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Countermeasures and Suggestions for Resource-based Industrial Structure Adjustment of China in Financial Crisis LI Zhuojie Instructor in Zhengzhou University of Light Industry, Zhengzhou, China, 450002 [email protected] Abstract: The resource-based industries have become the fastest growing sectors in the economy of China. The regionalization trend is increasingly clear, the structures upgrade slowly, and the industrial structure simplification is obvious. There are overcapacity problems as a whole, and the raw materials and markets’ exteriorization is accelerating. Financial crisis leads to resource-based industries structure contradiction more prominent, the existing policy of expanding domestic demand will not help the resource-based adjustment of industrial structure. Countermeasures and suggestions for Resource-based Industrial Structure Adjustment of China Keywords: Financial Crisis, Resource-based Industries, Regionalization, Expanding Domestic Demand 1 Introduction Since the reform and opening-up policy, the change of regional industrial structure of China, in particular, the rapid development of export processing industry, which creates enormous market demands for resource-based industries such as the coal, minerals products etc, giving a strong impetus to the development of the resource-based industries, besides, there has been forming the economy system relying on the resource-based industries in some areas. However, with the continuous expansion of the resource development scale, the resource-based industries structure contradiction and overcapacity etc. problems become increasingly serious, while the emergence and spread of financial crises make the problems become more prominent. With the rapid development of resource-based industries, as well as the increasingly obvious trend of regionalization, the development of resource-based industries of China gradually brings the features such as industrial structure upgrades slowly, the single regional industrial structures and similar area industrial structures, the serious excess of industrial productivity and too high industrial extroversion etc. This pattern results in over-exploitation of resources in the resource-based industries areas, making some local areas, particularly some resource-based cities’ most mineral resources exhausted, regional environmental degradation; besides, it leads to that the regional economic development rely on resource-based industries heavily; it also inhibits the innovation vitality of the region, worsens the innovation environment, stifles the innovation culture, leading to the recession for regional innovation capability and innovative vitality. Under such influence, the economy of resource-based industries area inevitably has a slow development, or even recession, thus affecting the sustainable development of regional economic society. The structural contradictions of resource-based industries, the serious excess productivity and over-reliance on overseas markets, making there are different “resource curse” trends on the economic development in the resource-based industries areas of China. Which meaning that the rapid growth of resource-based industries doesn’t promote the sustainable development of regional economy, even the continued deterioration of the environment in some areas, the economic growth becomes slow and the terms of trade continues to be deteriorated and so on. Therefore, the adjustment of resource-based industries of China is needed urgently. 2 Financial Crisis Impacts on the Adjustment of Resource-based Industrial Structure 522 As the rapid spread of the financial crisis in the world and the more deepening shocks to the economy, the economic growth of China has become slow since the second half of 2008. In this context, as the domestic and international market continues to shrink, the structural contradictions of resource-based industries and industries excess etc. problems become more prominent. 2.1 Financial Crisis Causing the Industrial Structure Contradictions More Prominent Due to the financial crisis, since the second half of 2008, the industrial added value growth of resource-based industries slows down obviously, especially entering September, the growing rate drops to its lowest level in recent years. After entering 2009, the growth rate of resource-based industries began to recover, but the growth rate of natural resources mining is significantly higher than the growth rate of processing industry that based on natural resources. For the resource-based industries of China which is in the low-end value chain, the industrial structure needs to upgrade more urgently. 2.2 Shrinking External Demand for Resource-based Products Causing Overcapacity Problem More Prominent Affected by the declination of global industrial production, the price trend for resource-based products on the international market begins reversal. The demands for resource-based products keeping dropping, and the state’s export restrictions to the “three-high and one-capital” products, the export of resource-based industries has been affected deeply. 2.3 Expanding Domestic Demand Policy Does Nothing to Resource-based Industrial Structure Adjustment In order to deal with the financial crisis’s impact on the economy of China, the country has issued a series of stimulus policies for “keeping growth, adjusting the structure and expanding domestic demand”, and bring out the four trillion investment plan and “top 10” industries adjustment revitalization plan, including the adjustment revitalization planning about non-ferrous industry and steel which directly or indirectly related to the resource-based industries. Overall, these stimulating domestic policies are helpful to recover the market, help the enterprises to solve the difficulties, and benefit them from the taxation etc. National investment plan and non-ferrous storage etc. actions have direct effects on reducing the high inventory of domestic resource-based industries, alleviating overcapacity contradictions, inhibiting production benefits’ decrease and help the enterprises remit the cash flow pressure, thus the resources-based industries will benefit. But from the policy dynamics and policy guidance, the national boosting domestic demand policies pay too more attention to “keeping growth” and “expanding domestic demand”, and less attention to “adjusting the structure”, especially when there are conflicts between the structure adjustment and economic growth, the structure adjustment will be replaced by economic growth. Based on this point, the policy of boosting domestic demand and industrial adjustment revitalizing planning obviously help the resource-based industries production capacity’s recovery and growth, but not good for the solving of the structural contradictions and overcapacity etc. problems. 3. Countermeasures and Suggestions for Resource-based Industrial Structure Adjustment For the structural contradictions of resource-based industries and overcapacity, the adjustment countermeasures under the financial crisis should be on the basis of solving industrial overcapacity, gradually promote the resources industry structures to upgrade, change the contradictions of the single regional industrial structures and similar area industrial structures, in order to achieve the regional economic development, from excessive dependence on resources shifted to technical progress and system optimization dependence. Thus, in the short term, we need to achieve effective integration of resources through the merger and reorganization among the enterprises, we should also gradually promote resource-based economy industrial upgrading by technical transformation and innovation, replace the low technological products by high value-added products, finally solve the serious 523 overcapacity in the industrial system; in the long term, on one hand, we should gradually establish stable supply bases of raw materials from overseas; on the other hand, we should gradually push the industrial transformation and industrial integration of resource-based industries, surpassing the self-loop system of resource-based industries and the new economic growth points of fostering regions. 3.1 Short-term Adjustment Measures 3.1.1 To guide the merger and reorganization among the enterprises, improve industrial concentration, eliminate backward production capacity From the resource-based industries’ concentration, there are many resource-based enterprises with a small scale and wide distribution in China, which directly leads that the regional industrial structures are similar and the industrial capacity has serious surplus. Therefore, we should actively make use of the low-cost enterprise merger and reorganization under the financial crisis, guide the labor force, capital, personnel and other key factors to concentrate on the resource-based enterprises with higher labor productivity, capital profitability and factor utilization, speed up the trend of industrial resources concentrating to high-performance enterprises, thereby enhance the concentration of resource-based industries, and gradually eliminate backward production capacity. According to the regional characteristics of resource-based industries, the resource-based enterprises could improve the industrial concentration by horizontal mergers and vertical integration approaches. The horizontal merger refers to the mergers between the manufacturers who produce and operate the same kind products in the resource-based industries; while vertical integration refers to the mergers between the manufacturers and the upstream or downstream manufactures. This not only mainly give priority to the big resource enterprises, encourage and guide large-scale enterprises to merge and restructure the medium and small enterprises, forming the resources development and processing pattern which is led by the big resource enterprises, but also based on the resources, linked though the assets, to encourage and promote resource integration and corporate restructuring by a variety of ways, achieving professional management of resource-based enterprises, which is related to the integrated operation among the industries, upstream and downstream enterprises. 3.1.2 To promote the structural upgrading for resource-based industries, expand the production chain, and enhance the added value of resource products Industrial chain refers to the whole chain formed by all the sections from initial raw materials to the finished products’ production and consumption during the production process. In the industrial chain, each section is formed by a number of interrelated but independent enterprises. At present, the resource-based industries primarily based on resource development, raw material processing. The deep processing for resources is relatively lack, it is at the bottom of the industrial chain, and the added-value of the products is low. Therefore, we should gradually promote the structural upgrading of resource-based industries, and expand the resource-based industries from large-scale, low-skilled, low value-added mining and simple processing to the high-tech and high value-added deep-processing section, so that we improve the resource-based industrial chain and enhance the added value of resource products. The structural upgrading of resource-based industries and chain expansion could be according to the different types, use the technological transformation of industries, technological innovation and product innovation and other means, to carry on from the horizontal and vertical two angles of industrial chain. In the horizontal, we could be interlinked to the technology industrial base, has a certain advantage in other industries where expansion of its quest for resources in the possibility of horizontal transfer between industries. In the vertical, we should extend and expand on the basis of existing resource extraction and processing, increase the processing depth of the products, promote resource-based enterprises to develop new products, increase the added value of the products, in order to drive the upgrading of regional resource-based industries, fundamentally overcome the relative surplus situation of resource industries caused by low-grade products. 3.2 Long-term Adjustment Measures Resource-based industries have its own law of development; diminishing trends of production profits 524 and the irreversible industries decline make the long-term adjustment measures for resource-based focus on the sustainable development of regional economy. This needs to be in accordance with life cycle of resource-based industries: On one hand, we should gradually implement the effective strategies for overseas resources, to ensure raw material supply of resource-based industries and extend the industries’ life cycle; On the other hand, we should gradually promote the industrial restructuring and industrial integration for resource-based industries, to surpass the self-reinforcing and self-loop system of internal resource-based industries by fostering new economic growth points for the region. 3.2.1 To promote the overseas resources strategies step by step, to ensure the long-term supply of raw materials of the resource-based industries and extend the industrial life cycle As the rapid development of resource-based industries and gradual upgrading of outward extent, the supply of raw materials for resource industries is increasingly dependent on overseas markets, which raises the prices of foreign resources continuously. Thus, the resource-based industries of China suffer large losses, and are subject to corporate giants of international resources. Therefore, we need to gradually promote the resource-based enterprises to establish a long-term overseas resources strategy to ensure the supply of raw materials for resource-based industries, in order to achieve the sustainable development and life-cycle extension of resource-based industries. The main tasks of overseas resources strategy for resource-based industries are to establish stable overseas resource bases. On one hand, this needs to promote domestic resource-based enterprises to have natural resources mining planning to invest overseas, or to cooperate with foreign capital to develop the natural resources of foreign countries, forming the overseas resources assurance system with certain scale; On the other hand, we should have plan to solve the shipping and the corresponding infrastructures well, which ensures the smooth transportation of resources. 3.2.2 To guide the transformation of resource-based industries, and gradually surpass the self-loop development path of resource-based industries With the continuous development and utilization of resources and the continuous reduction of total resources, the resource-based industries built on the basis of the natural resources advantages are bound to shrink. This will require that you actively guide the transformation of resource-based industries while upgrading the industries, with the new leading industries full of vigor and vitality to replace outdated, backward, facing toward recession, old resource-based industries, gradually change the regional economic development’ over-reliance on the original advantage resources, to achieve the coordination of industrial structure in resources region and the sustainable development in economy. The top priority of transformation for resource-based industries is to select appropriate continuous leading industries, in accordance with regional comparative advantages and human resource endowments. However, as the market mechanism could not effectively and smoothly achieve the continuous leading industries’ replacing the original industries. Therefore, it requires the government’ support in the capital, technology, human and markets etc. aspects. Firstly, this needs to strengthen the market’s effects on continuous leading industries, respect for the resource allocation of market mechanisms; Secondly, we should develop a variety of policies and measures which are conducive to the development of leading industries, to increase the degree of control by the government on the development of leading industries, effectively solve the “market failure” problems in fostering leading industries; At last, we need to find ways and means of cultivating new continuous leading industries, coordinating the harmonious development between leading industries and non-leading industries. In the selection, cultivation and development process of continuous leading industries, the transformation of resource-based industries also needs to focus on the transformation of declining resource-based industries. The transformation of declining resource-based industries is mainly carried on by two ways the holistic transfer of the enterprise to other regions as well as its assets, staff and workers transfer to other industries and trades. The holistic transfer means to transfer parts of the resource-based enterprises to the new similar resources areas, so that the productive capacity of the resource-based enterprises continues to play a role, the formation of this transfer is relatively easy; but the second transfer form for industries is difficult, because quite a lot of assets of resource-based enterprises can not be relocated to other places to continue to be used, and a majority of workers lack of other qualities and skills in addition to resource extraction or processing. Therefore, we should create 525 conditions to actively use the first form for realizing the declining resource-based industries transferring to the new resource regions. But for the resource-based enterprises which have lost viability and couldn’t be transferred, we should take the most rational way to make them exit the industry markets smoothly through bankruptcy, merger, restructuring, leasing and transition to production etc. means. 3.3 To guide the convergence of resource-based industries with other industries, to foster new economic growth points for the region Industry convergence is the dynamic development process that during the informationization process, high-tech and the industry have effects on traditional industries, making two or multi-kinds of industries form the new industry through mutual infiltration. In different industries, the industrial convergence will be carried on in different ways, finally urge the advancement and rationalization of industrial structure, and frame the new convergence industrial system. In the context of economic globalization and rapid development of high-tech, the convergence between resource-based industries and other industries could quickly improve the productivity and competitiveness of resource-based industries, bringing about the innovation and optimization effect, structural change effect, organization optimization effect, competition advancement effect, consumption advancement effect and regional integration effect etc. The industry convergences of resource-based industries are mainly the extension convergence among industries (i.e. the complementarities and extension among industries to achieve the convergences) and the restructuring convergence of intra-industry. This needs to conform to the development situation of industry convergence, and carry on innovation in conception, implement transformation on strategies, to establish the main mechanisms for enterprises which could promote industry convergence. Then through strategic alliances, conglomerate merger and many other forms to achieve the reasonable flow of economic resources, overcome the traditional operation, to achieve core competencies flexibility based on different technologies innovation and management innovation convergence, to accelerate the convergences between resource-based industries and other industries, and foster new economic growth points for the region. References [1]. Humphrey, John, and Hubert Schmitz. How Does Insertion in Global Value Chains Affect Upgrading in Industrial Clusters [J]. Regional Studies, 2002, 36, (9): p1017-1027 [2]. Brusco, S. The Idea of the Industrial District: Its Genesis. In Pyke F. G. Becattini & W.Sengenberger (eds.), Industrial Districts and Inter-firm Co-operation, Geneva: International Institute for Labor Studies, 1990, p10-19 [3]. Maria A. Cunha, Ana Balcao Reis and Catarina Roseta-Palma. Technology adoption in nonrenewable resource management. 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