Download Management & Engineering Industry in Zhejiang Province

Management & Engineering 16 (2014) 1838-5745
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Management & Engineering
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On the Transformation and Development of Manufacturing
Industry in Zhejiang Province
Shenbiao PAN
College of Business Administration, Zhejiang University of Technology, 310023, P.R.China
KEYWORDS
ABSTRACT
Manufacturing industry,
Transformation and development,
Innovation-driven development
The paper analyzes the character of the structures and changes of the manufacturing industry
in Zhejiang province, based on the data in recent 10 years, to figure out the reasons that
caused the slow transformation and development. Evidences on economic value added rate
decreases, the structure of manufacture industry output and concentration rate changes
slowly; the comparative industry focuses on traditional industry are shown in the paper.
Explanations to these phenomena, such as main industry structure imbalance, the declining
low contribution rate in intermediate inputs etc., and suggestions to government are listed in
the end of the paper.
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1 Introduction
Since China’s reform and opening up, Zhejiang manufacturing industry has been developing rapidly, is the main force of promoting
foreign trade and national economic development. In 2011, industrial manufactured goods exports in total exports accounted for over
96% in Zhejiang. The manufacturing output growth in nearly five years on the average is more than 12%. But at the same time, under
the resources restrictions, such as labor, land, capital, as well as the influence factors such as the appreciation of the Renminbi, profits
and industrial added value rate of manufacturing industry, especially the traditional manufacturing industry gradually narrowed. Due
to the fierce competition in the domestic similar industry products and trade protectionism flourished after the financial crisis and the
western export markets demand shrinking, the original survival and development space is limited by greatly. Thus, the transformation
of Zhejiang manufacturing optimization has been imperative.
Based on it, the article studies the problem of transformation and development of manufacturing industry in Zhejiang Province in
recent years. Some evidences and in-depth analysis on economic value added rate decreases, the structure of manufacture industry
output and concentration rate changes slowly, and so on, are shown in the paper. Of course, the paper puts forward some solutions to
these problems.

Corresponding author.
E-mail address: [email protected]
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI:10.5503/J.ME.2014.16.016
78
2 Current Situation of Manufacturing Industry in Zhejiang Province
According to the development of Zhejiang manufacturing in nearly 10 years, we can put the development of Zhejiang manufacturing
characteristics summarized as the following aspects of coexistence phenomenon.
2.1 Faster manufacturing growth speed and the co-existence of the industrial added value rate decline
gradually
In 2011, the output of enterprises above designated size in manufacturing is nearly 5.22 trillion yuan, more than 8 times in 2000. The
average growth rate of the last decade is about 25%, much higher than the annual GDP growth.
But from the perspective of growth rate, the added value rate declines gradually in contrast to the fast growth of scale. As it shown in
Figure 1, except for a few years or industries, the added value rate of the manufacturing industry in Zhejiang Province shows obvious
downward trend.
0.30
manufacturing
0.25
Chemical raw
materials and
products
manufacturing
Black metal
smelting and ro
processing
0.20
0.15
0.10
0.05
Communication
equipment,
computers indu
0.00
Note: Vertical axis indicates ratio of the added value accounted for the output respectively.
2000 2001 2002 2003 2004 2005 2006
Data source: Zhejiang statistical yearbook 2001-2011
2007
2008
2009
2010
Figure 1 Top 3 manufacturing value added rate change trend in Zhejiang
According to the law of the development of the manufacturing industry in developed countries, added value rate of manufacturing
industry generally rise with the economic growth. But in the past decade, the development of the manufacturing industry in Zhejiang
had the opposite situation. Moreover, the added value rates of the ranking top 3 industries are all lower than the average rate.
The law that verified by the developed countries seems not work, or it comes the paradox, namely “Manufacturing value added rate
did not rise with the improvement of economic growth”, in Zhejiang manufacturing in nearly 10 years.
2.2 Basically reasonable structure change and relatively slow transformation coexist
Economists in development economics, such as Chenery, Syrquin, Feder, Kuznets etc., had verified positive relations between the
changes of industrial structure and economic growth. In general, the rapid development of industrial economy inevitably
accompanied by the exchange of leading industry change, as well as the large degree of change in industrial structure.
From the changes of output structure, which reflect structure changes within the manufacturing industry in Zhejiang, we can see
something as follows. Except for very few industries, technology intensive and capital intensive industry with an average rate of
change basically presents the positive change, while labor-intensive industry is characterized by a negative change. This conclusion is
almost the same with Chenery, Kuznets etc., is reasonable. For example, labor-intensive industries such as textile industry (-2.2%) etc.
change negatively, while technology intensive and capital intensive industries, such as chemical fiber industry (4.4%), black metal
smelting and rolling processing industry (10.3%) etc., change positively.
However, during the period of the paper studied, the rate of structure changing of most manufacturing industry in Zhejiang is rather
slow. Average rate of structure changing of the above industry are not more than 3.5%, for example, textile industry (-2.1%),
electrical machinery and equipment manufacturing (0.9%), general equipment manufacturing (2.6%), chemical raw materials and
chemical products manufacturing (1.9%).
2.3 Slightly on the rise of industry agglomeration degree and slower speed change coexistence
Industry concentration degree is an important aspect of manufacturing structure variation. Look from the enterprise average s cale
change, enterprise in low technology industry of Zhejiang manufacturing with assets lower than an average of 80 million yuan.
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Among them, the average growth rate of the traditional labor-intensive industries, such as textiles etc., are lower than 3% in 10 years.
This suggests that the concentration degree of traditional low technology industry declines. The average scales of enterprises in low
technology industry, such as agricultural food processing, food industries etc., are not big, but their growth rate are relatively high,
which reflects that the industry concentration degree is relatively higher. The average scales of enterprises in middle and high
technology, such as in machinery, electronics etc., are relatively large, generally more than 50 million yuan, and with a faster growth
rate of scale of 5%.
The manufacturing industrial concentration degree of Zhejiang rises from 2001 (58.7%) to 2010 (64.5%), but the rate of change of
the industrial concentration degree is not big from 2001 (0.7%) to 2010 (0.3%). In the study period, the top10 manufacturing industry
remains, but with relative positions movement. It also suggests that slow development of the whole manufacturing industry
transformation, upgrading of the manufacturing structure remains to be further.
2.4 Comparative advantage industry remains vs. traditional labor-intensive industries coexists
Using the Location Quotient index 1 (LQ index), developed by Haggett, revised by Liang Qi (2004), Wu Dandan, Xie Jianguo (2007),
we examine what are the advantageous industry of Zhejiang manufacturing.
With the calculation results we can find out that less than 14 subdivided industries have cluster characteristics and comparative
advantages among all of Zhejiang manufacturing industry (except for arts and crafts, and other manufacturing) from year 2000 to
2010. Among them, there are 3 industries which λ index is greater than 2.0, namely Chemical fiber industry (4.7), leather, fur, and
feathers (fine hair) and its products (2.2), textiles (2.4). There are 4 industries which λ index is between 1.5-2.0, namely textile and
garment, shoes, hats manufacturing (1.8), furniture manufacturing (1.9), stationery and sporting goods manufacturing (1.9), plastic
products (1.8). It can be seen that most of these industries are traditional labor-intensive industries.
3 What Causes These Problems?
The current situation shows that the development of Zhejiang manufacturing industry over the past 10 years still give priority to the
expansion of the quantity, but have limit development of quality, especially in structure and efficiency. When the rapid expansion
reaches a certain scale and degree, which depends on quantity but lack of quality, it will have bottleneck of sustained growth, and be
lack of the ability to defense the exogenous shocks of supply or demand. In fact, with the increasing constrains of resources, energy
and ecological environment, the lowering profits of manufacturing products, the previous road which depends on quantity expansion
will be narrower.
Why does Zhejiang manufacturing meet these problems? We get the following points:
3.1 The main structure imbalance
The traditional industries with a greater percentage grow fast, while the high technology industries with a small share grow slow, thus
high technology industries of manufacturing account for a relatively low proportion, leading to the main structure imbalance.
From 2000 to 2010, annual export growth rate of apparel and clothing accessories products, and textile yarn fabric and products are
200% and 30% in Zhejiang. But textile and clothing products industry’s output of the average proportion of total output of all
manufacturing is 20%. In the same period, high-tech products production, by contrast, despite rapid growth, but the proportion is
relatively small and minimal impact on the entire manufacturing industry value added rate. Therefore, the paradox appears.
3.2 The industrial added value contribution rate of intermediate inputs declines
Processing trade and general trade is the main way of Zhejiang manufacturing exports. In recent 10 years rapid growth of Zhejiang
manufacturing closely associated with the rapid increase of export trade. According to Shen (2006), China’s manufacturing value
added rate decline for two reasons. Firstly, the contribution coefficient of intermediate inputs of imports is less than the contribution
coefficient of domestic products. Secondly, the contribution coefficient of the domestic intermediate input is falling. Therefore, the
decrease of contribution coefficient of intermediate input in production is the essential reason for the decline of value added rate in
manufacturing industry.
3.3 The low level of technology innovation
Restricted by the traditional technology innovation mode and mechanism, enterprises technical innovation investments, lack of
innovation consciousness and a series of other factors, the manufacturing industry in Zhejiang Province have not form virtuous
endogenous technological innovation incentive mechanism, with great inertia, be unable to push the endogenous innovation driven
development.
Note: The calculation formula, λij= (xij/xj)/ (xj/x), where molecules denotes output of the industry I in region j accounted for the proportion of total
output of the entire industry in the region. The denominator is the industry I accounts for the proportion of the total industrial output of all industries.
If the λ values greater than 1, that is, that the industry in Zhejiang province has a comparative advantage; on the other hand, suggests that the industry
has comparative advantage.
1
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Patent for invention is an important measure of technology innovation level and performance. In recent years, the rank of invention
patent grant in various provinces and the number of invention patents unit enterprises, Zhejiang are behind the crosswise comparison
of Guangdong, Jiangsu province and Shanghai.
The lack of innovation power and the innovation activity is relatively not active, not only make enterprises lack the core technology,
but also make the transformation of structure of Zhejiang manufacturing output slow. Greater comparative advantage industry is still
confined to the traditional labor-intensive industries.
3.4 It is difficult to break through the path dependence
According to the view of the new institutional economist north, once choosing a certain economic development path, the inertial
force can drive its dependence on this path. This will set the direction of the path in the later development of self-reinforcing, so it
decides the choice of present and future in a way. At the manufacturing level, path dependence shows that due to the given
restrictions of supply of human capital, technology and other resources of factor endowments, enterprises become adept to traditional
industry and make economic fixed in the low efficiency industry level.
Labor-intensive industries such as textiles and clothing are the main industries in Zhejiang Province. Efficiency indicators of these
two industries are higher than the national industry on average, some even higher than the capital-intensive industries. The static high
benefit in short-term benefits to Zhejiang’s economy, at the same time, also make high quality production factors of manufacturing
locked in the low-end manufacturing structure level. Although the manufacturing industry in Zhejiang Province after the traditional
light industry leading development, is gradually shift towards heavy industrialization and high added value, this transformation is
very slow. So for now, traditional manufacturing industry with the static comparative advantage is still has the backbone role of
Zhejiang economy.
4 The Feasible Solutions to Solve These Problems
In market economy, enterprises are the main business entities. As long as the government creates a favorable external environment,
supplemented by scientific, rational and effective guidance, manufacturing enterprises must be able to grow under the fundamental force
driven by the profits healthy and rapidly, and transform successfully. Therefore, hereinafter, we mainly give a few deal ideas on how
to promote the development of manufacturing industries.
(1) Improve the technology innovation mechanism and the ability of core technology, break the path dependence
Rational use of the districts’ competition in the field of economic growth, to encourage all regions to the establish and improve the
technological innovation mechanism whose main body is enterprise, strengthen and guide enterprises to transform from imitation
production to independent technological innovation development; relying on the advantages of around industrial clusters, massive
economic characteristics, bigger and stronger industry leading enterprises, in order to improve the company's core technology of
Zhejiang manufacturing capacity, breaking development path dependence.
(2) To grasp the development trend of global manufacturing, strengthen the industry policy induced, its manufacturing structure
transformation
The export scale of traditional manufacturing industry is rapid expansion, while the proportion of high technology industry accounts
for manufacturing industry total scale is relatively low. Therefore, we should grasp the development trend of world manufacturing
industry, strengthen the policy induced of leading industry, pillar industry and potential industry, guide manufacturing enterprises to
invest rationally, to achieve the optimal development and efficiency improvement of Zhejiang manufacturing.
(3) Use of organization innovation, cultivate private multinational company, promote the transformation of manufacturing enterprises
Private economy and large number of SMEs in regional manufacturing industry clusters are the main features of Zhejiang. We should
rely on the advantages of industry clusters and massive economies, nurture and support leading enterprises to be bigger and stronger,
and should encourage a large number of small enterprises which is similar and relying on price competition to survive to carry out
spontaneous organizational innovation, through horizontal, vertical mergers and acquisitions and asset restructuring to form
large-scale private enterprise group, through enhancing technology innovation, industry chain development, marketing network
development capabilities, forming a group of private multinational enterprises (MNEs) with independent intellectual property rights
and famous brands, and can configure global resources with a global perspective.
(4) Perfect all kinds of market system, ensure the good external environment for the development of the manufacturing industry
transformation
According to the foregoing analysis of the reasons, the homogenization and excessive competition of small businesses in
manufacturing, the low level of industrial organization, technological innovation in the poor external environment, all kinds of trade
barriers the exports faced, etc. are external obstacles to manufacturing development. Therefore, it is necessary to create a fair, orderly
and efficient market environment, and promote the development of manufacturing competitiveness; improve the promotion of
endogenous technological innovation enterprise market mechanisms, optimization of enterprise technology innovation environment,
and promote core technology capabilities; establish and improve early warning mechanisms platform and system for exports of
manufactured goods.
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5 Summaries
The paper analyzes the character of the structures and changes of the manufacturing industry in Zhejiang, based on the data in recent
years, to figure out the reasons that caused the slow transformation and development. Explanations to the four contradictory
coexistences in Zhejiang, such as main industry structure imbalance, the declining low contribution rate in intermediate inputs and so
on.
From the improvement of the technology innovation mechanism, organization innovation, policy guidance and a kind of market
system and external environment imperfection, we put forward some corresponding solutions.
Foundation:
This article is funded by Humanities and Social Sciences Project of Zhejiang Province Department of Education, project number
Y201224699, and project of Zhejiang Department of Science, project number 2011C25052.
References
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Jiangsu as an Example, the World Economic Studies, 2007 (6): 54-61 (in Chinese)
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