In view of the fact that our capacity for independent innovation in industry is insufficient, we should urge industrial enterprises, and especially leading enterprises, to devote a larger share of their primary operating revenue to R&D. In addition, we will encourage more large and medium-sized enterprises to develop their own scientific research institutions.

Third, we should focus on promoting the coordinated development of industry. By optimizing the structure, layout, and organization of industries, we should raise the contribution that strategic emerging industries make to the total industrial added value. Moreover, we should enhance the degree of concentration in industries with economies of scale, such as the steel, automobile and shipbuilding industries, increase the proportion of added value contributed by industries in central and western regions, and inject more vigor into the development of small and medium-sized enterprises.

Fourth, we should focus on integrated development. On one hand, in an effort to promote the thorough application of IT during the course of industrialization, we should further enhance the level of IT application in major industries as well as large and medium-sized enterprises. On the other hand, in an effort to promote military-civilian integration, we should significantly enhance the sharing of resources between military industries and civilian industries, and constantly expand the scale and the potential for military-civilian integration in industry.

Fifth, we should focus on sustainable development. In accordance with the requirements of conserving resources, protecting the environment, and ensuring safe production, we should formulate scientific and rational indices for energy consumption, water consumption, carbon dioxide emission, the emission of major pollutants, and the comprehensive utilization of industrial solid waste. In addition, we should step up our efforts to promote the implementation and evaluation of these targets.

III. Major tasks for promoting the transformation and upgrading of industries during the Twelfth Five-Year Plan

The Twelfth Five-Year Plan represents a key stage in China’s drive to promote the transformation and upgrading of its industries. Transformation refers to our efforts to transform the mode through which we achieve industrial development. This transformation will allow us to shift from a traditional means of industrialization to a new approach to industrialization. Upgrading refers to the overall optimization of our technological structure, organizational structure, industrial layout, and the structure of our industrial sectors, which will help us to promote the overall optimization of our industry structure. During the Twelfth Five-Year Plan, we must scientifically and rationally plan out the major tasks for the transformation and upgrading of industries in line with the essential requirements for developing a modern industrial system.

We will work to increase our capacity for independent innovation. Independent innovation represents a core aspect of our efforts to accelerate the transformation and upgrading of industries. We should make significant efforts to promote original innovation, integrated innovation, and the introduction, assimilation and enhancement of foreign technologies, thus encouraging enterprises to become the mainstay of technological innovation. In addition to making breakthroughs in generic technologies, core technologies, and key technologies, we should also strengthen our contingent of innovative personnel and skilled personnel. This will provide an important foundation for the transformation and upgrading of our industries.

We will intensify the technological upgrading of enterprises. Technological upgrading is an important way of promoting intensive development in enterprises. We should give full play to technological upgrading which features low cost, short cycle, high efficiency, low pollution, and low consumption. We should deploy advanced technologies, practical technologies, and new technologies to renovate and upgrade traditional industries, promote the development of new technologies, new products, and new industries, and optimize the investment structure in industry by using increased investment to stimulate the adjustment of existing industries, so as to enhance the overall quality of industry.

We should increase the application of IT in industries. The comprehensive application of IT during the process of industrialization is an important aspect of the new approach to industrialization with Chinese characteristics. We should develop new mechanisms for promoting the application of IT, promote the deeper application of IT in industry, accelerate the development of products and technologies that support the application of IT, and promote the overall application of IT in enterprises. These efforts will serve to stimulate the transformation of the pattern of industrial development.

We should promote the environmentally-friendly and low-carbon development of industries. The development of resource-conserving and environmentally-friendly industries is an important aspect of our sustainable development strategy. We should give more consideration to ecological concerns in industrial development and design, make production processes cleaner, raise the efficiency of resource utilization, and keep pollution to a minimum. On this basis, we should make major efforts to save energy and reduce consumption, cut emissions and control pollution, implement clean production in industries, and develop circular economies and remanufacturing industries. In addition, we should actively promote low-carbon technologies and accelerate the elimination of backward production capacity. By doing so, we will develop a group of resource-conserving, environmentally-friendly and intrinsically safe industries.

We need to follow a strategy of improving quality and building brands. The improvement of brand and quality is an essential requirement for the transformation and upgrading of industries. We should devote efforts to producing new varieties, improving quality, developing new brands, and improving services, which will allow us to create and guide new market demands. In addition, we should strengthen the cultivation of domestic brands, provide a stronger guarantee for the quality and safety of industrial products, and constantly increase the value-added and competitiveness of industrial products.

We should promote the balanced development of large enterprises and small and medium-sized enterprises. With a view to forming an industrial structure with high efficiency in resource allocation, we should promote the merging and reorganizing of enterprises in order to develop a group of large enterprises in industries with economies of scale which are competitive in the international market. On the other hand, we should also accelerate the development of a service system for small and medium-sized enterprises, and encourage them to increase their capacity to turn out products that are new, distinctive, specialized and sophisticated. In addition, we will strengthen enterprise management and bolster our ranks of entrepreneurs, so as to raise standards of quality in the operation and management of enterprises.

We should optimize the geographical distribution of industries. In accordance with plans for major priority zones nationwide, we should accelerate adjustments and improvements to the layout of industrial productive forces, promote the concentrated development of industries, and guide the coordinated development of regional industries. Through these efforts, we should develop a group of bases to act as examples for the new approach to industrialization. These bases should have distinctive features, a strong capacity for innovation, a leading brand image, favorable supporting facilities, and should also be environmentally-friendly and energy efficient. Moreover, we should work to form a number of industrial bases that boast a relatively high degree of competitiveness in the international market.

We should raise our level of openness to the outside world. In line with developments in China’s opening up to the outside world, we should promote the more effective utilization of foreign capital in industry, place emphasis on the import of advanced technology and equipment, and promote the transformation and upgrading of processing trade. We should step up the implementation of the strategy of “going global,” encouraging enterprises to develop overseas production capacity and carrying out cooperation in the development of overseas resources. This will allow us to enhance our capacity for resource allocation and value chain integration on a global basis.

IV. Creating a favorable environment for the transformation and upgrading of industries

For our efforts in the transformation and upgrading of industries to be successful, we must improve our policies, laws, regulations, and mechanisms, and develop a sound long-term mechanism for the transformation and upgrading of industries. We must also strive to create an institutional environment that is conducive to the transformation and upgrading of industries.

We should improve relevant laws and regulations. We should, in line with the key tasks for the transformation and upgrading of industries, formulate and improve relevant laws and regulations in regard to key areas such as industrial technological innovation, the protection of intellectual property rights, technological upgrading, energy conservation and emissions reduction, the merging and reorganizing of enterprises, the elimination of backward production capacity, quality and safety, small and medium-sized enterprises, and military-civilian integration. Moreover, we need to strengthen legal guarantees to support the development of strategic and fundamental industries such as civil aircraft, software, integrated circuits, alternative-fuel vehicles, ship building, high-end equipment, and new materials.

We should strengthen the guiding role of policy and improve relevant finance and taxation policies. We should formulate and revise policies on major industries, work quickly to formulate policies on emerging industries, and strengthen coordination between industrial policies, fiscal policies, and policies on taxation, finance and trade. We should study and formulate differential industrial policies in accordance with the respective characteristics of different regions, and formulate and issue a list of key industries slated for development and a list of industries that should be relocated. It is particularly important that we make major efforts to implement relevant policies on public finance and taxation at the present. We should strengthen and improve financial services in regard to consumer credit, guarantees for the financing of small-scale and micro enterprises, and the merging and reorganizing of enterprises, so as to promote the development of a service system for small and medium-sized enterprises.

We need to deepen institutional and structural reforms. We will accelerate our efforts to change government functions, make constant innovations to our methods and means of industrial management, and better exert the basic role that the market plays in the allocation of resources. We will accelerate the reform of monopoly industries in order to create a market environment characterized by fair competition and equal access. We should improve mechanisms for the access, exit, and rational flow of state capital, and promote the concentration of state capital in major industries that are vital to national security and that comprise the lifeline of the national economy. We should improve mechanisms for investment, and implement policies that allow private sector investment in major areas. In addition, we should thoroughly implement policies granting enterprises greater independence in overseas investment, and encourage competitive domestic enterprises to set up business overseas.

(Originally appeared in Qiushi Journal, Chinese edition, No.3, 2012)

Author: Minister of Industry and Information Technology of the People’s Republic of China

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