International conference 'Changing paradigm of cluster development: Learning from global experiences‘ 10th - 22th Feb. 2014, New Delhi.
China’ SEZs and Industrial Clusters: Success and Challenges Jici WANG College of Urban and Environmental Studies Peking University, 100871, China [email protected]
Importance of cluster understanding
The concept of Cluster are by now well-known but inadequately understood in policy makers as well as entrepreneurs in China.
Yesterday. While our conference was going, over 4000 factories of footwear cluster in Wenling town of Zhejiang province were forced to close down by local government.
The reason is 16 workers of the Wenling footwear cluster died in a fire accident on 14 Jan. 2014. 2
• Specialized town • Development zone • （relying on foreign investment）
Industrial agglomeration • Innovative cluster vs. Industrial cluster, (growth pole？) • （uneven regional development）
• Innovative enterprises • Regional eco-system of innovation • （self-sustain development）
• Industrial park • （operation milieu）
• Science park • （innovation milieu)）
High correlation between development of cluster and real-estate in China
“Industrial cluster” and “industrial agglomeration” are usually the excuse and vision of park development. What is the logic behind the agglomeration and how is China’s need for agglomeration? The key is neither the existence of industrial agglomeration, nor the number of clusters, and also not new industry within a cluster. This is important to understand the actors, how they are and which activities in the sector’s value chain, how is industrial linkages inside/outside the cluster. It is urgent to concern technological innovation and industrial upgrading. 4
Economic zones Industrial parks
Specialized towns / industrial clusters
AGGLOMERATION PHENOMENON IN CHINA Industrial agglomeration
Preferential tariff zone / park
Supply Chain cities
One Whole product component
Wang J. Mei L. 2009: Global-local Tensions: Trajectories and Prospects of China’s Industrial Districts, in Giacomo Becattini (eds.) Handbook of Industrial Districts, Edward Elgar, pp 598-613, 2009.
Two kinds of agglomeration in China: industrial cluster (specialized town) from below and development zones (industrial parks) from above are formed in the background of global offshore outsourcing of MNCs.
Traditional industry, high-tech industry, producer service industry and cultural industry in China are all participating their global production networks. However, many activities are still in the low value-added ones.
DEVELOPMENT ZONE / INDUSTRIAL PARK
China’s DZs development process
The idea of development zones began in 1979-1980 . It has created China’s national GDP, more job opportunities, and more foreign direct investment. China has been among the top targets of global investment 1. 2.
3. 4. 5.
Foreign exchange leakage Cost ineffectivness, Failure to achieve state objectives Economic crimes and related social problems. Land is being overexploited.
China’s per capital income is still lower compare to other countries. (According to the World Bank, China’s per capital income in 2012 was only US$ 5680, the 94th in the 193 countries) 9
State-level and Province-level development zones
A timeline of science parks at state level 1984
S&T Incubator (239) University incubator
University science park (109) Software Park (32)
Agricultural S&T Park(38) High and new tech development zone (108) 王缉慈
Industrial Clusters in China: Territorial Innovation Systems or Supply-chain Cities of the World Economy? •
2 SPECIALIZED TOWN / INDUSTRIAL DISTRICT / INDUSTRIAL CLUSTER
The places that best accommodate orders for MNCs are China's giant new specialty cities.
to buy 500,000 pairs of socks all at once, or 300,000 neckties, 100,000 children‘s jackets, or 50,000 size 36B bras. ….
China has created giant industrial clusters in distinctive entrepreneurial enclaves. Each was built to specialize in making just one thing:
cigarette lighters, badges, neckties, fasteners…… Los Angeles Times: China's Strategy Gives It the Edge in the Battle of Two Sock Capitals (April 10, 2005)
The niche cities reflect China's ability to form "lump" economies, where clusters or networks of businesses feed off each other, building technologies and enjoying the benefits of concentrated support centers. New York Times: Textile Enclaves: In Roaring China, Sweaters Are West of Socks City (Dec 24. 2004) 14 14
A VIEW FROM SECTORS
China’s industrial clusters: distribution in different sectors and different activities From low-tech to high-tech From weak creative to strong creative
Textile and apparel Footwear Furniture Bicycle Jewelry Eyeglasses Cigarette lighter
E-equipment Auto parts Notebook computers …
Software Animation …
From manufacturing to design and R&D 16
The category of clusters (“cluster family”)
Innovative clusters (industrial districts) in traditional sectors
Becattini G. (1990), “The industrial district as a socioeconomic notion”, in Pyke F. and Sengenberger W., Industrial districts and interfirm cooperation, (ILO Geneve).
Innovation clusters in high-tech sectors
OECD. Innovation Clusters: Drivers of National Innovation systems. Paris: OECD. 2001
Creative clusters in cultural sectors and digital cultural sectors
Non-innovative survival clusters
Mario Davide Parrilli, SME Survival Clusters in Developing Countries (With Case Studies), European School of Management 2007
A VIEW FROM DIFFERENCE SCALES
China’s industrial clusters: Distribution pattern at different scales Country Province City Town
Industrial clusters in China’s in selected provinces
GDP(ten billion RMB) Indus try Dis tricts
200 150 100 50
xi Sh aa n
xi ng Ji a
ui A nh
H ei ei lo ng jia ng
an H un
jia n Fu
ng ia o
H eb e
n H en a
he jia ng Z
su ng Ji a
on g an d
G ua ng
Clusters in Guangdong Province
Clusters in Provinces of Zhejiang and Jiangsu
Furniture industrial clusters
Foshan city, Guangdong Province
Critical mass, proximity, linkage Factor condition: R&D institutions, university education from outside the cluster
MNCs and joint ventures
Opportunities Local MSMEs Industrial associations
Local government, banks and other public supporting institutions
Formal and informal activities for interaction
Services Support from related ministry of central government
Global market, Technology
Training schools and innovation centers
Experience of Chinese industrial clusters
Entrepreneurship (start-ups and spin-offs) local entrepreneurs’ enthusiasm under the reform and open policy, the development of local division of labor and the follow-up impetus of the large domestic markets.
Township enterprises set up by rural entrepreneurs S&T spin-offs from universities and research institutes Spin-offs from State-owned enterprises
Strong involvement of local government Industrial Associations are becoming stronger The role of Specialized Market New development of e-commerce related agglomerations 27 27
Strong involvement of local government
Setting up colleges and schools Making connections between universities and industries Setting up specialized industrial parks, exhibition centers and trade buildings Building and financing technology innovation centers Boosting international co-operation through twinning clusters
(WANG Jun, 2006)
New development of e-commerce related agglomerations
Three crucial aspects
virtual agglomeration - the so called “Industrial belt” (Chanye dai) which acts as the B2B platform in the industrial districts, is rapidly created by the firm Alibaba. the agglomeration of e-commerce C2C stores is emerging in more than 20 rural location – the so called “Taobao village”. Covering 15000 e-shops. as part of real estate development, the e-commerce parks are built in many cities.
However, the flourish of e-commerce and its agglomeration are rarely straightforward processes in which actors are confronted with uncertainties.
Taobao villages gradually became a new force of rural economy, in 2013, the number of Taobao villages increased to 20 which brought about 60,000 job vacancies directly and many job opportunities in logistics and packaging industries indirectly. Taobao village is a unique economic phenomenon in the world.
The definition of Taobao village includes that online stores have to account for above 10% of local families and online transaction surpassed 10 million yuan (USD 1.64 million). These retailers in rural areas based on Taobao C2C platform, achieved economies of scale and synergy effects. 30
Challenges and Upgrading Global Competition
Restrictive protectionist policies
Innovation and Upgrading
Raise of production costs
Social and environment Issues
Race to the bottom 32
Relocation to Inner Provinces for Lower Labour Costs
Reasons causing this relocation:
The rising labour cost, land cost and environmental cost. The resource is exhausted in some resource-based clusters.
The relocation of many SMEs from coastal industrial clusters to the regions in the central, western and northern China for lower labour costs will lead to a new regional division of labour within China. 1. Large amount of employments • •
Buyer-driven or contractor-driven
high levels of informal low-wage workers export-led growth has created jobs, but not so many decent jobs
Engage in global production
The coastal clusters will become the outsourcers to lower-cost inner provinces and the higher technology or design centers.
From Guangdong to Guizhou Province
Cultivating innovation cluster: Linking skills and pooling resources
To meet intense global competitive pressures while avoiding the “low road” based on cost reduction and reaping the benefits, developing core competencies through innovation and embedded localization, cultivating innovation cluster is necessary. Linking skills and pooling resources both inside and outside clusters/cities are the right way to meet the challenges posed by globalization and the increasing dynamism of structural change.
TV : Family on the Go / Legend of Entrepreneurship
2 THEORETICAL THINKING
New wine in the old bottle
China’s industrial cluster development and land exploitation always stick together.
“Industrial cluster” are the latest fashions.
Success made by new urban zones and industrial parks has encouraged central ministries and local governments to property-driven development. We could not say that only firms gather in somewhere and it will develop. We could not say only these firms develop in a certain period can they have permanent competiveness advantage. We could not say that a locality only needs to create an “supply chain”, its economy will be well developed.
“new wine in the old bottle”. Like the form of “making nest to lure birds” in the past. 37
From development zone to industrial new town —“industrial real estate” •Larger and lager Areas •More and more functions
Industrial new town
•More and more places are planned
Industrial park Development zone Make money/ bobols
•More and more ministries involved
•More and more problems
•More and more empties? 38
Over-investment on development zone
Local government take real estate as a cornucopia of collecting public investment. So called “City management” - through urban planning and land exploiting, local government may get development fund within or outside budget to support projects of infrastructure and city beautification. Due to the land easy policy and low land price, in many cities of China the areas expand blindly. Local governments stimulate land exploitation of development zones excessively.
Mushroom or poisonous mushroom? High-tech zone achievement
In 105 high and new tech development zones, There are about ten million employments, 13 trillions business income. The industrial output value account for 13% and the export account for 16.7% of the nation’s total.
Example: Ministry of Culture has been out of Control for the presence of over 2500 cultural parks in China. The policy should be inclined to real economy but not industrial real estate and other speculative market.
Good cluster or bad cluster?
Warning: real estate bubbles
Free-tax zones New Technology Cities(industrial park)？ Low Carbon Ecological High Tech Innovative …… Headquarter Base？ Industrial Relocation Parks? South Korea Entrepreneurs Zhejiang Entrepreneurs Guangdong Entrepreneurs …… Theme Park？ Innovative（cartoon, film……） Manufacturing（clothing, cement, sugar……） Outsourcing(software, biotech……）
Investors Central government Local government Agents attracted The World 500 biggest ? Overseas Returnees State-owned Enterprises Residence, Tourism？
Where are the first seed from？ Development opportunity, Condition, Mechanism？
生态城 “Eco towns/cities”
What kind of agglomeration we eed？ Location is now "proximity" to know-what, know-how, and know-whom - its local clusters of knowledge not companies and assets. Industrial agglomeration
？ Industrial real estate
•A new industrial space to foster a new industry? •Does it have new start-ups? •Local entrepreneurship? •Institution for collaboration？ •Potential to create industrial community? 43
Local cluster and innovation
Porter(1990) defines cluster as “geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions.”
Industrial clusters are a group of firms and institutions (agents) with spatial proximity, industrial linkages and mutual influences.
Through agents’ linkage and action, external economy are realized to lower cost.
Through mutual trust and cooperation, innovation are promoted in learning milieu.
Learning and innovation in clusters may, or may not occur. (Wang Jici, 2005; Wang Jici, Beyond Cluster, 2010) 44
A danger of using cluster approach
The ambiguities of cluster concept
Localization and urbanization The site of operation and the site of interaction The global-local discourse of industrial linkage The confusion of the concentration based on knowledgeintensity and the concentrated dispersion based on labor costs
For the reason of the ambiguities of cluster concept,
There is a danger of using cluster approach as the fashionable next ‘new thing’ in economic development.
Making connections is important
Usually, the main purpose of firms moving to industrial parks to get preferential infrastructure and policies.
Despite of near distance, there is little relation among them because of differences in type of business, ownership, nation and language. Even there are firms which have production linkage in theory but they could not connect each other because of differences in technical standards. Making real connections (~ “proximity”) in industrial cluster need a couple of years even tens of years.
Therefore, it’s a risk to develop industrial properties in some underdeveloped localities with few firms.
Cluster formation in developing countries: concentrated dispersion Global dispersion Actors: MNC flagships ……
Clustering effect (Positive-negative)
Local Manufacturing and service
Actors: Local SMEs, MNCs Government, education/research institution, Industrial association
Background of high-tech development in China University and research institutes
Reforms of S&T system/education system/ human resource management system
Central government 863 project Torch plan Innovation-driven strategy
Marketing of research result Non-stateowned firms
High- and new tech zones
urbanization New town construction
Hot of real estate development Development zone / industrial park Local government
Global shift Fight for resources between local High-tech hot Off-shore outsourcing governments and between Silicon valley effect different department of central government, GDPsm Branch plant of MNCs returning of overseas Chinese
Clusters have “kinetic energy” 1 reduce cost （the labour cost and environment cost reduced are limited）
2 promote innovation （in a condition of abundant social capital）
Industrial parks have “potential energy” 1 Attract investment from outside 2 create jobs
Factors of a park： 1 land and infrastructure 2 Preferential policies
In China, lots of spontaneous clusters are not innovative
Factors form a cluster： 1 critical mass
2 geographical proximity 3 industrial linkage
In China, successful and fake industrial parks are mixed up.
Parks and clusters: concepts distinction and overlap
park （geographical proximity of actors）
cluster （geographical proximity of actors with functional linkages）
Create cluster within the park（ideal situation） Long term positioning, be patient!
Activities for interaction
enterprises Universities/ Research institutes
High hope and hard reality
Industrial estate has become a tool of increasing GDP as a political achievement for local government, and acquired preferential policies to be offered to manufacturing.
Since 2007, Vantone has engaged in industrial estate and chosen a leading firm in home applicances, TCL as partners. After 30-year development, TCL has occupied industrial estate (production bases) of more than million sq. m in Guangzhou, Inner Mongolia, Chengdu, Wuhan and Wuxi. In the early 2008, Vantone (55%) and TCL (45%) set up a joint venture of total 250 million Yuan and signed an agreement to further promote cooperation in the industrial estate field.
The low benefits of infrastructure affect local government’s ability to pay back the loans of the banks.
Of the leans to local government in mainland China, 18.5% of total loans for banks, nealy one in fifth could not be repaid. If that occurs, the financial system will be in big predicament. 53
“Traps” of Specialization
“Specialization has brought economic growth to localities”, this saying is based to present “specialized towns”. However, in the context of globalization, urban specialization will be with low-value-added growth. Globalization leads to specialization and strengthen specialization. When moving to a good location for business in a certain nation, this location may be specialization.
When foreign companies move their production activities overseas, they will connect with their suppliers to invest in a city to establish specialized manufacturing center. Usually, it’s difficult for domestic firms to join this specialized production system. 54
Regional/local Development Puzzle
exogenous vs. endogenous Top-down vs. Bottom-up Planned and Induced vs. Natural Growth pole vs. Industrial cluster Policy tool and development strategy
Implications of China’s industrial districts
Industrial clusters in China benefit both MNCs and NIS.
The key task facing China should be to foster innovative industrial clusters instead of building more “low road” ones. Institution innovation is most important.
The clusters of China functioned very well for multinational buyers and contract manufactures, but their roles for build competitive advantage of the country and the region are limited.
China needs to learn as quickly as possible not only in adopting lessons from other industrial clusters but also in seeking to position local industries in the global value chain and in strengthening their competitiveness in the global market.
Policies need to differ for different sectors. 56
①计划完成情况； ②取得的主要进展与成果； ③人才培养和国际合作与交流的成效； Chapter 7 in Allen Scott and Golifoli (ed.): Development on ④资助经费的使用情况 the Ground: Clusters, Networks and Regions in Emerging Economies, London: Routeledge, 145-164
Prof. Jici WANG College of Urban and Environmental Sciences Peking University, Beijing, 100871, China [email protected]