Chapter 11

A model of Chinese ladle-and-bowl type compass used for geomancy in the Han dynasty (202 BC–220 AD) (source: http://en.wikipedia.org/wiki/File:Antic_Chinese_compass.jpg).

11. Industrialization and Technological Progress

11.1 Industrialization during the pre-reform era

11.2 Industrialization during the reform era

11.3 Technological progress

11.4 Intellectual property rights

Keywords:

• industrialization,

• Great Leap Forward (GLF),

• technological progress,

• innovation,

• research and development (R&D),

• intellectual property rights (IPRs),

• anti-piracy

11.1 Industrialization during the pre-reform era

11.1.1 Economic recovery

11.1.2 Great Leap Forward (1958-60)

11.1.3 Preparing for war

11.1.4 Great leap outward

Source: NBS, various years.Figure 11.1 Industrial growth during the pre-reform period

Item 1950-52

1953-57

1958-62

1963–65

1966-70

1971-75

1976 1977 1978

1 Annual growth rate (%)1.1 National income 19.3 8.9 –3.1 14.5 8.4 5.6 –2.7 7.8 12.3

1.2 gross value of agricultural output (GVAO)

14.1 4.5 –4.3 11.1 3.9 4.0 2.5 1.7 9.0

1.3 gross value of industrial output (GVIO)

34.8 18.0 3.8 17.9 11.7 9.1 1.3 14.3 13.5

(1) heavy industry 48.8 25.4 6.6 14.9 14.7 10.2 0.5 14.3 15.6

(2) light industry 29.0 12.9 1.1 21.2 8.4 7.7 2.4 14.3 10.8

2 Accumulation/national income (%)

24.2 30.8 22.7 26.3 33.0 30.9 32.3 36.5

3 National income growth/ investment ratio (%)

35.0 1.0 57.0 26.0 16.0 -10.0 26.0 34.0

4 Distribution of capital construction4.1 Agriculture (%) 7.8 12.3 18.8 11.8 11.3

4.2 Light industry (%) 5.9 5.2 3.9 4.0 5.4

4.3 Heavy industry (%) 46.5 56.1 49.8 57.4 54.8

Sources: Liang (1982, p. 63, tab. 4); Dong (1982, pp. 88–9, tab. 9).

Table 11.1 Major economic indicators during the pre-reform period

Item 1952 1965 1978Gross value of industrial output (GVIO) 17.9 22.3 25.7Steel 13.9 19.4 27.9Coal 33.0 40.9 47.6Electricity 10.5 25.2 33.5Machine tools 2.2 15.7 27.3Car – – 12.1Tractor – 77.4 30.6Cement 14.1 13.6 37.0Clothing 15.9 27.9 30.7Paper 7.1 14.5 23.0Cigarette 28.6 34.5 42.0Source: Liu (1983).

Table 11.2 Industrial outputs of the third-front area (percentage of China)

11.2 Industrialization during the reform era

11.2.1 General background

11.2.2 Multiregional differences

11.2.3 Rural industrialization

Source: NBS, various years.Figure 11.2 Industrial growth during the post-reform period

Figure 11.3 Employment by type of industry

Item Eastern belt Central belt Western belt

Average size in fixed assets (million yuan)

7.87 5.98 7.53

Average number of employees (persons)

183.3 176.4 197.3

Capital/labor ratio (yuan/person) 429196 339031 381680

Output/capital ratio 0.47 0.41 0.37

Labor productivity (yuan/person) 202178 139111 141881

Profit/output ratio (%) 32.80 33.13 38.32

Profit/capital ratio (%) 15.45 13.60 14.25

Note: for industrial enterprises under independent accounting system only.Source: calculated by the author based on SSB (1996b, pp. 79–81).

Table 11.3 Differences of industrialization by the Eastern, Central and Western belts

11.3 Technological progress

11.3.1 An overview

11.3.2 China’s efforts on innovation

11.3.3 Institutional constraints

Conditions under which there will be a leapfrogging process:

(i) The difference in wage costs between the leading nation and potential challengers must be large.

(ii) The new technology must, when viewed by experienced producers, appear initially unproductive compared with the old one.

(iii) Experience in the old technology must not be too useful in the new technology.

(iv) The new technology must ultimately offer the possibility of substantial productivity improvement over the old.

Source: Brezis et al. (1993, p. 1219).

ItemAdvanced nations

(1)China

(2)(2)/(1)

(3)

A. Labor productivity

Steel (ton/person) 600–900 30 0.03–0.05

Electricity (kW/person) 2132a 244 0.114Synthetic rubber (ton/person)

200–300 20–50 0.067–0.25

Ethylene (ton/person) 150 30 0.2

B. Energy consumptionb

Steel (kg/ton) 629 1034 1.64

Oil refinery (kg/ton) 19 22 1.16

Ethylene (1000 kal) 420–550 840 1.53–2.0

Electricity (g/kWh) 150 30 1.28

a: USA;b: Standard coal equivalent.Source: IIE (1996, p. 40).

Table 11.4 Some industrial production indicators, China and the advanced nations

China’s R&D strategies:

• ‘863‘ Plan, which aims to track the frontiers of the high and new technologies and research and development;

• Torchlight Plan, which aims to promote the commercialization, industrialization and internationalization of the high-tech products;

• The Climbing Plan, which aims to organize the research and application of new and high technologies;

• Spark Plan, which aims to spread applicable technologies to small and medium-sized enterprises, TVEs and other rural areas; and

• Harvest Plan, which aims to popularize various kinds of technology contributing to agriculture, animal husbandry and fishery.

Source: NBS, 2010.Figure 11.4 China’s R&D/GDP ratios

Source: WIPO (2011). Figure 11.5 Patent applications by selected countries (1995-2010)

11.4 Intellectual property rights

11.4.1 General situation

11.4.2 Unresolved problems

The legal framework for protecting intellectual property

• Patent law, which was enacted in 1984 and has been amended in 1992 and 2000 to extend the scope of protection (the latest amendment extended the duration of patent protection to 20 years from the date of filing a patent application).

• Trademark law, which was first adopted in 1982 and subsequently revised in 1993 and 2001, with implementing regulations taking effect on September 15, 2002.

• Copyright law, which was established in 1990 and amended in October 2001, with the new implementing rules coming into force on September 15, 2002

Annex

Variable International casea Chinese caseb

US$100(1)

US$400(2)

(2)–(1)(3)

¥250(4)

¥1000(5)

(5)–(4)(6)

Va 0.452 0.228 –0.224 0.513 0.196 –0.317

Vm 0.149 0.276 0.127 0.276 0.584 0.308

Vl 0.118 0.282 0.164

Vh 0.164 0.303 0.139

Lp 0.658 0.438 –0.220 0.892 0.462 –0.431

Lm 0.091 0.135 0.144 0.041 0.323 0.282

Ls 0.251 0.327 0.076 0.067 0.215 0.149

•a: Chenery and Syrquin (1975, pp. 20–1); •b: Hsueh (1994b, p. 80).Variables: Va=ratio of value-added agricultural output in NI (national income); Vm= ratio of value-added industrial output in NI; Vl= ratio of value-added light industrial output in NI; Vh=ratio of value-added heavy industrial output in NI; Lp=ratio of labor of primary sector in total social labor; Lm=ratio of labor of manufacturing sector in total social labor; and Ls=ratio of labor of service sector in total social labor.

Table 11.5 Industrialization at different economic stages: Chinese and international cases

Chapter conclusion:

In the newly industrialized economies (NIEs), industrialization has served as the key engine in the early period of economic takeoff. Therefore, most developing nations (especially poor and agrarian nations) have placed great emphasis upon it. Despite its long history of civilization, China lagged behind the advanced nations in industrial modernization during the past centuries. During the pre-reform period China’s industrialization had been affected to a large extent by political movements. Generally, the poor industrial performances had been ascribed to China’s ‘self-reliance and independence’ policies and the irrational industrial structure in which heavy industry was given priority. If the leapfrogging theory can be used to describe the dynamic pattern of the world economy, it appears likely that, in the decades to come, China’s technological gap with advanced nations will be narrowed.

Suggested readingAlford, William P. (1995). To Steal a Book is an Elegant Offense:

Intellectual Property Law in Chinese Civilization. Stanford, California: Stanford University Press.

Bai, Chong-En, Yingyi Qian (2010). “Infrastructure development in China: The cases of electricity, highways, and railways,” Journal of Comparative Economics, Volume 38, Issue 1, pp. 34-51.

Fisher-Vanden, Karen, Gary H. Jefferson (2008). “Technology diversity and development: Evidence from China's industrial enterprises,” Journal of Comparative Economics, Volume 36, Issue 4, pp. 658-672.

Heath, Christopher (Ed.) (2005). Intellectual Property Law in China. Kluwer Law International.

Islam, Nazrul and Kazuhiko Yokota (2008). “Lewis Growth Model and China's Industrialization,” Asian Economic Journal, Volume 22, Issue 4, pp. 359–396.

Kueh, Y. Y. (2006). “Mao and Agriculture in China's Industrialization: Three Antitheses in a 50-Year Perspective,” The China Quarterly, Volume 187, pp. 700 - 723.

Lai, M., Peng, S. and Bao, Q. (2006). “Technology spillovers, absorptive capacity and economic growth,” China Economic Review, Volume 17, Issue 3, pp. 300-320.

Suggested readingLee, Khan-Pyo (2007). “Clans for Markets: The Social Organization of Inter-

Firm Trading Relations in China's Automobile Industry,” The China Quarterly, Volume 192, pp. 876 - 897.

Lin, Chen, Ping Lin, Frank M. Song, Chuntao Li (2011). “Managerial incentives, CEO characteristics and corporate innovation in China’s private sector,” Journal of Comparative Economics, Volume 39, Issue 2, pp. 176-190.

Mertha, Andrew C. (2005). The Politics of Piracy: Intellectual Property in Contemporary China. Ithaca, New York: Cornell University Press.

Shiue, Carol H. and Wolfgang Keller (2007). “Markets in China and Europe on the Eve of the Industrial Revolution,” American Economic Review, Volume 97, Issue 4.

Suttmeier, Richard P. and Xiangkui Yao (2011). “China's IP Transition: Rethinking Intellectual Property Rights in a Rising China,” NBR Special Report, July.

Wu, Haitao, Shijun Ding, Sushil Pandey and Dayun Tao (2010). “Assessing the Impact of Agricultural Technology Adoption on Farmers' Well-being Using Propensity-Score Matching Analysis in Rural China,” Asian Economic Journal, Volume 24, Issue 2, pp. 141–160.