Technological Progress and the Transformation of China’s Economic Development Mode [1st ed.] 9789811572807, 9789811572814

Table of contents :
Front Matter ....Pages i-xxvi
Front Matter ....Pages 1-1
Scientific and Technological Progress and Economic Development Mode Transformation: A Literature Review (Wen Xiao)....Pages 3-29
Theoretical Study: Endogenous Growth Model Embedded with Innovation Heterogeneity (Wen Xiao)....Pages 31-51
Mechanism Analysis: Scientific and Technological Progress and Transformation of Industrial Development Mode (Wen Xiao)....Pages 53-77
Front Matter ....Pages 79-79
International Experiences of Scientific and Technological Progress and the Transformation of Economic Development Mode (Wen Xiao)....Pages 81-101
Comprehensive Capacity Measurement and Evolutionary Analysis of the Scientific and Technological Progress in China (Wen Xiao)....Pages 103-125
Empirical Studies on the Transformation of Economic Development Mode Promoted by Scientific and Technological Progress (Wen Xiao)....Pages 127-174
Front Matter ....Pages 175-175
Scientific and Technological Progress and the Transformation of Agricultural Development Mode: Agricultural Intensification (Wen Xiao)....Pages 177-215
Scientific and Technological Progress and the Transformation of Industrial Development Mode: New-Type Industrialization (Wen Xiao)....Pages 217-254
Scientific and Technological Progress and the Transformation of Service Industry Development Mode: The Modernization of Service Industry (Wen Xiao)....Pages 255-291
The Linkage Between Advanced Manufacturing and Modern Service Industry Promoted by Scientific and Technological Progress (Wen Xiao)....Pages 293-311
Front Matter ....Pages 313-313
Institutional Guarantee for China’s Technological Progress Strategy (Wen Xiao)....Pages 315-345
Mode Selection for Technological-Progress-Driven Development Mode Transformation (Wen Xiao)....Pages 347-365
Policy Suggestions for the Transformation of Economic Development Mode Driven by Scientific and Technological Progress (Wen Xiao)....Pages 367-385
Back Matter ....Pages 387-402

Citation preview

Wen Xiao

Technological Progress and the Transformation of China’s Economic Development Mode

Technological Progress and the Transformation of China’s Economic Development Mode

Wen Xiao

Technological Progress and the Transformation of China’s Economic Development Mode

123

Wen Xiao School of Economics Institute of International Economics Hangzhou, Zhejiang, China Translated by Min Hui Shandong Normal University Jinan, Shandong, China

Jie Yu Tianjin Normal University Tianjin, Tianjin, China

Zhen Liu Shandong Normal University Jinan, Shandong, China

Tongsheng Zhao Yantai University Yantai, Shandong, China

Funded by Chinese Fund for the Humanities and Social Sciences ISBN 978-981-15-7280-7 ISBN 978-981-15-7281-4 https://doi.org/10.1007/978-981-15-7281-4

(eBook)

Jointly published with People’s Publishing House The print edition is not for sale in China Mainland. Customers from China Mainland please order the book from People’s Publishing House © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 This work is subject to copyright. All rights are reserved by the Publishers, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Introduction to National Achievements Library of Philosophy and Social Sciences

In order to give full play to the exemplary role of outstanding achievements and talents in philosophy and social science research and promote the prosperity and development of philosophy and social science in China, the leading group of National Philosophy and Social Science Planning decided to establish the National Achievements Library of Philosophy and Social Sciences in 2010, which is reviewed once a year. The selected achievements have been strictly reviewed by peer experts, representing the frontier level of current academic research in related fields, and reflecting the academic creativity of China’s philosophy and social science community, and they are published in accordance with the general requirements of “unified logo, unified cover, unified format and unified standard.” March 2011

National Office for Philosophy and Social Sciences Planning

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Introduction

Since the Reform and Opening-up around the 1980s, China’s economy has developed rapidly, creating a “miracle” of high-speed economic growth rate, making China the “locomotive” of global economic development, which has an important impact on the global economy. At present, China’s economic development tends to slow down, which is not indicative of economic recession, but a “painful” stage that must be experienced in the process of improving the quality of economic development. It can be said that the “new normal” of China’s economic growth is gradually taking shape. However, it is undeniable that the rapid economic growth for so many years has improved people’s living standards, and in the meanwhile, it has brought about many serious problems such as the comparatively low economic growth rate, the unbalanced development between urban and rural areas, waste of resources and environmental damage associated with economic development, and so on. How should we solve these problems and contradictions in the course of economic development? The 13th Five-Year Plan (a roadmap for China’s development from 2016 to 2020) points out clearly that innovation-driven strategy will be carried out with great efforts, making technological progress and innovation the key pillar for accelerating the transformation of economic development mode, which indicates that technological progress and technical innovation are the only guarantee to promote both the “quantity” and the “quality” of economic growth. Meanwhile, technological progress and technical innovation must rely on independent innovation instead of “second innovation” after the introduction of foreign technology. At the present stage, a large number of measures have been introduced intensively in China to fulfill the transformation of economic development mode, of which the most important one is to vigorously push the supply-side structural reform. The core of these measures lies in the transformation from the investment-driven and trade-driven to innovation-driven mode, advancing technical innovation, improving the quality of workers, and innovating management mode in order to make China become a truly innovation-driven country. In this context, the book will focus on the study of how scientific and technological progress facilitates the transformation of economic development mode.

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So far as scientific and technological progress and the transformation of economic development mode are concerned, a large number of researches have been done by the academia, ranging from the classical economic theory to neo-classical economic theory, technological endogenous growth theory, and new growth theory. Scholars at home and abroad have explored the effect of scientific and technological progress on economic growth and adjustment of industrial structure from both theoretical and empirical levels, and drawn the similar conclusion that scientific and technological progress is the core force to promote the transformation of economic development mode. The previous studies lay a solid foundation for the current research, but there are still some insufficiencies on the discussion of how scientific and technological progress facilitates economic development mode, which need to be improved in the following four aspects. Firstly, the previous studies mainly focus on the structural transformation and lack a thorough, systemic, and in-depth research on how scientific and technological progress facilitates economic development mode, with few probes into the internal mechanism in particular. Secondly, the research on scientific and technological progress efficiency lays more emphasis on empirical analysis, lacking the corresponding theoretical support for the systemic and logical relevance among scientific and technological progress, technological efficiency, and economic development mode. Thirdly, the basic research on how scientific and technological progress promotes the transformation of economic development needs to be strengthened. The implementation of the strategy of scientific and technological progress demands policy guarantee from the micro-, medium, and macro-levels, yet it has been paid less attention to by the existing studies. Fourthly, at the present stage, both theoretical research and empirical research measure scientific and technological progress from a macro-level while ignoring its micro efficiency, lacking the corresponding index system to study the efficiency of scientific and technological progress in promoting the transformation of economic development mode. To solve these problems and based on the literature review, this book explores the mechanism of how scientific and technological progress affects economic development mode, centering on the principle that scientific and technological progress facilitates economic development mode, along the basic train of thought of “scientific and technological progress—intensive factor input—improvement of productive efficiency—transformation of economic development mode,” and setting off from three levels—“micro-enterprise level,” “medium industry level,” and “macroeconomic level.” The key exploration lies in the influence of scientific and technological progress on the following four dimensions: agricultural intensification, new-type industrialization, the modernization of service industry, and the linkage between advanced manufacturing industry and modern service industry. This book consists of four parts, which are divided into thirteen chapters. It is framed as follows. The part of theories includes the first three chapters. It mainly reviews the theoretical research of scientific and technological progress and economic development mode transformation, based on which the theoretical mode is constructed to study how scientific and technological progress affects the transformation of

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economic development mode. Meanwhile, it also explores the internal mechanism of scientific and technological progress affecting agricultural intensification, new-type industrialization, the modernization of service industry as well as the linkage between advanced manufacturing industry and modern service industry. Chapter 1 is a literature review of scientific and technological progress and economic development mode transformation, which reviews the classical theories from the perspectives of scientific and technological progress, economic growth, and the interaction between them. First, it reviews the relevant theories from the perspective of scientific and technological progress and technical innovation; next, it reviews the classical theories of economic development chronologically and elaborates on the technological progress thought in these theories and then, it reviews the influence of scientific and technological progress on the three industries; finally, it comments on the existing literature and clarifies the key study of this book. Chapter 2 is a theoretical study on the endogenous growth model of innovation and heterogeneity embedment. It constructs the theoretical model of endogenous growth to study the influence of technological progress on economic development mode transformation, and it creatively introduces the innovation heterogeneity in order to make the model conform to the economic reality better. First, it constructs the endogenous technology growth model; then, it analyzes the classical model and explores the influence and track of technological progress on economic development mode transformation; next, it introduces the innovation heterogeneity to explore its influence on technological progress and investigates how technological progress affects economic development mode after the introduction of innovation heterogeneity. Chapter 3 is an analysis of the mechanism of technological progress promoting the transformation of industrial development mode. It mainly analyzes how scientific and technological progress facilitates agricultural intensification, new-type industrialization, the modernization of service industry, and the linkage between advanced manufacturing and modern service industry. First, it studies the mechanism of how scientific and technological progress facilitates agricultural intensification; next, it studies the mechanism of how scientific and technological progress facilitates new-type industrialization; and then, it studies the mechanism of how scientific and technological progress facilitates the modernization of service industry; finally, it studies the mechanism of how scientific and technological progress facilitates the linkage between advanced manufacturing and modern service industry. The part of empirical studies covers the next four chapters. It mainly studies the international experience of scientific and technological progress and economic development mode transformation, selecting some developed countries such as Korea, the USA, and Japan for benchmarking studies and measuring the efficiency of China’s technological progress at the industrial, regional and national levels at the same time, on the basis of which an empirical analysis on how scientific and technological progress affects the transformation of economic development mode is conducted.

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Chapter 4 makes a comparative study of international experience in scientific and technological progress and the transformation of economic development mode, selecting Korea, the USA, and Japan as key examples to study the important role that scientific and technological progress plays in the transformation of these countries’ economic development mode and sum up some implications. It first studies the scientific and technological progress and the transformation of economic development mode in Korea, and then that of the USA and next that of Japan. Finally, it puts forward some implications for references. Chapter 5 is about the measurement of the comprehensive capability of China’s scientific and technological progress and analysis of its evolvement, which is evaluated from the regional, the industrial and enterprise as well as the national level to explore the efficiency of China’s scientific and technological progress, which conforms to the original design of this book. It first measures the comprehensive capability of the scientific and technological progress and analyzes its evolvement at the regional level, and then evaluates its efficiency at the industrial and enterprise level and finally at the national level. Chapter 6 is an empirical study of how scientific and technological progress facilitates the transformation of economic development mode. It tests empirically the influence of scientific and technological progress on the transformation of economic development mode from the perspectives of government support, the R&D and management of enterprise as well as innovation heterogeneity which corresponds with the heterogeneity related in the theoretical model. First, it checks the influence of government support on scientific and technological progress; then, it introduces the influential factor, the R&D and management of enterprise, inspecting how scientific and technological progress affects the transformation of economic development mode; next, it introduces the innovation heterogeneity for the same purpose. The part of industrial studies includes Chaps. 7–10. It explores how scientific and technological progress affects the transformation of economic development mode from the following four dimensions: agricultural intensification, new-type industrialization, the modernization of service industry, and the linkage between advanced manufacture and modern service industry, which are the four core research achievements of this book. Chapter 7 is concerned with scientific and technological progress and the transformation of agricultural development mode, namely agricultural intensification, which is about the concrete embodiment of how scientific and technological progress affects the transformation of agricultural development mode and the measurement of agricultural technology progress. Firstly, it analyzes the concrete embodiment of how scientific and technological progress affects the transformation of agricultural development mode; secondly, it measures the efficiency of China’s agricultural technology progress; thirdly, it calculates concretely the efficiency of scientific and technological progress in planting industry and animal husbandry; fourthly, it studies the factors affecting the technological progress of China’s agriculture; fifthly, it provides policy implications for agricultural intensification promoted by scientific and technological progress.

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Chapter 8 is concerned with scientific and technological progress and the transformation of industrial development mode, namely new-type industrialization, which mainly probes into the track of the industrial development mode transformation promoted by scientific and technological progress and the efficiency of industrial technology progress. First, it constructs the endogenous technology model to study the track of how scientific and technological progress affects the new-type industrialization; next, it measures the efficiency of China’s industrial technology progress; and then, it provides an empirical analysis of the important effect of scientific and technological progress on the new-type industrialization; finally, it offers policy implications for the new-type industrialization promoted by scientific and technological progress. Chapter 9 is concerned with scientific and technological progress and the transformation of service industry development mode, namely the modernization of service industry, which mainly studies how scientific and technological progress affects the modernization of service industry and the current situation of the modernization of service industry in China. First, the evaluation system of the modernization level of service industry in China is constructed; next, the overall level of the modernization of service industry in China is devaluates from six aspects; and then, an empirical analysis of the effect of scientific and technological progress on the modernization of service industry is conducted, and finally, the policy implications for the modernization of service industry promoted by technological progress are put forward. Chapter 10 is concerned with how scientific and technological progress promotes the linkage between advanced manufacturing and modern service industry, which focuses on the concrete embodiment of its promotion and the empirical analysis of its internal track. First, it studies the concrete embodiment; next it digs into three perspectives and then, it makes an empirical analysis of the concrete track, and finally it puts forward the corresponding policy implications. The part of strategies and suggestions consists of Chaps. 11–13. It focuses on the strategies for the transformation of economic development mode facilitated by scientific and technological progress from the following three aspects: the basis for implementing the strategy of scientific and technological progress, the mode choice for the transformation of economic development mode promoted by scientific and technological progress and the relevant policy suggestions, ranging from guarantee basis to mode selection to realize the combination of market dominance and government guidance. Chapter 11 is about the guarantee basis for implementing the strategy of China’s scientific and technological progress. Starting from the background, it discusses the system basis for implementing the strategy of China’s scientific and technological progress, on the basis of which policy implications on how China carries out the strategy of scientific and technological progress are put forward. First, it reviews the background for implementing the strategy of scientific and technological progress from both theoretical and practical levels; next, it puts forward the system guarantee for implementing the strategy of China’s scientific and technological progress from four aspects including market, patent, finance, and taxation systems, on the basis of

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which policy implications for the implementation of China’s scientific and technological progress strategy are put forward finally. Chapter 12 focuses on the mode selection of the transformation of China’s economic development mode mainly from three aspects: the global allocation of R&D resources, the transformation driven by high-tech industries as well as the strategic development of emerging industries. First, it studies the promotion of economic development mode transformation by means of the global allocation of R&D resources; next, it focuses on the development of high-tech industry, studying how scientific and technological progress facilitates economic development mode transformation via the adjustment of industrial structure, and finally, it studies how emerging industries drive the transformation and upgrading of economic development mode by means of the strategic development of emerging industries. Chapter 13 is about the policy suggestions on how scientific and technological progress facilitates the transformation of economic development mode. First of all, it puts forward the general idea; and then, the concrete path to break through the “five bottlenecks,” and finally, it puts forward the comprehensive idea of “Trinity” for scientific and technological progress and “the combination of three platforms” for the promotion of economic development mode transformation, which are summarized as “533” comprehensive reform ideas. The originality of this research is mainly embodied in the following four aspects: The research is carried out from the unique perspective of improving production efficiency as the core. The transformation of economic development mode is mainly embodied in structural optimization and efficiency improvement. At present, most academic research perspectives are based on structural transformation, and there is no unified standard to measure how scientific and technological progress improves production efficiency to promote the transformation of economic development mode. Based on this, the research of this book takes “production efficiency” as the core perspective and emphasizes that scientific and technological progress can improve production efficiency through the input of intensive labor, capital, and so on from both theoretical and empirical perspectives. At the macro-level, industrial structure is continuously optimized, and enterprise competitiveness is continuously improved till the realization of economic development mode transformation so as to build a bridge for scientific and technological progress to promote the transformation of economic development mode. Based on this, the basic train of thought of the research of this book is sorted out as follows: “scientific and technological progress—input of intensive factors—improvement of production efficiency— transformation of economic development mode,” and thus, the research perspective is unique, interlocking, and original. The originality of the research also lies in its theoretical orientation in that it introduces the model of innovation heterogeneity. In the theoretical study of how scientific and technological progress facilitates the transformation of economic development mode, it introduces the concept of innovation heterogeneity, making the theoretical model more applicable to practical economy. At the present stage, scholars seldom consider the impact of innovation heterogeneity on scientific and technological progress, and even if they do, they only consider the impact of

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heterogeneity on innovation, such as the difference in scale, without considering the impact of production efficiency heterogeneity on enterprise innovation. Most of these studies are based on the “surface” empirical research, but not yet touch the “inner” theoretical research. Therefore, the research of this book explores the effect of innovation heterogeneity on technological innovation from both “inner layer” and “surface layer.” In constructing the theoretical model, innovation heterogeneity is introduced to fully demonstrate the effect of innovation heterogeneity on technological progress. Meanwhile, it explores the effect of technological progress on the transformation of economic development mode when taking innovation heterogeneity into consideration, which is tested in the subsequent empirical study. In this sense, the theory echoes the empirical evidence. The research is conducted from a novel viewpoint, ranging from the guarantee basis to mode selection. It explores at a deep level how scientific and technological progress facilitates the transformation of economic development mode from four dimensions, i.e., “the facilitation of agricultural intensification, new-type industrialization, the modernization of service industry as well as the linkage between advanced manufacturing and producer service industry by means of scientific and technological progress.” It also provides policy suggestions for all industries, and structurally, the book is arranged following the principle of unified planning and layout. Furthermore, two separate chapters are set up to study the guarantee basis for the implementation of the strategy of scientific and technological progress promoting the transformation of economic development mode and the mode selection for the transformation of economic development mode. The policy suggestions provided in this book range from “the implementation of guarantee basis” to “initiative mode selection,” fully embodying the combination of “market dominance” and “government guidance” in economic development. The research employs a new methodology featuring the combination of “point— line—surface.” Various research methods are adopted such as literature review, empirical research, theoretical research, case study, and comparative study, etc., on the basis of which the existing research methods are improved to create the unique combination of “point—line—surface.” As for “point,” it refers to digging deeply into the data of a number of industries or regions, obtaining data by settling down in a certain region or industry, deeply analyzing the role of scientific and technological progress in the industrial upgrading and the transformation of economic development mode in these regions, and at the same time, demonstrating it with corresponding cases. As for “line,” it refers to combining the experience of these regions or industries together to conduct benchmarking comparison and analyzing the changes of economic development modes in different regions and the different effects of scientific and technological progress in the process of industrial upgrading in different industries. As for “surface,” it means that corresponding safeguard measures and policy suggestions can be made by analyzing the advanced experience of typical regions or industries to spill over to the whole country.

Contents

Part I 1

Theories

Scientific and Technological Progress and Economic Development Mode Transformation: A Literature Review . . . . . 1.1 Scientific and Technological Progress and Technological Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1.1 Innovation, R&D, and Technological Innovation . . . 1.1.2 Technological Innovation of Schumpeter . . . . . . . . . 1.1.3 Decisive Mechanisms of Corporate Technological Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Scientific and Technological Progress and Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . 1.2.1 Scientific and Technological Progress and Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.2 Technological Progress Thoughts in Economic Growth Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2.3 Scientific and Technological Progress and Dynamic Mechanisms of Economic Growth . . . . . . . . . . . . . . 1.2.4 Supply-Side Structural Reform and Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Interaction Between Scientific and Technological Progress and the Three Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 Scientific and Technological Progress and Agricultural Development . . . . . . . . . . . . . . . . . 1.3.2 Scientific and Technological Progress and Industrial Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.3 Scientific and Technological Progress and Service Industry Development . . . . . . . . . . . . . . . . . . . . . . . 1.4 Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Theoretical Study: Endogenous Growth Model Embedded with Innovation Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Relationship Between Innovation Heterogeneity and Endogenous Economic Growth . . . . . . . . . . . . . . . . . . 2.2 Construction of the Endogenous Growth Framework of Innovative Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Preference and Manufacturing Technology of Final Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 The Introduction of the Thought of Innovation Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Description of the Entry and Exit Mechanism of Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 General Equilibrium and Balanced Growth Path . . . 2.3 The Evolution of the Thought of Technological Progress Embedded with Innovation Heterogeneity . . . . . . . . . . . . . 2.3.1 The Innovation Heterogeneity and the R&D Investment of Enterprises . . . . . . . . . . . . . . . . . . . 2.3.2 The Innovation Heterogeneity and the Level of Technological Progress . . . . . . . . . . . . . . . . . . . 2.3.3 Innovation Heterogeneity and Balanced Growth Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Mechanism Analysis: Scientific and Technological Progress and Transformation of Industrial Development Mode . . . . . . . . 3.1 Transformation of Agricultural Development Mode Driven by Scientific and Technological Progress . . . . . . . . . . . . . . . 3.1.1 The Improvement of Labor Productivity Facilitated by Scientific and Technological Progress . . . . . . . . . 3.1.2 Emergence of New Agricultural Industries Facilitated by Scientific and Technological Progress . . . . . . . . . 3.1.3 Change of Demand Structure Facilitated by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . 3.1.4 Change of Employment Structure Facilitated by Scientific and Technological Progress . . . . . . . . . 3.1.5 Change of the Structure of Trade in Agriculture Facilitated by Scientific and Technological Progress . 3.2 Transformation of Industrial Development Mode Facilitated by Scientific and Technological Progress . . . . . . . . . . . . . . . 3.2.1 Aiming at Strategic Adjustment of the Economic Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 Scientific and Technological Progress and Innovation Driving as Pillars . . . . . . . . . . . . . . . . . . . . . . . . . .

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3.2.3

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Part II 4

Improvement of People’s Livelihood as a Starting Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.4 Construction of a Harmonious Society as an Important Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . Transformation of the Development Mode of the Service Industry Facilitated by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Scientific and Technological Progress Being the Decisive Factor of the Modernization of the Service Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 The Mechanism of Element Structure of Service Industry Adjusted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Mechanism of the Demand Structure of Service Industry Adjusted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress . 3.4.1 Scientific and Technological Progress, Expansion of Division of Labor and Development of Industrial Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Scientific and Technological Progress, Reconstruction of Value Chains and International Division of Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.3 Scientific and Technological Progress, Externalization of Services and Efficiency Improvement . . . . . . . . .

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Experiences and Empirical Studies

International Experiences of Scientific and Technological Progress and the Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Scientific and Technological Progress and the Transformation of Economic Development Mode in South Korea . . . . . . . . . 4.1.1 Economic Transformation and the Process of Scientific and Technological Progress . . . . . . . . . 4.1.2 The Influences of Scientific and Technological Progress on the Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . . 4.1.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Scientific and Technological Progress and the Transformation of the Economic Development Mode in the U.S. . . . . . . . . . 4.2.1 Review of Technological Innovations in the U.S. . . . 4.2.2 The Influences of Scientific and Technological Progress on the Transformation of the Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in the U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Scientific and Technological Progress and the Transformation of Economic Development Mode in Japan . . . . . . . . . . . . . . 4.3.1 The Four Transformation Phases of Economic Development in Japan . . . . . . . . . . . . . . . . . . . . . . 4.3.2 The Influences of Scientific and Technological Progress on the Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . . 4.3.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.1 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in South Korea . . . . . . . . . . . . . 4.4.2 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in the U.S. . . . . . . . . . . . . . . . . 4.4.3 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in Japan . . . . . . . . . . . . . . . . . .

Comprehensive Capacity Measurement and Evolutionary Analysis of the Scientific and Technological Progress in China . . 5.1 Evaluation of the Comprehensive Capacity of the Regional Scientific and Technological Progress . . . . . . . . . . . . . . . . . 5.1.1 Selection of Analytical Method . . . . . . . . . . . . . . . . 5.1.2 Design of the Index System . . . . . . . . . . . . . . . . . . 5.2 Technological Innovation Efficiency Evaluation of Industries and Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 The Choice of Innovative Efficiency Measurement Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 LP-SR Method and Its Principle . . . . . . . . . . . . . . . 5.2.3 Illustration of the Variables and Data of Technological Innovative Efficiency Measurement . . 5.2.4 Estimated Results of Technological Innovation Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Evaluation of Technological Innovation Efficiency at Country Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.3.1 Illustration of the Variables and Data of Technological Innovation Efficiency Estimation at Country Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 5.3.2 Estimated Results of Technological Innovation Efficiency at Macro-country Level . . . . . . . . . . . . . . . . 124

Empirical Studies on the Transformation of Economic Development Mode Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Scientific and Technological Progress, Government Support and Transformation of Development Mode . . . . . . . . . . . . . . 6.1.1 The Signal Transmission Mode and the Innovation Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.2 Governmental Support in the Signal Transmission Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.3 Variables Declaration and Data Sources . . . . . . . . . . 6.1.4 Results and Discussion of Regression Analysis . . . . 6.2 Scientific and Technological Progress, R&D Management and the Transformation of Enterprise Development . . . . . . . . 6.2.1 Traditional Determinants of Technological Innovation Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.2 Government Support and Introduction of R&D Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.3 Variable Declaration of Determinants and Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.4 Analysis of Influencing Factors of Technological Innovation Efficiency . . . . . . . . . . . . . . . . . . . . . . . 6.3 Technological Progress, Heterogeneity and the Transformation of Development Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1 International Technology Heterogeneity Diffusion and its Manifestation . . . . . . . . . . . . . . . . . . . . . . . 6.3.2 Innovation Heterogeneity and Modification of C-H Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.3 Technology Spillover Channel and Innovation Efficiency Measurement . . . . . . . . . . . . . . . . . . . . . 6.3.4 Data Interpretation and Regression Analysis . . . . . . 6.3.5 The Matthew Effect of R&D Spillover Heterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part III 7

8

Industries Studies

Scientific and Technological Progress and the Transformation of Agricultural Development Mode: Agricultural Intensification . . . 7.1 Embodiment of Agricultural Development Mode Transformation Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.1 Transformation of Agricultural Development Mode from Extensification to Intensification . . . . . . . . . . . 7.1.2 Development of Agricultural Organization Form Toward Industrialization . . . . . . . . . . . . . . . . . . . . . 7.1.3 Large-scale Development of Agricultural Management Mode . . . . . . . . . . . . . . . . . . . . . . . . . 7.1.4 Transformation of Agricultural Organization System Toward Combination . . . . . . . . . . . . . . . . . . . . . . . 7.1.5 Improvement of Agricultural Laborers’ Quality . . . . 7.2 Overall Level Measurement of the Progress Rate of Science and Technology in China’s Agriculture . . . . . . . . . . . . . . . . 7.2.1 Overall Level Measurement . . . . . . . . . . . . . . . . . . 7.2.2 Planting and Animal Husbandry . . . . . . . . . . . . . . . 7.3 Analysis of the Factors Influencing the Progress Rate of Science and Technology in China’s Agriculture . . . . . . . . 7.3.1 Selection of Factors Influencing Agricultural Technological Progress . . . . . . . . . . . . . . . . . . . . . . 7.3.2 Factors Influencing the Progress Rate of S&T in Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3.3 Factors Influencing the Progress Rate of S&T in Planting and Animal Husbandry . . . . . . . . . . . . . 7.4 Policy Implications of Technological Progress’s Promoting Agricultural Intensification . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.1 Developing Appropriate Scale Operation in Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4.2 Developing “Resource-saving” Agriculture . . . . . . . 7.4.3 Developing “Environment-friendly” Agriculture . . . . Scientific and Technological Progress and the Transformation of Industrial Development Mode: New-Type Industrialization . 8.1 Theoretical Model of Scientific Technological Progress Promoting New-Type Industrialization . . . . . . . . . . . . . . . . 8.1.1 Introduction of Basic Environment . . . . . . . . . . . . 8.1.2 Analysis of Sector Behaviors . . . . . . . . . . . . . . . . 8.1.3 Model Equilibrium Analysis . . . . . . . . . . . . . . . . . 8.1.4 Meaning of Model Policy . . . . . . . . . . . . . . . . . . .

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8.2

8.3

8.4

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Overall Measurement of China’s Industrial Technological Progress Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2.1 Measuring Methods . . . . . . . . . . . . . . . . . . . . . . . . 8.2.2 Data Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . An Analysis of Scientific and Technological Progress Promoting the Transformation of New Industralization . . . . . 8.3.1 Analytical Method . . . . . . . . . . . . . . . . . . . . . . . . . 8.3.2 Growth Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy Implications of Scientific and Technological Progress Promoting New-Type Industrialization . . . . . . . . . . . . . . . . . 8.4.1 Adjusting the Basic Strategies to Promote Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . 8.4.2 Optimizing the Market Allocation of Scientific and Technological Resources . . . . . . . . . . . . . . . . . 8.4.3 Establishing an Enterprise System for Scientific and Technological Innovation . . . . . . . . . . . . . . . . .

Scientific and Technological Progress and the Transformation of Service Industry Development Mode: The Modernization of Service Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Construction of the Overall Evaluation System of China’s Service Industry Modernization . . . . . . . . . . . . . . . . . . . . . . 9.1.1 Level of Capitalization . . . . . . . . . . . . . . . . . . . . . . 9.1.2 Level of Knowledgization . . . . . . . . . . . . . . . . . . . . 9.1.3 Level of High Technicalization . . . . . . . . . . . . . . . . 9.1.4 Level of Production . . . . . . . . . . . . . . . . . . . . . . . . 9.1.5 Level of Structure Softening . . . . . . . . . . . . . . . . . . 9.1.6 Level of Optimization . . . . . . . . . . . . . . . . . . . . . . . 9.2 Measurement of the Overall Level of China’s Service Industry Modernization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2.1 Measurement of the Level of Capitalization . . . . . . . 9.2.2 Measurement of Knowledgization . . . . . . . . . . . . . . 9.2.3 Measurement of High Technology Level . . . . . . . . . 9.2.4 Measurement of Production Level . . . . . . . . . . . . . . 9.2.5 Measurement of Structure Softening Level . . . . . . . . 9.2.6 Measurement of Optimization Level . . . . . . . . . . . . 9.3 Empirical Study of Scientific and Technological Progress on the Modernization of Service Industry . . . . . . . . . . . . . . . 9.3.1 Modification of the Chenery’s Model Based on the Structural Adjustment of Supply and Demand . . . . . 9.3.2 Model of Service Industry Modernization Based on the Structural Adjustment of Supply and Demand . . 9.3.3 An Analysis of Regression Results of the Service Industry Modernization Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . .

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9.4

Policy Implications of Service Industry Modernization Promoted by Scientific and Technological Progress . . . . . . . . 9.4.1 Strengthening the Application of ICT in Service Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.2 Cultivating New Types of Service by Means of International Force . . . . . . . . . . . . . . . . . . . . . . . 9.4.3 Accelerating the Servitization of Manufacturing Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4.4 Building an Institutional Environment Conducive to the Evolution of the Division of Labor in the Service Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10 The Linkage Between Advanced Manufacturing and Modern Service Industry Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Scientific and Technological Progress Has Promoted the Linkage Between Advanced Manufacturing and Modern Service Industry: Concrete Manifestation . . . . . . . . . . . . . . . 10.1.1 The Process of Service Externalization Promoted by Scientific and Technological Progress . . . . . . . . . 10.1.2 Specialization Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . 10.1.3 Optimization of Industrial Structure Promoted by Scientific and Technological Progress . . . . . . . . . 10.2 Scientific and Technological Progress has Promoted the Linkage Between Manufacturing Industry and Service Industry: Perspective Analysis . . . . . . . . . . . . . . . . . . . . . . . 10.3 Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress: An Empirical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Policy Implications for the Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . 10.4.1 The Role of Government in the Optimization of Industrial Structure . . . . . . . . . . . . . . . . . . . . . . . 10.4.2 Policy System for Technological Progress Promoting the Linkage Between Advanced Manufacturing Industry and Modern Service Industry . . . . . . . . . . . 10.4.3 Scientific and Technological Progress Promotes the Linkage Between Advanced Manufacturing Industry and Modern Service Industry: Concrete Policy Suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part IV

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Strategies and Suggestions

11 Institutional Guarantee for China’s Technological Progress Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Macroeconomic Background of the Implementation of China’ Technological Progress Strategy . . . . . . . . . . . . . . . . . . . . . 11.1.1 Practice and Theory of Technological Progress Promoting Economic Development . . . . . . . . . . . . . 11.1.2 The Necessity of Promoting Economic Development Through Technological Progress . . . . . . . . . . . . . . . 11.1.3 Overview of Theoretical Research on Technological Progress in China . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 The Institutional Basis for Implementing the Strategy of Scientific and Technological Progress . . . . . . . . . . . . . . . 11.2.1 Market System and the Implementation of Scientific and Technological Progress Strategy . . . . . . . . . . . . 11.2.2 Patent System and the Implementation of Scientific and Technological Progress Strategy . . . . . . . . . . . . 11.2.3 Financing System and the Implementation of Scientific and Technological Progress Strategy . . . . . 11.2.4 Fiscal and Taxation System and the Implementation of Scientific and Technological Progress Strategy . . . 11.3 Institutional Construction for the Implementation of Scientific and Technological Progress Strategy . . . . . . . . . . . . . . . . . . 11.3.1 Macro-control and Basic Market System . . . . . . . . . 11.3.2 Intellectual Property Protection and Patent System . . 11.3.3 Diversification of Financing Channels and Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3.4 Fiscal and Taxation Support and Public Fiscal and Taxation System . . . . . . . . . . . . . . . . . . . . . . . 12 Mode Selection for Technological-Progress-Driven Development Mode Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 Innovation Mode Driven by Global Allocation of R&D . . . . 12.1.1 Linkage Between Introduction and Innovation . . . . . 12.1.2 Precession of Imitation and Innovation . . . . . . . . . . 12.1.3 Transformation from Imitation to Innovation . . . . . . 12.2 Transformation from Traditional Industry to High-Tech Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2.1 The Core Idea of High-Tech Industry Development . 12.2.2 The Main Path of High-Tech Industry Development . 12.3 Mode of Developing Strategic Emerging Industries . . . . . . . . 12.3.1 Development of Emerging Industries and Changes of Traditional Models . . . . . . . . . . . . . . . . . . . . . . .

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12.3.2 Strategic Thinking on the Development of Emerging Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 12.3.3 Mode Selection for Emerging-Industry-Driven Development Mode Transformation . . . . . . . . . . . . . . . 363 13 Policy Suggestions for the Transformation of Economic Development Mode Driven by Scientific and Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 The Direction of Development Mode Transformation Driven by Scientific and Technological Progress . . . . . . . . . . . . . . . 13.2 Measures to Break Through the Five Bottlenecks in the Transformation of the Development Mode . . . . . . . . . . . . . . 13.2.1 The Bottleneck of Core Ideas: In-depth Implementation of the Scientific Outlook on Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.2 The Bottleneck of the Economic Structure: Accelerating the Transformation and Upgrading of the Service Industry with the Help of FTZ (Free Trade Zone) . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.3 The Bottleneck of Factor Structure: Improving the Mechanism for Factor Price and Allocating Scientific and Technological Resources Effectively . . . . . . . . . 13.2.4 The Bottleneck of Organizational Structure: Breaking Monopoly and Promoting the Transformation of Private Enterprises into Service Economy . . . . . . . . 13.2.5 Bottleneck of Management Mode: Improving the Efficiency of Government Decision-Making and the Science and Technology Management System . . . . . 13.3 “Trinity” Countermeasures for the Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . 13.4 Supply Platform Promoting the Transformation of Economic Development Mode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4.1 Building “Industrial Generic Technology Platform” on the Basis of Multiple Collaborative Innovation Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4.2 Fully Introducing and Absorbing the Concept of Big Data to Launch “Cloud Platform” . . . . . . . . . . . . . . 13.4.3 Building “Export-Oriented Technology Innovation Platform” by Opening up the Service Industry . . . . .

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Postscript . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401

About the Author

Wen Xiao, Professor and Ph.D. supervisor of School of Economics, Zhejiang University, is an expert committee member of China Council for the Promotion of International Trade (CCPIT) and Vice Chairman of the Capital Research Association of Zhejiang Province. She graduated from Fudan University and has been to the University of California, Berkeley, USA, the Royal Institute of International Affairs (Chatham House), and Hec Poitiers, France, etc. for many times to carry out collaborative research. She is mainly engaged in the research of technical economy, international investment, and so on. She has published more than 100 papers in Guangming Daily, Management World and some other newspapers and journals, some of which have been reprinted for many times by Xinhua Digest, Chinese Social Science Digest, etc. She has also published seven monographs, one of which was selected for the Chinese Academic Translation Project supported by the National Social Science Fund of China and was published globally. She is the principal-investigator of more than 20 projects such as the Major and Key Projects of National Social Science Fund of China, the Project of National Natural Science Fund of China, the Project of National Soft Science of China, the Major Project of Key Base of Ministry of Education, the Social Science Fund Project, the Natural Science Fund Project, and the Soft Science Project of Zhejiang Province and International Cooperation Projects. She has won the outstanding achievement awards in scientific research by the Ministry of Education and the Ministry of Commerce xxv

xxvi

About the Author

of the People’s Republic of China, and the outstanding achievement award in philosophy and social science of Zhejiang Province, and the first, second, and third prizes of the outstanding achievement of the Department of Science and Technology and the Department of Commerce of Zhejiang Province for many times. She is also the principal-investigator of nearly 20 projects supported by the Shanghai Municipal Government, and the Department of Transportation of Zhejiang Province.

Part I

Theories

Chapter 1

Scientific and Technological Progress and Economic Development Mode Transformation: A Literature Review

Economic development, one of the essential issues of macroeconomics, is of great economic significance, and scientific and technological progress is one of the core driving forces to ensure economic growth and promote the transformation of economic development mode. The 16th National Congress of the CPC (Communist Party of China) initiated thorough implementation of the “Scientific Outlook on Development” and the transformation of economic growth mode. The 18th National Congress added the Scientific Outlook into the Party Constitution as one of its guiding thoughts along with Marxism-Leninism, Maoism, Deng Xiaoping Theory, and the “Three Represents” theory. Thus, the thorough implementation of the Outlook is the core driving force of scientific and technological progress and the main source of accelerating economic development mode transformation in China. Before 1950s, profound studies on the effect of scientific and technological progress on economic growth had been conducted by Western economists. However, they were essentially qualitative, reflecting research features of their age. After 1950s, studies were conducted quantitatively instead, producing such classic theories as Neo-classical theory of economic growth. The endogenous growth theory proposed in the early 1980s studies the effect of technological progress on economic development by endogenous analysis of technological progress. After 1990s, empirical studies were increasingly adopted, integrating such indexes as R&D and scientific and technological progress into production function for empirical tests and expectations. This book necessitates a systematical review of the classic theories and empirical tests concerning scientific and technological progress and technological innovation, transformation of economic development mode, and industrial upgrading.

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_1

3

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1 Scientific and Technological Progress and Economic Development …

1.1 Scientific and Technological Progress and Technological Innovation 1.1.1 Innovation, R&D, and Technological Innovation Enterprises, as the main force of technological innovation, have drawn great academic attention for their innovation activities. In the literature of empirical and theoretical studies, however, the concepts of innovation, R&D and technological progress are not clearly discriminated, even used interchangeably to deal with practical issues. Thus, this chapter will first explain some terms related to innovation.

1.1.1.1

Innovation and Technological Innovation of J. A. Schumpeter

Innovation means the introduction of new combination of production factors into production system according to the definition of J. A. Schumpeter, who initiated this term. The new combination includes: (1) (2) (3) (4)

Introduce new products Introduce new technology and adopt new production techniques Explore new market(unexploited) Control the sources of raw materials, both those already available and those newly invented (5) Make a new organization, establishing or breaking a monopoly, for instance. Applying these five new combinations, entrepreneurs are able to obtain the potential profit in economic activities. According to the definition of J. A. Schumpeter, the connotation of innovation goes beyond such realms as production and technology. It also involves raw materials, production organization and market, concerning all procedures ranging from technology acquisition, raw material purchase, production and processing to marketing. Schumpeter’s innovation has actually been a generalized concept, concluding all new combinations of productive factors as innovation. Nevertheless, when it comes to innovation and economic development, he stressed the first two of all five above— new product and new technology. This seems to resemble the theories of scientific and technological progress in Neo-classical economics. In Schumpeter’s economic growth system, economic growth derives from innovation. Any innovation will be definitely imitated by those enterprises which have yet to achieve potential profits. If the imitation causes a new round of innovation, economic growth will accelerate; otherwise economic growth will come to a halt. In this case, new innovation activities are required to restore economic growth. Continuous innovation can guarantee continuous economic growth. Thus, technological innovation evolves from innovation, in which the relevant studies divide innovation into different aspects including technological innovation economics and management.

1.1 Scientific and Technological Progress and Technological …

5

The research on technological innovation can be traced back to as far as the 1960s, when National Science Foundation of U.S.A. (NSF) started out to study it, with the participation of two renowned scholars, Myers and Marquis. Successful Industrial Innovations published in 1969 articulated for the first time the connotation of innovation: it is the collection of technological innovations. This definition approximates innovation and technological innovation, and thus limits the extension of its connotation. In 1970s, NSF redefined the connotation of it as the introduction of the new or refined products, procedures and services into the market. A thorough study of Schumpeter’s theories suggests that technological progress propelling economic development means a combination of technological innovation and technological diffusion. The combination is not a simple accumulation but a deep integration, which implies “imitation” is an alternative approach to technological progress. Technological diffusion means the circulation of innovation through market or non-market to realize its significant influence on economic development.

1.1.1.2

Technological Innovation and Technological Progress

Technological progress has always been considered as the core factors driving economic development in the traditional studies of economic growth theories. There are both similarities and differences between the connotations of technological progress and technological innovation. Rosenberg (1982) explicitly defined technological progress as a certain kind of knowledge capable of improving the quantity or quality of production with given amount of resources. Technological progress has always been a hot topic in the study of economic growth theory ever since. It can be said that the evolution of economic development theory has always been based on technological progress. Neo-classical economic theory introduced technological progress into economic growth, but it was limited to exogenous technology represented by the Solow Model. The important conclusion of the model is that the rate of technological progress is equal to the growth rate of output per capita and the growth rate of capital per capita. However, since the technology of this model is exogenous, the rate of technological change is not discussed in depth. Nevertheless, the model still made a huge breakthrough to the studies of economic growth and technological progress then. In response to the limitation of exogenous technology, later the endogenous growth models included the endogenesis of technological progress into economic growth model. For the first time, K. J. Arrow made technological progress endogenous and built up a “learning by doing” model to study economic growth. According to his model, technological progress happens when capital accumulates to a certain level, while the accumulation of practical experience will gain knowledge and boost technological progress. Hirofumi Uzawa then developed Arrow’s model, pointing out that technological progress requires the input of capital and labor force. Thus, the society should encourage the flow of some labor forces into technological sectors to accelerate the technological progress of the whole economy, which will facilitate economic development. From then on, Paul M. Romer and Robert B. Lucars

6

1 Scientific and Technological Progress and Economic Development …

based their economic growth model on the fundamental assumption of technological endogenesis, and established the new economic growth theory. To sum up, it’s obvious that technological progress has always been throughout the development theoretical of the entire economic growth theory, and the transformation of technological progress from exogenesis to endogeny is also the core of economic development. Whether it is exogenous or endogenous technology, the study on technological progress is always essential to economic growth theory. Neoclassical economics, endogenous growth model and the later new economic growth theory all dealt with the influence of technological progress on the economic growth, and they all made great contributions to economic growth theory. In light of these studies, technological innovation and technological progress could be differentiated from the following three aspects. i.

The connotation of technological progress is broader than that of technological innovation. Technological progress, endogenous or endogenous, is defined by scholars as a certain kind of activity to facilitate the productive efficiency. In this sense, technological innovation is naturally an organic component of technological progress that includes other approaches such as technological diffusion. ii. Technological progress has greater continuity, and its precondition is to open up knowledge in new realms. Knowledge accumulation and circulation are the most vital ways to improve technology. Under this assumption, technological progress can be considered as a continuous time variable which can be included in economic growth model to produce an equilibrium solution. Technological innovation, however, tends to be manifested by a sudden technological breakthrough or revolution in a certain time. It happens temporarily rather than continuously. iii. Technological progress is a more macroscopic variable that exists throughout the process of economic growth. On the contrary, technological innovation seems more microcosmic, for it involves specifics of technological progress achieved in a certain time. Thus, the inherent relationship between them may be understood in a macro-micro framework. Technological progress is the macroscopic representation of technological innovation; it is a holistic concept; it could only be achieved by accumulation of various technological innovations. On the other hand, the technological innovation is the microscopic basis; various kinds of technological innovations are the micro representations of technological progress. 1.1.1.3

Innovation and R&D Activities

Research and development (R&D) is a vital means to realize technological innovation, and an indispensable component of technological progress. As for the definition of R&D, the Organization for Economic Co-operation and Development (OECD) points out that it is an innovative task to expand the knowledge stocks on the basis of

1.1 Scientific and Technological Progress and Technological …

7

the existing work, which will find its way into new applications. The definition articulates that R&D activities will facilitate technological innovation. However, is R&D equivalent to technological innovation? They have been equated in both academia and practices for a long time. A high R&D input indicates the great innovation ability of a country (industry or enterprise), while the differences between the two are not fully analyzed and understood. In fact, on the one hand, it can’t be taken for granted that R&D will definitely achieve technological innovation, for R&D is liable to take the high risk of failures. On the other hand, R&D is not a necessity for technological innovation, because new products and techniques can be achieved by means of technological trade, etc. Nevertheless, this does not deny the significant function of R&D for technological innovation, it remains the most vital means to achieve technological innovation with the limitation of technological outsourcing and trade. According to the definition of OECD, R&D can be divided into scientific research, including basic research and applied research, and experimental development. In light of the distinction of basic research, invention, development and innovation by Freeman (1982), the connection and distinction between R&D and technological innovation is further differentiate in Table 1.1.

1.1.2 Technological Innovation of Schumpeter Most researches on technological innovation involve Schumpeter’s theories on innovation. This section will review his and his followers’ major conclusions on technological innovation and economic growth from such aspects as innovation and entrepreneurs, innovation and imitation, creative destruction, as well as new developments of his theories.

1.1.2.1

Innovation and Entrepreneurs

Innovation theory and technological innovation theories founded and developed on the former were first proposed by Schumpeter (1934). In Schumpeter’s system of economic growth, innovation functions significantly. His theories on economic growth and dynamic equilibrium are directly related to innovation. Schumpeter (1934) held that the origin of economic growth is not labor or capital but innovation. Thus, economic growth can be assumed to include two totally different aspects. The first one is the Circular Flow, in which economy grows quantitatively. The quantitative accumulation, no matter how much it achieves, can not create qualitative economic growth, and therefore does not produce entrepreneurs or innovation in Schumpeter’s sense. The second aspect is that the entrepreneurs recombine productive factors and achieve a qualitative breakthrough. They are defined by Schumpeter as innovators, who are different from traditional capitalists. Thus, Schumpeter considered the development of capitalist economy to be a dynamic equilibrium process, for innovation is spontaneous, intermittent, qualitative, and revolutionary, rather than quantitative.

Scientific knowledge/technology

Scientific knowledge/technology/practical problems/experimental inventions

Applied research

Experimental development

Invention of drawings/market perception/spirit of adventure

Scientific knowledge

Basic research

Technological innovation

R&D

Intangible

Input

Entrepreneurs/bankers/architects/machinery equipment

Scientists/engineers/experimental equipment and materials/experimental factories/prototypes

Scientists/engineers/experimental equipment and material

Scientists/experimental equipment and materials

Tangible

Investment

Personnel/man-hour salary/funds/investment

Personnel/man-hour salary/funds/

Personnel/man-hour salary funds

Input measurement

Table 1.1 Basic research, application research, experimental development and technological innovation

New technique/new product

New scientific questions/invention of drawings/specification/samples

New scientific questions/inventions with or without patents/experimental technical know-how

New scientific knowledge

Output

New production line

drawings of new technique and new products/specification

Patent application/patent/research papers

Research papers

Output measurement

8 1 Scientific and Technological Progress and Economic Development …

1.1 Scientific and Technological Progress and Technological …

9

Obviously it’s different from the static equilibrium held by Neo-classical economists since Léon Walras. However, in Schumpeter’s innovation theory, the intermittence of innovation contradicts the regularity of economic cycles. More importantly, in his dynamic economic development, technological innovation is still an exogenous variable. He regarded it as “Black Box”, and failed to examine its dynamic mechanism and decisive factors. But Schumpeter’s contribution to innovation theories is undeniable, especially in 1850s when the rapid economic growth in the United States revealed to scholars a fact that output growth could not be explained by traditional labor and capital factors. Denison (1962) and Kendrick (1961) discovered the great contribution of Total Factor Productivity (TFP) to the economic growth of the United States.1 Such empirical studies proved the validity of Schumpeter’s theories on innovation.

1.1.2.2

Innovation and Imitation

Although Schumpeter’s ideas are based on the model of developed capitalist countries, they still provide later-developing countries with referential experience to catch up economically. This is particularly reflected in the idea that dynamic development of imitation and innovation encourages dynamic development of economy. Schumpeter argues that innovation is inevitably trailed by imitation in society, because businesses that have yet to achieve potential profits demand the innovative techniques and processes. This is very close to the model of technology imitation and innovation in contemporary later-developing countries. Imitation leads to a wave of innovation, and consequently the sustainability of economy. Here, imitation promotes the spiral development of innovation and is a key driver of sustainable economic development. Of course, in the process of imitation, mistakes or over-investment sometimes occur. So economic stagnation or recession following a certain extent of innovation increase and economic growth actually functions to adjust and recover economy. More importantly, Schumpeter’s theory attributes innovation to the minority of economic agents while imitation the majority. The latter wage tremendous investment with the support of banks or capitalists. Their unlimited expansion of investment inevitably leads to the gradual distribution of the profits brought by imitation, and then the withdrawal of most imitation agents from market, resulting in the weeding out of backward (non-innovative) agents at the industry level. This explanation may take into some consideration the contradiction between innovation intermittence and regularity of economic cycles. So, Schumpeter holds that as long as there is innovation, the performance of economy will naturally not stagnate in a long term;

1 Jorgenson

and Griliches (1967) argued that there was error in Dennison and Kendrick’s measurement of input and therefore the contribution of TEP in economic growth was overestimated. Despite the criticism, it could not be denied that TEP made greater contribution to economic growth than labor and capital.

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while as long as there is imitation, along with its concurrent mistakes and overinvestment, the economy will not boom forever. Thus economy will develop in a cyclical spiral manner. Additionally, it’s worth noticing that the Schumpeterists in twentieth century believe the economy in this century is a random process, fluctuating instead of cyclical. This matches Schumpeter’s theory of innovation intermittence, and consequently helps to expand the theory’s influence in economic growth.

1.1.2.3

Creative Destruction

Innovation as creative destruction is of great importance in Schumpeter theory.2 To technological progress, it means destruction of existing structures and subsequent creation of new ones. Technological progress thus achieved is revolutionary. And the fundamental competition among enterprises should not be price alone. Instead, it should be innovative activities that may promote the survival and bases of survival for enterprises. The theory was developed by later Schumpeterists. Aghion (1988) and Howitt (1992) proposed “scrap” theory. Academically, it is negative correlation between current innovation and future one, the sole equilibrium between them, leading to periodical growth of economy. Empirically, it includes both positive externality of current innovation to future one, and negative externality of future innovators to their predecessors, namely “business stealing effect”, which Paul M. Romer failed to realize. The theory shows the intermittence of innovation, that is, the uncertainty of interval between two sequential innovations, which results in the variability of economic growth. Schumpeter’s theories did prove the existence of steady equilibrium, but it is a disturbed yet dynamically balanced process. The rate of growth depends on that of innovation, the volume of human resource input of R&D, and the scale of innovation. Unlike the traditional fragmentary interpretation of innovation, Schumpeter’s idea of creative destruction presents the comprehensive influence of innovation. It is the very influence that enables the continuous improvement of productive efficiency of overall economy, which is not only shown in the monopolized profit of new products, but also in the reduced cost brought about by the improved efficiency.

1.1.2.4

New Development of Schumpeter’s Theory

The initial theories of Schumpeter were mainly applied to explaining the dynamic development of capitalist economy. With the development of technological innovation and improvement, later Schumpeterists gradually applied the theories to the economic catch-up of later-developing countries. The new application is called

2 Schumpeter’s

(1982).

creative destruction was reflected in evolution economics of Nelson and Winter

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11

“Schumpeter Model” in academic community. The model is an extension of Schumpeter’s idea about the importance of innovation into endogeneity of technological innovation concerning decisive dynamic mechanisms behind technological innovation, to which Aghion (1992), Howitt (1998b), Grossman, and Helpman (1991a) contributed much. They considered that the study of economic growth should adopt a relatively balanced perspective toward capital accumulation and innovation with neither neglected. The accumulation and innovation, equally important to economic growth, should be seen as two related aspects of one economic process rather than different drivers of economy. In the long run, growth rate is simultaneously affected by the accumulation and R&D: the implementation of new techniques that take the form of new material and labor capitals requires adequate capital accumulation; capital spurs innovation in pursuit of higher equilibrium interest, while innovation in turn spurs capital accumulation by increasing productive efficiency. Both are indispensable: without innovation, the diminishing returns would prevent new investment; without net investment, continuous increase of capital would inhibit innovation. Thus, generally, policies beneficial to capital accumulation are also beneficial to innovation, resulting in the increase of long-term growth rate. Schumpeterism maintains that knowledge innovation and diffusion generated in innovation and investment enables better projection of economic growth. The growth model of Schumpeterists can better explain the economic catch-up of later developing countries through scientific and technological progress than Neo-classical models and AK model. Technological diffusion, another key area of the model, will be discussed in Sect. 1.4 of this chapter. Schumpeter’s creative destruction was also extended into such realms as “open condition”, “multinationality”, and “human capital”, explaining the possibility of achieving scientific and technological progress through innovation, and that of achieving economic catch-up of later developing countries through technological diffusion brought about by human capital accumulation.

1.1.3 Decisive Mechanisms of Corporate Technological Innovation As discussed above, corporate innovation mechanisms generally include both independent innovation and joint innovation, but the former is the only consideration in the development of technological innovation theories, while the latter is discussed in the theories of industrial organization. Thus this part will first review the studies of corporate independent innovation in light of technological innovation. With the wide application of Schumpeter’s innovation theories in economics, studies related to technological innovation gradually change from its importance to its specific mechanisms, which is particularly reflected by studies of its “process”. The mechanisms of the “process” comprise mainly driving mechanisms of technological

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innovation and function ways of innovative factors in different organizations, for example, the increase of productive efficiency brought about by process refinement.

1.1.3.1

Hicks’ Induced Innovation Theory

Like Schumpeter, Hicks’s innovation theory emphasizes the significant contribution of technology in economic growth. He (1932) maintained that technological innovation is generally labor-saving innovation (customarily called labor intensive scientific and technological progress in current academia), and innovation direction is related to relative price variation of production factors to which he attributes endogenous driver of innovation. In other words, the driver of technological innovation is “to use more economically those factors whose prices become relatively higher”.3 According to Hicks’s ideas of technological innovation direction, two kinds of technological innovation are identified: Induced Innovation and Autonomous Innovation. Thus Hicks maintains that almost all induced innovations are labor-saving, because “the essential shortage will be that of labor force”4 in a long term. If autonomous innovation and induced innovation are randomly distributed, the mean value of innovation can generally be defined as that of induced and labor-saving innovation. His innovation concept explained the majority of technological innovation and was recognized by his many contemporary scholars. At the same time, it raised much controversy, because his explanation of technological innovation through relative price variation failed to distinguish factor substitution and genuine technological innovation. To wit, although the variation is able to reveal innovation direction, whether the direction is genuine technological innovation or factor substitution effect caused by the variation remains a question. Additionally, Hicks’ definition of innovation consider merely the relative price of some, or a portion of, factors. However, in practical decision making, entrepreneurs or managers consider more about overall cost, that is, the price of all factors. Obviously, his theory is established on a stricter and somewhat unfeasible hypothesis (Salter 1960). In fact, entrepreneurs and managers tend to be interested in reduction of overall cost rather than specific costs such as labor, salary, and interest. Of course, Salter’s criticism is based on inadequate information or rationality. In the classical analysis framework, his criticism is not necessarily tenable, because entrepreneurs and managers can easily know the proportion of salary and interest in overall cost, and thus they can easily know relative price of all factors. In order to reduce overall cost, they tend to decrease the input of factors with relative higher price while increasing that with relative lower price. And this decision, in its practical economic sense, requires entrepreneurs to choose between labor-saving innovation and capital-saving innovation, which fits in Hicks’s analysis framework.

3 Hicks, 4 Hicks,

J., The Theory of Wages, Macmillan, 1963, p. 124. J., The Theory of Wages, Macmillan, 1963, p. 124.

1.1 Scientific and Technological Progress and Technological …

13

Nevertheless, in contemporary point of view, the deficiency of Hicks’ induced innovation lies in its premise that there is enough substitution flexibility among factors. To distinguish factor substitution and technological innovation, Hicks renewed the cause and effect pattern of technological innovation: a profitable innovation is an impact. Although huge R&D input brings heavy financial burden to an enterprise, its success will result in the growth of profit and salary as well as the rarity of intensive input factors. If the rarity is not alleviated by other innovations, the impact will fade away and lead to the innovation about these rare factors. Hicks’s explanation makes a distinction of relative price change of factors between factor substitution and technological innovation. But the cost is technological innovation in his original theory (or induced innovation) is postponed to the second phase of time. Only if the innovation in the first phase, profit-oriented rather than relative price-driven, causes the change of relative price and the rarity of factors, can induced innovation happen. The logic of Hicks’s innovation can be summarized as: the first generation of endogenous innovation → rarity of factors (mirrored by relative price change) → the second generation of induced innovation → sustained economic growth.

1.1.3.2

Rosenberg’s Bottleneck Induced Theory

The only similarity between Rosenberg and Hicks lies in “inductivity” of technological innovation. He agreed with Salter on criticism of Hicks’s ambiguity between factor substitution and innovation. In addition, he argues that technological innovation is not merely induced by rarity of factors, but also results from three other mechanisms. i.

Imbalance of technology development. Many significant technological innovations are intended to resolve this imbalance. The production of a product comprises many a process, in which different techniques are utilized. When these techniques fail to reach the same standard in concerts, technological imbalance occurs and affects the overall quality of the product and related productive efficiency. To prevent the quality decline due to some relatively backward processes or techniques, enterprises will naturally seek technological innovation. Obviously, this is not because of relative price change of factors they are faced with, but because of imbalance of technological development.5 ii. Uncertainty of production process. Any production process has the possibility of failure. In the past few centuries, workers often went on strike and negotiate with the management for pay increase. When in negotiation, workers were entitled to having workdays off. This consequently broke the scheduled production 5 For

example, the bottom of early Bessemer Converter was perforated by heat just after a few uses. Thus production had to be suspended to repair the converter when it cooled down, which generated repair cost and opportunity cost. A. Holly studied the technological deficiency that unmatched Bessemer steelmaking process, and proposed replaceable bottoms that greatly increased the efficiency of Bessemer Converter.

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processes and chains and in turn caused the loss of profit for capitalists. More importantly, in a long period of time, the joint strikes were random and uncertain, and not each of them was caused by the price rise.6 Obviously, capitalists would encourage labor-saving technological innovation to control overall cost and maintain profit. And this kind of innovation is not induced by the rarity of factors, but by efforts to maintain production continuity. iii. Uncertainty of resource supply. The uncertainty can also break the scheduled production chains, making production impossible. It is not a rarity that sudden end of supply channels forced a research of substitutes, which acts as a new technological innovation. In the early WWII years, Japan cut off American rubber resource in South East Asia, forcing the latter’s accelerated research on synthetic rubber. Obviously this kind of innovation is not induced by the rarity of factors, but by the search for substitute for a certain productive factor.7 Rosenberg differs much from Hicks in mechanism. The three inducing factors result in discontinuity in production, which subsequently results in the increase in production cost and the decrease in profit. As a result, such pressure can induce corporate technological innovation that will essentially eliminate the discontinuity.

1.1.3.3

Technology-Driven Innovation and Market-Driven Innovation

As illustrated above, the theories of technological innovation process concern mainly about how technological innovation is implemented, and what its driving mechanism is. The academic argument about technological innovation pattern has long focused on technology-driven or market-driven. According to Schumpeter, instead of market being the direct driving force, the initiative of technological innovation is controlled by enterprises because entrepreneurs are the dominants of innovative activities. Thus, technological innovation in macro economy is conducted by producers according to their technological features, while customers can merely be passive receivers of the innovation, hence the so called Innovation Taker. In the research after Schumpeter, the patterns of technology-driven innovation are discussed in two aspects: one proves that enterprises with many researchers are better in innovation than those with few researchers (Villard 1958; Philips 1966; Scherer 1980; Cohen and Levin 1989; Braga and Willmore 1991; etc.); the other proves that the pace of innovation depends on scientific progress (Kelly 1970). However, large quantities of empirical studies don’t support the existence of technology propelled innovation. At the early stage, Horowitz (1962), and Mansfield (1964) conducted empirical studies with industrial data, and their results presented 6 According

to classical economics, inflation is reflected in salary. If capitalists fail to give workers timely pay increase, which causes the decline of purchasing power among workers, the workers will go on joint strike for pay increase, which increases the production cost for the capitalists. 7 It must be pointed out that substitution here is a thorough one because the previous means of production can no longer be supplied.

1.1 Scientific and Technological Progress and Technological …

15

no specific positive correlation between R&D input intensity and added value. As a result, they put forth the existence of technology-driven innovation. Along with them, the empirical study of Schmooker (1966) proved the existence of market-driven technological innovation. He studied the decisive role of patent data as advised by Kuznets, his teacher. He conducted a research into the relationship among investment, output, and patent quantity of US oil refining, papermaking, railroad, and agriculture, finding that the change of patent quantity is preceded by that of investment and output in these industries. Thereafter, Mayer and Marquis (1969) studied 567 innovations in 5 industries and concluded that demand is more important than technological potential in innovation.8 Nevertheless, Rosenberg thought that the importance of demand in technological innovation was overestimated because the 5 industries were all customer-dominated. Langrishe (1972) proved that market demand was as important as corporate technological opportunity in their contribution to technological innovation, including both of them into technological innovation pattern. Walsh, Thompson and Freeman’s empirical research (1979) articulated that among science, technology and market there are reciprocal causation and influence; and the driving force of technological innovation varies with time, place, and industry. Mowery and Rosenberg’s work (1979), seen as an extension of Walsh’s, analyzed deficiencies of those empirical studies supporting demand propelled technological innovation, criticizing their exaggeration of market demand’s contribution to innovation. They maintained that technology and market are interdependent in innovation: technology primarily guarantees innovation, while market demand primarily drives innovation. This idea was later called by some scholars “Technological Innovation and Demand Interaction Theory”. Rosenberg (1982) further clarified the different roles of technology and demand. Thereafter, the argument about technology or market drivers is widely included in vast empirical studies, which never surpassed the logic of Rosenberg and others when analyzing micro mechanisms.

1.2 Scientific and Technological Progress and Transformation of Economic Development Mode 1.2.1 Scientific and Technological Progress and Economic Growth 1.2.1.1

Classical Economic Growth Theory

Adam Smith, the father of economics, innovated the analytical paradigm in classical western economics. His contribution is twofold. He analyzed the influence of internal 8 The

5 industries are railway, railway equipment, housing construction, computer production, and computer intermediates production.

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1 Scientific and Technological Progress and Economic Development …

factor input on economic growth, such as labor, capital and natural resource; and, more importantly, he realized the significant influence of scientific and technological progress on economic growth. But his knowledge of scientific and technological progress was confined, by the age he was in, to labor division. He thought it was the most basic and simple scientific and technological progress that with development of labor division, machines came into being and increased production efficiency. David Ricardo then studied scientific and technological progress and economic growth. He held that the increase of national wealth has two approaches: one is to increase social stock of capital via more investment of social income to improve social productivity; the other is to improve factor’s labor productivity through transformation of combination patterns of various factors, which can only be achieved through the increase of factor productivity led by scientific and technological progress. Classical economists had appreciated the significance of scientific and technological progress to economic growth when discussing social wealth. However, because of the limitations of their time, their knowledge was superficial and their definition of scientific and technological progress was the simplest and most preliminary, which prevented their essential understanding of this topic.

1.2.1.2

Technological Innovation Theory

In his masterpiece, The Theory of Economic Development, 1912, Schumpeter for the first time defined “innovation”, putting forth that the essence of economic growth should be a sustained one driven by innovation rather than by long-term balance among factors. Innovation, in a sense, is the key driver to economic growth, in which entrepreneurs should exert their initiative. According to Schumpeter’s theory, the sustained growth of economy is not propelled by the balance among all factors, but by the innovation of internal factors of the economy. For instance, the evolution of capitalism is mainly reflected by the refinement of productive technology, but essentially, the refinement is propelled by those innovative entrepreneurs. After Schumpeter put forth his theories, Mansfield, Caryman, Schwarz and Levin devoted themselves into the study of innovation, expanding and deepening the classical innovation theories with a belief in the great significance of technological innovation to economic growth, and therefore forming a new research system of Schumpeterism.

1.2.1.3

Neo-classical Economic Growth Theory

At the earlier stage, classical economists such as Adam Smith (1776), David Ricardo (1817), Schumpeter (1934) and Netter (1944) discussed the relationship between economic growth and scientific and technological progress, but they did not discuss what drove sustained economic growth, for which Neo-classical economic growth theory provided a relatively good answer. Economists such as Solow, Swan, and Koopmans established macro economic growth models that are based on the criticism of Harrod-Domar model. Such models are epitomized by Solow Model put

1.2 Scientific and Technological Progress and Transformation …

17

forth by Solow in America and Swan in Australia simultaneously, so it’s also called Solow-Swan Model. Its significant contribution to the economic growth theory lies in its breakthrough in Harrod Model’s hypothesis that capital and labor cannot be substituted, and its proposal of an economic growth model producing an equilibrium solution.

1.2.1.4

Endogenous Growth Theory

Since the mid 1980s, there was a conspicuous contrast between the low economic growth rate of developed countries and the high one of the developing countries, which cannot be explained by the classical theories. Thus the endogenous growth theory, represented by Romer, was proposed. He maintained that the mere increase of simple labor force cannot exert holistic influence on economic and technological level. On the contrary, technology has strong spillover effect, through which the technology of individual enterprises can be accessed by all enterprises. Thus it can improve the overall technology level and accelerate economic growth. Economists of this theory established productive functions to illustrate technological endogenous problems. Thus scientific and technological progress was introduced into a model to be studied, and it showed that, in the long run, the accumulation of advanced knowledge and the concentration of advanced human capital benefit economic growth, which essentially propels the transformation of economic growth model. After 1990s, such economists as Helpman, Grossman and Romer further innovated the endogenous growth model, introducing R&D into the function to analyze the influence of endogenous technological progress on economic growth.

1.2.2 Technological Progress Thoughts in Economic Growth Theory The Western economic studies on national economy focus on economic growth theories, which becomes the major research paradigm. Meanwhile, these studies also touched some technological progress. Although a minority of western scholars discussed the driving factors and developing model of economy by defining economic growth and economic development, such studies are generally rare. And in the history of economic research, many economic schools once focused on technological progress and tried to integrate it into their theoretical frameworks, trying to explain the drivers of economic growth from different perspectives. The studies of economic growth in China are inadequate and lack of breakthrough. However, Chinese studies on economic growth model are adequate, and Chinese scholars put forth theories about growth model based on the condition of China and the characteristics of Chinese economic development.

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In studies on economic growth, Western scholars focus on its core driving factors. In both classical and later endogenous economic growth theories, the exploration of the relationship between technological progress and economic growth never stopped. Although the schools differ in the definition of technological progress and in analysis of mechanisms influencing economic growth, they generally agree on the facilitation of technological progress on economic growth. In 1776, Adam Smith explicitly claimed that his research was to investigate the growth of national wealth which he formulated was the result of labor division. He thought it was the evolution and development of social division that essentially drove economic growth. The three reasons why the division can increase production efficiency are as follows. First, skills and proficiency of the labor develop with division of their task and result in the increase of workload. Second, the division also increases job-changing opportunity cost. The change of job will definitely waste time for workers to accustom and get skilled. Third, with the development of division, innovative entrepreneurs start searching for more convenient production methods and invent machinery that can do simple work instead of human labor. Adam Smith’s ideas about division and technological progress is developed by Allyn Young, but is ignored by mainstream economic theories, resulting in further emphasis of capital factors. The study of economic growth and technological progress can never miss Austrian economist Joseph Schumpeter’s contribution. To him, innovation is the essential driving force of economic growth and development, and entrepreneurs are agents of innovation. Economic growth is practically periodical, which is caused by innovations of entrepreneurs. For higher margin, entrepreneurs have to innovate in order to increase profits. This stimulates investment and expansion of credit market, and leads to economic growth. The introduction of technological progress into Neoclassical growth theories derives from the calculation of growth equation. Since the 1950s, Western economists have published a series of papers, reports and monographs proving or calculating the influence of scientific and technological progress on economic growth. Despite the deficiency of Neoclassical growth theories in the study of how technological progress promotes economic growth, they still contributed much. The periodical model of Solow, a representative of Neoclassical theories, focuses on the deficiency of immaterialized, exogenous and cost-free technological progress, trying to find out a way to materialize process progress into new capital equipment, by which technological progress can be introduced into economy. He thought most of the inventions function only if they are utilized in new durable facilities, so every capitalist materializes the latest technology when the facilities are built. Therefore, all types of capital equipment in economy are distinguished by dates of their construction. And the stock of capital comprises thousands of machines built in different times, among which the later ones are more efficient that the older ones. So the total output in a certain period is the function of the technological progress level that is materialized in the machinery built before the period. The Solow model applies a specific transmission mechanism, i.e. new investment plays a vital role in economic growth. The model’s

1.2 Scientific and Technological Progress and Transformation …

19

contribution lies in that it is the first effort to build a totally feasible and materialized model of technological progress. Since being proposeded, neo-classical economics has been the mainstream in academia. Its core theory is that non-endogenous technological progress is necessary for the sustained growth and development. In other words, without a push, economy stands still. To some degree, this theory articulates the bond between technological progress, and the transformation of economic development model, to which the former is the core driving force. Although it was precious to the studies then, it confined the development of later theories, which were generally based on it. On the one hand, the theory points out that technological progress is a significant driving force of economic growth, while on the other, it excludes the former as a non-endogenous variable caused by the exterior structure of economy from the model. This unified yet also separated scientific thought made it of great theoretical significance yet of fatal limitation alike. To reform this theory, later generations of economists conducted profound research into the endogeneity of technology. Kenneth Arrow, for the first time, introduced technological progress into the model of the theory to analyze the equilibrium solution, which, as a result of economic system, is intended to regard such progress as an endogenous variable so that the theory reflects realistic economic growth better. That enables theoretical studies on the influence of technological progress to economic growth. Disagreeing with neo-classical growth theory about the exogeneity of technological progress, he measured technology and productive efficiency progress by byproduct of capital accumulation. That means enterprise can achieve productive efficiency progress through its proficient workmanship or through emulation of the other’s productive manner. In the 1970s, the studies on the growth theories came to a plateau, with a series of theories too technical and unrealistic. Until mid 1980s, such economists as Romer, Lucars, Aghion and Howitt, as well as Grossman and Helpman studies technological progress and economic growth, as an extension of Arrow and Hirofumi Uzawa’s theory. The growth theories were thus again focused on. The equilibrium solutions of these models concluded differently. In other words, the growth of economy is not necessarily sustained, because profit of investment of capital goods, including human resource, doesn’t necessarily detract over economic development. Meanwhile, these scholars pointed out that the core driver of economic progress is the enterprises’ R&D for certain purpose, monopolistic position in a way, for instance. These scholars also fully appreciated the significant exertion of the government on enterprises’ R&D and technological progress, through taxation, legislation, order keeping and intellectual property protection. With the rapid development of domestic economy, China’s research, though focusing on empirical experiences, into technological progress and economic growth increase over time. In such researches, one of the core issues is to distinguish the qualitative and quantitative variation of real capital most clearly. However, the solution to the real capital includes much of technological element, because of the imperfection of statistical data and the difficulty of distinction. In the process of studying the factors of China’s economic growth, we must realize that China’s total factor contribution rate is low, on which many scholars have

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conducted in-depth research, including analyzing the causes and how to correctly understand this phenomenon. Yi (2003) and other scholars conducted research into the innate drivers of China’s economic growth, and denied that investment was the sole driver of it. They also believed that the measuring method of total factor contribution rate should be different from that of the developed countries. Zheng Yuxin questioned whether such rate could measure economic growth properly; he reckoned that such measurement had severe limitation, which was inevitable in extensive economic growth.

1.2.3 Scientific and Technological Progress and Dynamic Mechanisms of Economic Growth The study on embryonic mechanism of economic growth can be traced as far back as before pre-classical economics, which, for instance, Plato, mercantilists and physiocracy have directly or indirectly discussed. Such economists as Adam Smith, Ricardo extended economic growth theories, emphasizing the contribution of labor specification, capital accumulation, resources, population increase and technology to the growth. Harrod-Domar Model invoked the first revolution of economic growth theory. It discussed long-term economic growth equilibrium based on saving by mathematical tools. The Neo-classical school represented by Keynes pointed out that the driver of economic growth is the combined effects of consumption, investment, expenditure and net exports. The Neo-classical growth theory system, represented by Solow model, explores the role of technological progress in economic growth and brings about its second revolution. The theory of endogenous economic growth breaks the predecessor’s shackles that economic growth is determined by the external forces of the economic system. It explores the mechanism of economic growth around “endogenous technological change” and brings about the third revolution of the theory. North (1991) who epitomizes the school of new mechanism, systematically put forth the decisive factor for economic growth to be effective mechanism, which had in the past been neglected and ignored. The World Bank, when concluding the “miracles of economic growth” stated that the mechanisms for economic growth though differ from nation to nation, can be categorized as either investment-driven or efficiency-driven. The diversified dynamic mechanisms, completing one another as a tight system, are embodied by the structure of theoretical development. The development and contents of these theories demonstrate that, on the one hand, the general appliance of the dynamic mechanisms of particular economy varies in accordance with time and space, and on the other, it’s historically logical that they develop over time. The analysis of the dynamic mechanism of China’s economic growth mainly comprises “demand” and “supply”. In the aspect of demand, the literature mainly discusses the individual function of consumption, investment and export, namely the “three wagons” (Liu and An 2011; Yao 2011; Wu 2006; Ding et al. 2012; The Project

1.2 Scientific and Technological Progress and Transformation …

21

Group of Integrated Department, National Bureau of Statistics 2014; Wu 2013; Yuan 2013; Wang et al. 2009). Although they held their individual points of view of the respective function of these three wagons, their analytical methods remain in the realm of general demand. And in that of supply, the literature emphasizes the function of such factors as capital, labor and population, technology, natural resources, and structure and policy (Zhao et al. 2007; Wun and Gao 2011; Wang and Xie 2009; Chai 2007; Qiu et al. 2006; Li and Ren 2013; Ding 2012). Obviously, the analyses on the aspect of supply are usually more sophisticated than that of demand. Policy, for instance, is even divided into a series of specified factors, including the strategy of economic development (Lin and Liu 2004), and competition and property right (Liu 2003). Meanwhile, capital is specified as capital of material, human resources and culture. That partly leads to the difficulty in the general agreement on which factor of supply is the most instrumental. The hypothesis of population dividend, for instance, holds that labor is the most pivotal factor (Cai 2007), while the one of policy dividend emphasize the policy factor (Wang and Xie 2009). Beyond doubt, such theories necessitate certain prerequisites and they also indicate the endogenous variation of China’s economic dynamic mechanisms. One study that compares the influence of policy dominance and factor contribution on China’s economic growth points out that if policy is integrated and complete, economic growth will be reflected by labor capital increase and technological development, and otherwise, it will be constrained (Li 2008). The same conclusion can also be made by analyzing the transformation of economic growth mechanisms and comparing longitudinally the influence of “three wagons” from the perspective of demand. Popularly, supply side usually emphasizes the direct impetus of productive factors to economic growth, and the influence caused by the changes of the allocation of the productive factors and their efficiency. Despite the rough division of productive factors, technology and policy in the studies, they stay on the course of supply side while not constraining themselves into analyzing the individual influence of each specific factor. Conversely, the interaction of each factor is often analyzed as well (Qiu 2006; Zhao et al. 2007; Li 2008), making the studies on the supply side relatively amplified and outstanding. It’s hard to decide which one between demand and supply is able to better summarize the mechanism and transformation of the dynamic of China’s economic growth. In the new norm, it’s more urgent to focus on their common ends rather than their different means. Although both demand and supply are different aspects of analyzing the driving force of Chinese economic growth, such analyses are still constrained in the theoretical structure of economic growth. They merely applied those theories to China’s condition rather than innovate new ones. In both new and old norms, sticking to the analytical pattern of demand and supply sides is theoretically acceptable for sure. However, in the new norm, the dynamic mechanism of Chinese economic growth differs in many aspects from that in the past. Therefore, simple and mechanical adoption of such analysis from the past into these days is barely tenable. Thus, circumspect and objective analysis of the expression and dimension of the transformation of China’s economic growth dynamic is necessary for the contemporary norm. Especially when it has the normal character of trans-stage evolution, we should

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1 Scientific and Technological Progress and Economic Development …

pay special attention to the transformation of the dynamics of economic growth. In the new norm, Chinese economy and society will step into a new era, where people need painstaking and scientific analyses into the traditional economic growth theory to decide whether it will comprehensively suit China, and whether it’s necessary and able to generate new theories on the particular issue.

1.2.4 Supply-Side Structural Reform and Economic Growth In the session of China’s central leadership of economy and finance, President Xi for the first time put forth the “reform of supply side”, explicitly emphasizing “while moderately exploiting general demand, further efforts on the structural reform of supply side should be taken to improve the quality and efficiency of the supplying system, and thus strengthen the sustainable momentum of economic growth”. China’s Central Economic Working Conference in 2015 re-emphasized the instrumental significance of such reform on the supply side and stated that “the push on the reform on the supply side is a momentous innovation that leads and modifies for the new norm of economic development, a voluntary adjustment to the competition of the integrated national strength of the new situation after the international financial crisis, which is necessary for such new norm of economic growth of China.” The central leaders put forth the above conclusion after their circumspect judgment of time and situation, and thorough analysis of the trend of China’s economic development alike. However, it doesn’t mean to relinquish the management of the “three wagons” on the demand side. Rather, it emphasizes the joint efforts on both structural reform of the supply side and the management of its counterpart (Yang 2016; Jia 2016; Gao 2016; Ma 2016; He 2016). Chinese scholars have conducted a lot of studies on the reason why China should implement supply-side structural reform in the new era, and the three reasons are as follows: i.

The side effect of the demand-dominant stimulating policies is dwindling. Since the international financial crisis, Chinese government has taken a series of actions of demand management, concerning finance, currency and investment, to maintain the growth of Chinese economy. However, the effect of such policies are ever diminishing, decelerating the economic growth of China and severely aggravating the downward pressure (Li 2016; Chen 2016; Teng 2016). ii. The legacy of the demand-dominant stimulating policy keeps cropping up. Generally, investment policy dominates the management on the demand side to accelerate the construction of infrastructure. However, such is of current investment and, in the long run, will leads to overcapacity, the overwhelming liability of the local governments and the decline of profits of the corporations. Such statement is confirmed by the “nosedive” of private investment at the beginning of 2016 (Wu 2016; Wang 2016; Qian 2016; Xu 2016).

1.2 Scientific and Technological Progress and Transformation …

23

iii. The supply-side structural reform on the supply side will improve the productive rate of overall factors to score the healthy and sustainable economic growth by eliminating overcapacity, up grading production structure and refining policy environment (Liu 2016; Feng 2016; Zhang and Li 2016; Jin 2016). Such supply-side structural reform entails effective policy support, resource supply and breakthrough in fields like finance and taxation. The most instrumental factor is policy support. Feng (2016) holds that what is pivotal for the reform on supply side is the innovation of the existing policy and the reform of the market of productive factors, concerning finance, land and taxation. That’s how market will become truly effective and decisive when it comes to allocating resources, comprehensively exerting the vitality of the economy and society. Liao and Feng (2016), Shen (2016), Mao and Kai (2016), and other Chinese scholars, after analyzing the problems of the structure of Chinese economic growth and the desynchronizing of supply and demand, believe that the breakthrough in the following five aspects comprising demand, factors, industry, policy and society is pivotal for the push on the structural reform on the supply side and is the natural choice for the new tide of economic growth. Scholars like Xiao (2016), Wu and Jiang (2016), and Xu (2016), taking hold of the practical experience of the above-mentioned reform in regions of Shanghai, Jiangsu and Zhejiang, drew up the core conclusion that pushing on institutional innovation and exerting the function of allocating resources of market is the priority above all. However, such reform on the supply side should not slacken the management on the demand side. Instead, proper attention should be paid to both sides to facilitate the sustainable development of economy (Wu 2016; Li 2016; Jin 2016; Shen 2016).

1.3 Interaction Between Scientific and Technological Progress and the Three Industries The industrial structure upgrading is vital to the transformation of economic development mode. And the research literature has fully proven that scientific and technological progress will promote the structural transformation of the three industries, especially when it comes to intensification of agriculture and renewal of industry, and modernization of service industry. Therefore, this part will review the literature of scientific and technological progress and the transformation of the development mode of the three industries.

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1 Scientific and Technological Progress and Economic Development …

1.3.1 Scientific and Technological Progress and Agricultural Development Agriculture is the fundamental sector of economic development and is pivotal to the transformation of economic development mode. A lot of international scholars such as economists T. W. Schults and V. W. Ruttan from America, and Yujiro Hayami from Japan, have conducted theoretical exploration and innovation in this field. Schults (1964) points out that agriculture is the fundamental sector of economic growth, whose development mode transformation entails modernized investment, including capital and technology input. Agriculture production efficiency could be improved by the introduction of new production methods which include both the hybridization of existing factors and the promotion of agricultural science and technology for agriculture development mode transformation. He put forth the profitable input theory. Yujiro and Ruttan then argued that the transformation in a country necessitates agriculture technology innovation. They also considered the endogeneity of technology and insisted that technological innovation should be in line with the actual situation in a country, developing new technology, though intensive R&D and innovation, that fits the country’s agriculture development. This will induce the transformation from traditional to modern, hence known as induced innovation theory. With the economic development in China, Chinese scholars conducted many studies concerning this issue and reached much agreement that scientific and technological progress offers the essential means to accelerate development mode transformation for agriculture in China. However, little agreement was achieved concerning the methods and barriers in scientific and technological progress of agriculture. In studies of its impetus, scholars generally held governments as major agent of science and technology investment. Governments should increase funds for relevant R&D, and encourage and regulate the participation of private sectors in agriculture, breaking the bottleneck in the development mode (Liu and Wang 2000). Although China increased its R&D funding of scientific and technological progress for agriculture since 1990s, it is still far behind developed countries in terms of investment and use of agriculture expenditure. The gap actually reflects the deficiency in agriculture intensification in China. At the same time, Chinese governments’ inadequate funding in fundamental researchs results in a poor foundation and in sustainability in this field (Ma 2003, Zhang 2004, Peng and Cai 2005). Thus Chinese scholars urge governments to increase funding in these researches. In addition, they are also concerned about where the funding goes. Huang and Hu (2002) and Ma (2003) pointed out the inadequate government support for advantaged and new industries suggests that science and technology funding should be in accordance with the tendency of agricultural structure transformation, giving priority to research and development of animal husbandry and aquaculture. A literature review revealed China has made great progress in agriculture. And the increasing funding in agriculture also shows the significance of agricultural development to overall transformation of economic development mode. But currently,

1.3 Interaction Between Scientific and Technological Progress …

25

science and technology and economic system still hinder the intensification of agriculture. Scientific and technological progress in agriculture has not really brought about development mode transformation due to low progress rate, low commercialization rate of scientific achievements, and inferior quality of science and technology than developed countries. A deeper reason behind the problem is that application rate of scientific and technological progress of agriculture in China is low due to current economic system, inadequate science and technology market, and uncertainty of corporate innovation agent. These problems should be immediately solved by economic policies and system such as completing intermediary market of agriculture science and technology, making agriculture intensification possible.

1.3.2 Scientific and Technological Progress and Industrial Development New-type industry and high-end manufacturing are the important goals of industrial development. Chinese scholars conducted many studies on how to achieve the goal, and most of them agreed that scientific and technological progress is the important and indispensable way to new-type industry. Studies by Chen and Tan (1996), Zhang (1997), and Pan (1998) proved that scientific and technological progress is the core driver of the transformation of economic development mode, and the key impetus to new-type of industry. It can promote industrial transformation from extensive to intensive via production factors, and essentially change industrial development mode. Despite their agreement in the ability of scientific and technological progress to promote the transformation of industrial development mode, Chinese scholars are in search for its internal mechanisms. Qi (2007) used microeconomics and macroeconomics to explore how the progress promotes the transformation. He suggested that the progress can influence the supply-demand constrains through supply curve and demand curve, and revealed one of the internal mechanisms of the transformation. Tian and Guo (2007) studied the interaction between scientific and technological progress and economic growth and concluded that they are complementary and interdependent, with the former impetus to the latter, and the latter basis for the former. Chinese scholars’ contribution in this field was not confined to theories. They made constant extension of their research scope to empirical studies, and verified the effect of scientific and technological progress on the transformation of industrial development mode and the increase of industrial production efficiency. In their earlier studies, Jiang and Mi (2006) and Peng (2007) established the positive effect of the progress on the transformation, and demonstrated the influence of scientific research fund input and human capital input on the transformation. At the same time, quite a few scholars pointed out, through their empirical studies, the problems of the transformation in China. Yang (2007) found, in his study of the

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1 Scientific and Technological Progress and Economic Development …

industrial production efficiency, that the transformation of economic growth mode in China is restrained by the low quality of overall science and technology and the lack of independent innovation capacity, which is also responsible for high-polluting and high energy-consuming industry in China. The problem can be attributed to inadequate intensity of scientific and technological progress and, more essentially, to the mismatch between long-established management system of science and technology and current development of science and technology. To wit, the gap between corporate technological innovation and the market results in problems such as low commercialization rate of scientific achievements, overspending in science and technology transaction, and inadequate use of R&D funds, the result of which is the poor quality of scientific and technological progress in the presence of large quantity. To solve the problems, the deficiencies of current science and technology system should be eradicated. Li and Xie (2007) found in a time series analysis that although industry is in the increasing stage of scale returns, it is not brought about by the expected effect of scientific and technological progress but by the effect of capital and labor input. Despite the rapid scientific and technological progress in China, scientific and technological achievements are not applied in production, that is, the commercialization of the achievements is delayed and restrains the effect of the progress on the transformation. The conclusion is also supported by the study of Liu (2010), who found that science and technology system in China is too close; scientific and technological innovation fails to function in production; current R&D is not market-oriented with enterprise as its major agent, and fails to integrate production, academics, and research; therefore a gap between R&D and production exists in some key fields or industries. To solve this problem requires the accelerated cultivation of science and technology talents and the reorganization of current allocation system of science and technology resources. The theoretical and empirical literature in this field shows that there is a wide agreement among Chinese scholars concerning the influence of the progress on the transformation, that is, scientific and technological progress is beneficial to the development mode transformation of industrial economy. However, problems still exist, including the lack of science and technology talents, low commercialization rate of scientific and technological achievements, and inadequate allocation of science and technology resources. When it comes to the essential causes of these problems, the scholars suggest that current science and technology management system does not fit current scientific and technological progress. The key to a solution is to reform the system, establishing a system suitable for the progress, and a complete intermediary market for science and technology. With the measures done, the influence of the progress on the transformation can be put into better use.

1.3 Interaction Between Scientific and Technological Progress …

27

1.3.3 Scientific and Technological Progress and Service Industry Development Current academic studies about mechanisms, with which scientific and technological progress promote service industry, are basically done in three perspectives. The first is how the connotations and features of modern service industry correlate with the progress and how the latter can better promote the modernization of the former. The second is about the linkage between modern service industry and advanced manufacturing, and how their interaction can accelerate the effect of the progress on the modernization of service industry. The third is about the influence of information technology development on modern service industry that enables the most direct progress to be practiced in the modernization of the industry. In light of the first perspective, Liu (2005) renewed the knowledge of and redefined modern service industry. He formulated that it refers to such technology-intensive service sectors as financing, information, communications, and medical care that are dependent on high and new technology, and make intensive use of the knowledge of modern management and operation methods. These services are very much technological, so scientific and technological progress is bound to promote their development. Liu (2005) and Wang and Yan (2009) and other scholars studied the essence and characteristics of modern service industry. They thought that modern service industry is interwoven with advanced technology. Here it includes the services generated by technological progress as well as the modern services upgraded from traditional ones by technological progress. All these services highly feature technology, so scientific and technological progress can play a full role in rapid development of modern service industry. In light of the second perspective, it is undeniable that the development of advanced manufacturing gives a certain rise to modern service industry and vice versa. This is because productive service sector is the core of modern service industry (Gruber and Walker 1989; Zheng and Xia 2005). The sector is usually intensive in human, knowledge, and technology capital, highly correlated with advance manufacturing, and able to introduce core technology into advanced manufacturing; therefore it is seen as the main source of high added value. Under this framework, many scholars conducted much exploration into the linkage between modern service industry and advanced manufacturing. Paul (2003) at Rome University conducted an empirical study of samples from OECD countries, testing the influence of productive sector development on export of advanced manufacturing in those countries. He firmly concluded that the development of productive sector effectively promotes that of advanced manufacturing, which indirectly supports the idea that scientific and technological progress can promote advanced manufacturing and achieve the transformation of economic development mode through productive service sector. Chinese scholars then conducted many empirical studies concerning the development of productive service sector and high-tech industry in China. They reached a wide agreement that with scientific and technological progress, such departments in advanced manufacturing as design, R&D, accounting, and auditing will withdraw

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1 Scientific and Technological Progress and Economic Development …

from the traditional manufacturing and form specialized service sectors, the productive ones; with the intensifying of scientific and technological progress, coupling mechanism between the productive service sectors and advanced manufacturing will be constantly strengthened and restructure corporate value chain (Wang et al. 2010; Xia and Gu 2007; Zhou and Zhou 2009). In light of the third perspective, information service itself is an important component of productive service sector, so the progress of information technology exerts direct influence on modern service industry and promotes the development mode transformation of service industry. Currently, the rapid innovation of the Net technology boosts the informatization of traditional service industry, and promotes its upgrading. The study of He and Yao (2008) articulated that the development of information technology directly leads to the rapid development of advanced departments in the third industry such as communications, and indirectly leads to the upgrading of traditional education and retailing, making them more convenient and comfortable. Service industry reflects, in essence, the interaction between customers and businesses (Miles 2005), so businesses in service industry have to be in close contact with their customers. The development of communication technology that innovates traditional face to face communication makes communication more convenient and message clearer, and influences the development of traditional service industry. This idea was also supported by Evangelista (2000) who suggested that the development of service industry should rely on information technology whose innovation can improve the performance of service industry and promote its modernization.

1.4 Literature Review The book makes a systematic review of the theories concerning scientific and technological progress and economic development. In particular, it reviews the relationship between scientific and technological progress and the transformation of economic development mode, as well as the interaction between the progress and the three industries. It argues that the progress threads throughout all studies about economic development. The progress is always an important factor driving economic growth and the transformation of its mode in the theories including classical theories, Neoclassical theories, technology endogenous growth theories, and new growth theories. It is believed, based on the review, that scientific and technological progress is macro factor that can exert constant influence on the transformation of economic development mode, while scientific and technological innovation is a micro factor, a phase or process of the progress. According to Schumpeter, enterprises are the major agents of innovation, so R&D must be corporate demand-oriented. However, there exists a mismatch between supply and demand of science and technology which should be solved by establish a complete intermediary market for science and technology through economic system reformation.

1.4 Literature Review

29

The conclusion finds its best expression in the interaction between the progress and the three industries. The progress is of great importance to agricultural intensification, new-type industry, and modernization of service industry. In other words, the progress can indeed promote the development mode transformation for the three industries. But the contribution of the progress is restrained by current systems, so governments should increase R&D funding, reform science and technology system, give subjectivity in R&D market back to enterprises, establish intermediary market, and promote the translation of scientific and technological achievements into production techniques. Although the book benefits much from the literature reviewed, it finds four deficiencies about this topic. First, the literature focus mainly on the transformation of structure while little is done about how the progress promotes the transformation, let alone its internal mechanisms. Second, studies about the efficiency of the transformation is basically done empirically, so theoretical study is inadequate concerning the systematic logic and interrelationship among the progress, technology efficiency, and the development mode transformation. Third, the implementation basis for the transformation is inadequately studied. Indeed, the implementation of scientific and technological progress strategy should be supported by policies at macro, medium, and micro levels, which got little academic concern. Fourth, the theoretical and empirical studies made macro measurement of the progress while ignoring its micro efficiency and failing to put forth relevant indicator system. The research design of this book is as follows: scientific and technological progress → intensive factor input → improvement of production efficiency → transformation of economic development mode. Centering on the idea of scientific and technological progress accelerating the transformation of economic development mode, the research aims to identify the internal mechanism of the process, and to put forward feasible suggestions adapted to the Chinese contex. The research is done at the micro level of enterprises, the medium level of industries, and the macro level of economy and from the following four aspects: agricultural intensification, newtype industry, modernization of service industry, and interaction between advanced manufacturing and modern service industry. The research will eventually suggest supportive measures and elective patterns about the transformation of economic development mode.

Chapter 2

Theoretical Study: Endogenous Growth Model Embedded with Innovation Heterogeneity

Technological innovation and its fruit—technical improvement and new products— will help sharpen the competitive edges of enterprises. However, not all patterns and policies for such innovation will match their productive activities and operation. It depends largely upon whether the technological innovation efficiency of enterprises matches these patterns and policies. In effect, these enterprises will have divergent decisions towards the same innovative pattern and policy, for the reason that the ratios of technological innovation input versus the yield differ from one to another. Thus, inevitably, different outcome will come in place. The difference between input and output is the difference in efficiency. As far as technological innovation is concerned, its input factors include knowledge, scientists, equipment and fund while the outcome comprises new technology, new techniques and new products. However, with the same input, the outcome could be different among these enterprises, as is a result from the gap of innovative efficiency among them. Such gap can be defined as the heterogeneity of technological innovation, which can be abbreviated to innovative heterogeneity. In the extension of such heterogeneity of innovation, when technologies are absorbed within one country, they will often match the innovative efficiency of its enterprises. However, due to the efficiency difference, when such technologies circulate within the international world, the rate of absorbing them differs from nation to nation. For a whole industry of a united nation, technological innovation activities could reap different fruits with the same policy support, and their inclination towards the market or not is also distinct.1 For individual companies, with different efficiency for innovation they will choose to adopt such innovative patterns that match their capacity. If an enterprise boasts a relatively high efficiency in innovation, it will often engage in innovative activities for high-end products. That’s how it can have a monopoly advantage and be further expanded into a new industry. Conversely, if the enterprise is relatively inefficient in 1 When

we initially transform the technology market into production and sales of products, we define them as market-oriented technological innovation activities and view patents, papers and other outputs as non-market-oriented technological innovation activities. © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_2

31

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innovation, it will, with the given resources, tend to conduct technical innovation. That means it only refines its existing assembly line without coming up with new products. Although the idea of innovation heterogeneity has not yet been theoretically summarized by scholars, in the real economic and social development, innovation heterogeneity exists universally and objectively in macro, medium and micro realms. In this chapter, we’ll creatively measure such mentioned heterogeneity by the efficiency of technological innovation and adopt it in endogenous growth model. That’s how we can study the significant influence of technological progress on the transformation of the economic development mode. Such model is structured by the endogenous theory of Klette and Kortum (2004), and by the theory of Akeigit and Kerr (2010), which takes the categories of innovation into consideration. Also, in this chapter we’ll usher micro basis into such model and will include innovative heterogeneity into the structure of it. That’s how we analyze the influence of such heterogeneity on technological progress and economic growth.

2.1 Relationship Between Innovation Heterogeneity and Endogenous Economic Growth Endogenous growth model has witnessed a rapid development in the past 20 years. However, we have meager knowledge about both the innovative and growth pattern of enterprises with various innovation efficiencies, and their contributions to the macroeconomy. There have been stark differences between the motivation of R&D activities conducted by the world’s top 500 enterprises and by new emerging enterprises, and if we take such differences into consideration, we can have a clearer view upon economic growth and policy support for innovation. What is more important is to prudently disentangle the relationship between the theoretical and practical analysis of the heterogeneity of innovation of enterprises and their R&D investment activities. That will enable us to ascertain the driving force of technological innovation of enterprises and macro-economic development with higher transparency. In this chapter, R&D activities are divided into the following two sorts: exploration R&D and exploitation R&D. The former stands for enterprises coming up with new products to prevail in the market, while the latter for refining the existing assembly lines. In this chapter we’ll first review the achievement of practical analysis on such difference of innovative activities that result from the various scales of the enterprises. Then, based on the endogenous growth framework of Klette and Kortum (2004), and referring to the approach of Akcigit and Kerr (2010), we introduce the difference in enterprise innovation efficiency into the endogenous growth framework. The division of R&D activities, namely exploration R&D and exploitation R&D, is widely adopted in management and organization behavioristics, and synchronizes the analysis of Klepper (1996), Cohen and Klepper (1996b) about the innovation of products and process. According to the study of Cohen and Klepper (1996b),

2.1 Relationship Between Innovation Heterogeneity and Endogenous …

33

investment in R&D intended to refine productivity will grow along with the enterprise scale and industrial maturity. As is manifested in their model, the innovation of process is more popular than that of products, which leads to the fact that the reward of innovation of process also grows hand in hand with the size of the enterprise. Unlike the analysis of Klette and Kortum (2004), and Akeigit and Kerr (2010), the endogenous growth framework based on the heterogeneity of innovation in this chapter has the following three refinements. First, like Akeigit and Kerr (2010), under the macro equilibrium framework of entry and exit of enterprises, we provide detailed information of two sorts of R&D activities and take innovation heterogeneity as an endogenous variable to decide on which sort of activities they conduct. As is mentioned above, there are generally two reasons for enterprises’ R&D activities: refining the existing products or coming up with new ones. The model in this part describes the enterprise dynamics according to different R&D behaviors of enterprises that have differences in innovation efficiency. In other words, it ushers the enterprises’ innovation heterogeneity as a micro-basis into the classic endogenous growth framework. Second, based on the early accomplishment of Akeigit and Kerr (2010), this chapter will provide a comprehensive view comprising both innovative heterogeneity and the probability of success in innovation activities alike, considering that the efficiency of innovation has a direct influence on such probability. Furthermore, this chapter will deepen the reference to probability theory and regard the heterogeneity of innovation efficiency as a discrete random probability distribution. That’s how this chapter will define the random difference of enterprises with R&D activities in innovative efficiency. Third, the discrimination among R&D activities will help us to use the heterogeneity as mediator variable to study the influence of innovative efficiency on innovative investment, macro technological progress and equilibrium rates of growth. Meanwhile it will also further bring academic conclusions about the R&D activities in accordance with the sizes of enterprises together. For instance, according to the divergence of the Law of Gibrat that miniature enterprises are able to grow faster under survival circumstances, in innovative enterprises, if the size of them grows, the portion of exploration R&D will dwindle, so will the intensity of such R&D, as is embodied by the portion of R&D investment in the ultimate product output. The previous models illustrate merely the change relationship between macro-growth and such intensity, and this chapter will usher in innovation heterogeneity to the model so as to study the factor behind the divergence. It needs to be emphasized that what will be analyzed in this book are only innovative enterprises that conduct innovative activities and have investments in R&D and only for the reason that there are differences in innovation efficiency between them, innovation models they choose differ to a certain extent.

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2.2 Construction of the Endogenous Growth Framework of Innovative Heterogeneity 2.2.1 Preference and Manufacturing Technology of Final Products Referring to the basic framework of Akeigit and Kerr (2010),2 this book researches a related economic reality in terms of time. There’s a typical family, which is assumed to be of risk repugnance, and its utility function is as follows. ∞ U=

exp(− pt) 0

c(t)1−ε − 1 dt 1−ε

(2.1)

In the above equation, C(t) is the consumption function of the representative household in the period of t, ρ is a fixed discount rate, and ε ≥ 0 a fixed risk aversion coefficient. Individuals in the economy independently consume the final product C(t). At the same time, another use of the final product is the company’s R&D activities. In the production process of the final product, the input of the factor labor and a continuous intermediate product j ∈ [0, 1] are required, and the production is carried out under certain production technologies. Based on that, we define the production of the final product as β(t) Y (t) = 1 − β(t)

1

β(t)

qj

1−β(t)

(t)k j

dj

(2.2)

0

In this equation, k j is the invested amount of the intermediate product j, and qj (t) is the quality of invested intermediate products. Generally, we generalize the price of each final product and make the price p j (t) = 1. We view the R&D expenditure of the entire economy as R(t), and resource constraints of the economy as a whole satisfy the following conditions: C(t) + R(t) ≤ Y (t)

(2.3)

At the same time, we assume that each final product is held by the enterprise f , which is operated by an incumbent entrepreneur and can be represented by a collection of its product lines.

2 See

Akcigit, U. and Kerr, W. R., “Growth through Heterogeneous Innovations”, NBER Working Paper, 2010, No. 16443. The improvement of Akcigit’s and Kerr’s (2010) research frameworks in the book is to further refine the heterogeneity of innovation from the “innovation type” to “innovation efficiency” so that the theoretical and the empirical research can be unified.

2.2 Construction of the Endogenous Growth Framework …

F f = { j : j is held by f }

35

(2.4)

Similarly, we use a collection to represent the combination of the enterprise’s product quality, that is,   q f = qj : j ∈ F

(2.5)

In the production of the ultimate product, we assume every intermediate product j ∈ [0, 1] is manufactured by a linear technology, which is k j = ζ ql j

(2.6)

1 In the above equation, lj stands for labor force input, q ≡ 0 q j d j for the average quality of products in the whole economy, ζ > 0 for a fixed parameter. In effect, there are two hypotheses in the linear functions of this kind: first, all intermediate products have the same marginal cost, namely ζwq > 0 (w stands for the portion of salary of the ultimate product); second, the growth rate of the marginal output of intermediate products accords with that of the ultimate products. In addition, we will assume that individual workers will be engaged in productive activities in four sectors, which are the final product sector (the proportion of labor engaged in the work is marked as L), the production sector of intermediate products (the proportion of labor engaged in the work is marked as  L), the incumbent entrepreneur (the proportion of labor engaged in the work is marked as E), potential entrant entrepreneurs outside the market with the intention of entering the market  On the basis of the (the proportion of labor engaged in the work is marked as E). above, we can obtain that at each stage, the labor market should meet the following restrictive conditions: ≤ 1 L + L+E+E

(2.7)

For the convenience of analysis, we further define the proportion of entrepreneurs in the market as S = E + E ∈ [0, 1].

2.2.2 The Introduction of the Thought of Innovation Heterogeneity Let’s assume that the last innovator of each product line owns leading patents with an ability to monopolize the price until it is replaced by another enterprise. Driven by profitable incentives, producers of intermediate products will continue to improve their technologies of existing products, thereby increasing related cost-plus proportions. Additionally, both incumbents and entrants are motivated to add new products to their original ones through R&D activities.

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Generally, we assume that the output of all R&D activities of the incumbent and the entrant is a random process. The technological progress achieved in the intermediate product j ∈ [0,1] will improve the product quality to a certain extent. If the magnitude of the increase is S j > 0, then at the moment of t + Δt, the upgrading process driven by technological innovation can be described as   q j (t + Δt) = 1 − s j q j (t)

(2.8)

Further, we assume that the increase magnitude s j > 0 is determined by the efficiency of the enterprise’s technological innovation, which, as mentioned above, is assumed to be a random variable of known distribution function. Then we’ll refer to the approach of Akugit and Kerr (2010) to distinguish between two types of R&D activities. i. Exploration R&D This type of R&D activity is carried out by the incumbent, with the aim of improving existing product technologies without creating new ones. In order to improve the quality of existing products, the company f needs to provide the following production cost:   c1 (z j )q j , δ1 ∈ [0, 1] C1 z j , q j = δ1

(2.9)

In the equation, z j is the input quantity of the exploration R&D selected by the incumbent. The relationship between the cost function and the input quantity is also affected by the technological innovation efficiency of the enterprise. We use the exogenous variable δ1 to describe such efficiency. Economically, the equation means that the R&D investment that enterprises effectively need in order to improve product quality is generally higher than the theoretical value, because the innovation efficiency of enterprises is less than 1 in most cases. Considering the efficiency of technological innovation at the industry level often has a relatively fixed average value,3 we define the distribution of innovation efficiency as an enterprise that is randomly and independently distributed to the market at a fixed average instantaneous rate λ (or called density), which is P(δ1 = δ) =

e−λ λk k!

(2.10)

Meanwhile, we define the related characteristics of c1 (·) as c1 (·) : [0, z] → R+ , which is an increasing, differentiable and strictly convex function about z j . 3 Based

on the calculations in the third part of this chapter, we also find that although there are significant differences in innovation efficiency between independent industries, at one point in time, industry-level innovation efficiency often has an average efficiency value.

2.2 Construction of the Endogenous Growth Framework …

37

Additionally, for some values of z > 0, it should meet such conditions as follows: c1 (0) = 0, c1 (0) = 0, lim c1 (z) → ∞. z→z

The definition of Eq. (2.9) indicates a popular hypothesis that more technological progress entails more R&D investment. If the incumbent’s exploration R&D is successful, the quality of existing products will increase by λ. ii. Exploitation R&D As mentioned earlier, both incumbents and entrants in the market can choose to develop R&D to gain a leading edge in new technology and develop products that are not held by the incumbent in the market. Such development requires the following R&D cost: C2 (x, q) =

c2 (x)q , δ2 ∈ [0, 1] δ2

(2.11)

In the equation, x is the input of investment of exploitation R&D. The possibility of the company’s R&D investment depends on the efficiency of the enterprise’s technological innovation δ2 . The innovation efficiency here also abides by the Poisson Distribution with an average instantaneous rate of λ. The above costs are evenly distributed over the average quality of the overall economy. The mathematical characteristics of the function c2 (·) in Formula (2.11) are consistent with that of the function c1 (·). We believe that the direction of action of exploitation R&D is flexible, which will result in the implementation of this type of technological innovation activity on any product line with the same probability. However, exploitation R&D innovation activities will not achieve technological improvements in existing product lines. As is mentioned above, the technological progress that the R&D activities of an enterprise produce is a random event, on which the degree of such progress depends. In this regard, we categorize degrees of technological progress achieved through technological innovation activities to ascertain its possible distribution. We assume that there are two levels of technological innovation: one is major innovation while the other progressive. Suppose the R&D results of the enterprise make major innovations with the probability of θ, which can marvelously improve the quality of products with a degree of improvement of η > λ. That will bring a new technology group. Similarly, the application of it will dawn for a broader campaign for subsequent innovation. In history, technological progresses such as the invention of transistors, and the determination of the human genome etc., have all manifested such characteristics. That major innovation will bring a tide of technological innovation and of new product launches, until another innovation come in place. The other progressive innovation with a given possibility of 1 − θ will not form a technology group, nor will it trigger a wave of technological innovation or new product launches. Moreover, with the increase of the number of progressive innovations, the degree of technological improvement it brings declines. In other words, the marginal output of improved technological innovation decreases. Assume the last major innovation on the product line j ∈ [0,1] precedes the k j unit innovation, then the new degree of

38

2 Theoretical Study: Endogenous Growth Model Embedded …

improvement can be defined as s j = ηα k j , α ∈ (0, 1) . According to the magnitudes of α, k j , and η, s j may be larger or small than λ. Further, we define the “arrival rate” of the new product throughout the economy as τ, which is determined by the exploitation R&D activities of the incumbents and the entrants. So far, we can give the following changes in product quality qj after a short time interval Δt. ⎧ (1 + η)q ⎪ ⎪  j (t), with probabilit y o f τ tθ ⎨ 1 + s j q j (t), with probabilit y o f τ t(1 − θ ) q j (t + t) = ⎪ (1 + λ)q j (t), with probabilit y o f z j  t ⎪ ⎩ q j, , with probabilit y o f 1 − τ + z j t

(2.12)

The first line of this formula stands for the major innovation and its possibility brought by the exploitation R&D, while the second for progressive innovation and the possibility based on it. The third line has it that the incumbent, based on the exploration innovation, achieves a technological improvement of λ on the original product line j ∈ [0,1]. The last line shows that after the time interval Δt, there is no improvement in production technology, it maintains its status quo.

2.2.3 Description of the Entry and Exit Mechanism of Market According to the definition above, there are two types of entrepreneurs in themarket:  outside one is the incumbent (E) and the other is the potential entrant entrepreneur E the market and intends to enter the market. The incumbent holds and operates the existing product line j ∈ [0,1] and conducts R&D investment, while the entrant only conducts R&D investment to become a supplier of intermediate products after successful innovations. As mentioned earlier, the entrant whose cost is C2 (v, q) = c2 (v)q decides the innovation input based on its own innovation efficiency. At the same δ2 time, we define the entrant’s existence value V0 as the expected value of a combination of successful innovation and market entry. Its specific form is as follows:

     c2 (υ)q  r V0 − V˙ = max υ E j V 1 + s j q j − V0 − υ∈[0,δ] δ2

(2.13)

In this equation, V ({q}) is the existence value of the enterprise holding a single 0 product line with a product quality of q and the value V0 that satisfies V0 = δV is δt the partial derivative with respect to time. It can be found from Formula (2.13) that    the expected value of innovation E j V 1 + s j q j is based on that of the product quality q and the quality improvement range sj . Obviously, when the external value V0 exceeds the present value wr of future wage  and income, the producer of products tends to become the entrant entrepreneur E vice versa. According to the no-arbitrage condition, the proportion of entrepreneurs among all workers satisfies the following conditions.

2.2 Construction of the Endogenous Growth Framework …

⎧ w ⎨ = 1, i f V0 > r w S ∈ [0, 1], i f V0 = ⎩ r = 0, i f V0 < wr

39

(2.14)

The definite result of the incumbent producing intermediate goods and investing in R&D, is the expansion of existing product lines. Meanwhile, the incumbent will witness the loss of some of them because of competition, which will be held by potential entrant enterprises. As the new product defined above circulates throughout the entire economy with a probability of arrival τ, we can determine a total endogenous destruction rate that the original product line faces, also τ.4 Based on this, under the condition of a given existence value V0 , when all the product line held by one incumbent is destroyed, the incumbent will be replaced and become a new entrant.

2.2.4 General Equilibrium and Balanced Growth Path For the sake of analysis, we further simplify the framework above: at any time point i, the total economic output is Y (t), the total consumption is C(t), the total R&D input is R(t), the laborer of ultimate products is L(t), the laborer of the department of intermediate goods is  L(t), the incumbent entrepreneur is E(t), the entrant entrepreneur  is E(t), the price of each intermediate product j is p j (t), the input is k j (t), and the mass is q j (t). The incumbent decides the R&D activity according to the efficiency of its own technological innovation δ j (t), introduces a new product of x(t), and can also take another R&D activity to improve the quality of each intermediate product with an improvement of s j (t) and an investment amount of z j (t); the entrant chooses R&D input v(t) based on its own innovation efficiency. The wage rate is w(t) and the interest rate is r(t). Based on that, we can define the market equilibrium, assuming that in a stable state (Y, C, R, w, q) grows at a fixed growth rate of g. Then the market equilibrium can be defined as follows.  p ∗j (t), k ∗j (t), x ∗ (t), z ∗j (t), υ ∗ (t), L ∗ (t),  L ∗ (t), (2.15) ∗ (t), Y ∗ (t), w ∗ (t), r ∗ (t) E ∗ (t), E The equilibrium of Formula (2.15) is solved individually by the following maximums: (1) p ∗j (t) and k ∗j (t) are solved by the maximum of the profit of intermediate product manufacturers. (2) x ∗ (t), z ∗j (t) and v ∗ (t) are produced by the maximum profit of intermediate product manufacturers and entrants.

4 In

fact, when a new product spreads to an existing product line, the product line is destroyed.

40

2 Theoretical Study: Endogenous Growth Model Embedded …

∗ are in accordance with the maximum profit of intermediate (3) L ∗ ,  L ∗ , E ∗ , and E and ultimate products. (4) w ∗ (t) is the result of labor market equilibrium. (5) r ∗ (t) depends on the intertemporal consumption choices of representative households. That is the basis on which we solve the market equilibrium. First, we research the product market. The standard maximization problem for representative households satisfies the following Euler equation. C∗ Y∗ r∗ − p = ∗ = Y∗ C ε

(2.16)

In the maximization of the profit of the ultimate product manufacturer, we define the inverse demand function of the product as  β −β p j = L ∗ q j k j , ∀ j ∈ [0, 1]

(2.17) ∗

As mentioned earlier, the fixed marginal cost of intermediate products is wζ q , then for each enterprise boasting a product line of j capable of monopolizing prices, the maximization problem is

  ∗ β 1−β w ∗   π q j = min L q j k j − k j , ∀ j ∈ [0, 1] k j ≥0 ζq ∗

(2.18)

Then through solving its first-order condition we get k ∗j =



 w∗ (1 − β)ζ q ∗ L q j , p ∗j = ∗ w (1 − β)ζ q

(2.19)

Considering that price can be a fixed bonus to marginal cost and is independent of the quality of a certain product, for each product we can write its profit function as    1−β  ∗ β   1−β ∗ ∗ ∗ w (2.20) π qj = π qj = L (1 − β) β β q j ζq Combining Eq. (2.19), we can calculate the maximum of the profit function of ultimate products and produce q w ∗ = β β (1 − β)1−2β ζ 1−β q ≡ β

(2.21)

which can be further simplified as  π ∗ = L ∗ (1 − β)β

(2.22)

2.2 Construction of the Endogenous Growth Framework …

41

Combining Eq. (2.19) and Formula (2.21), we can get the distribution rate of labor in the departments of intermediate and final products:  L∗ (1 − β)2 = L∗ β

(2.23)

Further, let’s look at the R&D behavior of the incumbent. We can decide the R&D choice of an enterprise by value equation. According to the definition of the first section of this chapter, q f stands for the product combination of enterprise f , and such an enterprise is able to get maximum the following profit function by selecting the best R&D investment x and progressive investment z to random j ∈ F f and by equilibrium variable (r*, τ*, π*, g* ):     r ∗ V q f − V˙ q f

=

max x ∈    [0, x] s j ∈ 0, s j F f

⎧  ⎫  c1 (z j )q j c2 (x)q ∗ ⎪ ⎪ π q − − + ⎪ ⎪ j ⎪ ⎪ δ1 δ2 ⎪ ⎪ q j ∈q f q j ∈q f ⎪ ⎪ ⎪ ⎪   ⎤ ⎡ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ q ∪ f + ⎪ ⎪   ⎪ ⎪ V θ E + j ⎪ ⎪ ⎥ ⎢ ⎪ ⎪ + η)q (1 j ⎪ ⎪ ⎥ ⎢ ⎨x ⎬   + ⎦ ⎣   q ∪ f +    − V qj V − θ (1 )E j ⎪ ⎪ ⎪ ⎪ ⎪  1 + sj q j    ⎪    ⎪ ⎪ ⎪ ⎪ ⎪ z j V q f \_ q j ∪+ (1 + λ)q j − V q j + ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ q j ∈q f ⎪ ⎪  " ! ⎪ ⎪    ⎪ ⎪ ∗ ⎪ ⎪ ⎪ ⎪ τ V q f \_{q j } − V q f ⎩ ⎭ q j ∈q f

(2.24) The set operation symbol ∪+ in the above formula means adding to the existing collection factor, for instance, {a, b} ∪+ {b} = {a, b, b} . And the symbol \_ means to delete from the existing collection factor, for instance, {a, b, b}\_{b} = {a, b}. In Eq. (2.24), the first line on the right side of the equation indicates the operating profit of the incumbent on the existing product line minus the cost of R&D; the second line indicates the value change of a new product (line) be introduced,  that can  if the development is successful. Among them, V q f ∪+ 1 + s j q j indicates the profit that the enterprise can get, if it has got a product quality improvement of S j after a successful development R&D. The result of this innovation activity is realizing a new product (line) added to the existing one. In the process, according to Formula (2.12), it can be noticed that the probability of major innovation in exploitation R&D activities is θ and the probability of progressive innovation is 1 − θ. Then we can obtain the expected value. In an exploitation R&D activity, the calculation of the expected value is actually based on the value of a combination of new products. For example, in the case of major innovation, the expected value is calculated based on     q j = q f add q j : (1 + η)q j ≡ q f ∪+ (1 + η)q j

(2.25)

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2 Theoretical Study: Endogenous Growth Model Embedded …

Similarly, the calculation of the expected value in the case of progressive innovation is based on (2.26) According to Eq. (2.10), the occurrence rate of the value change caused by a new product (line) is x. Therefore, when calculating the expected value, we need to multiply such a occurrence rate. In Eq. (2.24), the third line on the right side of the equation stands for the value change that the incumbent’s R&D activities bring about through only improving the production technology  namely, through the exploration  of existing product lines, R&D. In the equation V q f \_{qi } ∪+ {(1 + |λ)qi } means that the incumbent substitutes original technology level qj by exploration R&D and makes a technological progress with intensity λ. Therefore, the technological basis of the enterprise is q f \_{qi } ∪+ {(1 + |λ)qi }. In Eq. (2.24), the fourth line of the right side of the equal sign indicates the value change caused by the incumbent losing its original product line. The probability of losing the product line is equal to the arrival probability of the new product spreading to the entire economy, which is τ ∗ . And V (qf \_ {q j}) represents the value level of the incumbent after losing its product line {q j }.   In Eq. (2.24), the V q f of the left part of the equation means the value losses that are not caused by the R&D activities conducted by itself and its competitors. Such a situation may result mainly from the average quality change of the entire economy. To simplify Eq. (2.24), we define the scale of the optimum R&D as   Γ ≡ E j sj

(2.27)

Then the following conclusion can be drawn that is marked as proposition 1. Proposition 1 With a given equilibrium solution (r ∗ , τ ∗ , π ∗ , g ∗ ),the value equation of Formula (2.24) can be written as follows: &   V q f = A q + Bq

(2.28)

In this formula, A stands for the value of the product line hold by the enterprise, and B for that of a new product (line) obtained through innovation. Thus, A and B can be defined as

   ∗ c1 (z) (2.29) r − τ ∗ A = π ∗ + max Aλz − z∈[0,z] δ1

  ∗  c2 (x) r − g ∗ B = max Ax(1 + Γ ) − (2.30) x∈[0,x] δ2

2.2 Construction of the Endogenous Growth Framework …

43

In the formula above, g ∗ stands for equilibrium growing rate and its most efficient R&D investment is:   δ1 Aλ − δ2 A(1 + Γ ) (2.31) z ∗ = c1−1 δ1 δ2   δ1 Aλ − δ2 A(1 + Γ ) x ∗ = c2−1 (2.32) δ1 δ2 According to Proposition 1, we can discover that the value of the entrants is: V0 = Bq

(2.33)

Such value is the result of the value of the new product (line) multiplying the average quality of the entire original economy. Moving forward, we’ll study the entrants’ R&D activities and their mechanism of entry and exit. We can identify such entrants through Formula (2.13)—its value function. According to the first-order condition of this formula, and Formulas (2.28) and (2.33), we can establish the condition group of the R&D investment of the entrants. When it meets all conditions, the solution is as follows. V ∗ = c2−1 (δ1 δ2 Aλ − δ1 A(1 + Γ )) = x ∗

(2.34)

Based on Formula (2.34), we can yield the endogenous destruction rate at moments of equilibrium: ∗ υ ∗ = S∗ x ∗ τ ∗ = E∗x∗ + E

(2.35)

Up to now, we have described the basic content of the endogenous growth framework. In accordance with Akeigit and Kerr (2010), a major strength of the model is that when the economy is in an equilibrium state, it can cover the extreme situation that there exists only exit without entry (namely S = 0). Of course, in most cases the model allows the entrant to choose “positive entry”. To that end, we give the following assumption about related parameters.

c2 (x) β(1 − β) (1 + Γ ) − β max xδ2 x∈[0,x] [1 − β(1 − β)] (λz(ε − 1) + ρ) β (1 − β)1−2β ζ 1−β

 > 1 (2.36)

The economic implication of the assumption is that when all members of the economy are workers, it can make the expected return of becoming an entrepreneur higher than that of becoming a laborer. At the same time, such assumption can also ensure an active entry into the existing internal point solution of the model. According to Formula (2.26), we can naturally draw the following conclusion: as for the cost of exploitation R&D c2 (x), the higher the success probability of exploitation R&D x or

44

2 Theoretical Study: Endogenous Growth Model Embedded …

the degree of improvement of technologies occasioned by exploration R&D Γ is, the easier the above conditions able to be satisfied. Similarly, the higher the parameter of ζ decided by production rate of labor is, o the lower the discount rate ρ is, the easier the above conditions able to satisfied. Another economic meaning is that when all members of the economic entity become entrepreneurs, the expected value of entrants will always be lower than the income of becoming laborers. Based on this, Formulas (2.14), (2.21) and (2.23) have it that we can yield the value of a new product (line) of the enterprise through innovation in times of equilibrium: B∗ =

 B r∗

(2.37)

After solving the equilibrium of the final and intermediate product departments, and the R&D department, it entails further analysis towards the equilibrium of the labor market, according to the general endogenous growth framework. Since this book assumes that technological innovation activities are a random variable, and at the same time, the emergence of new products also satisfies a random variable with a known distribution function. Therefore, before dealing with the labor market equilibrium, we will first describe the degree of technological innovation and the probability of emergence of new products. We separately make the invariant distribution and the product quantity distribution function brought by R&D activities be Ψ and Φ. From a theoretical point of view, the distribution function of the innovation scale will determine the expected value of the innovation scale . We define the proportion of the product line as Ψk∗ , which is k times the progressive innovation and reaches a state of equilibrium. A stable equilibrium entails a steady innovation scale distribution. Therefore, a random innovation asset will move the quantity of a certain product up and down within a given distribution, while at the same time in every k-th progressive innovation phase, the proportion of product quantity after totalization is always stable. This stability requires that for any scale of innovation, the inflow and the outflow of products on the original product line remain equal. Based on that, we can get the following product flow equation:   ψ0∗ τ ∗ (1 − θ ) = 1 − ψ0∗ τ ∗ θ

(2.38)

∗ ψk∗ τ ∗ = ψk−1 τ ∗ (1 − θ ), k ≥ 1

(2.39)

On the left side of the two equations above, the product flows out of the original product line, and the right side of the equations is the inflow of new products. Equation (2.38) indicates the inflow and outflow of products between product lines when major innovations have just come in place. In accordance with the progressive innovation, the occurrence probability of the product outflow is τ∗ (1 − θ). At the same time, the occurrence of product inflow depends mainly on a new innovative technology. And at that moment the probability of product inflow is τ∗ θ. According

2.2 Construction of the Endogenous Growth Framework …

45

to assumptions of the model, the increased innovation of each phase of the enterprises will not affect the risk of the above-mentioned k-stage. A similar inference can apply to the proportion of products after k ≥ 1 times the progressive innovation. Based on the analysis, we can define the distribution function of k∗ according to Formulas (2.38) and (2.39): ψk∗ = θ (1 − θ )k , k ≥ 0

(2.40)

The distribution function above is able to make the expected innovation scale in accordance with: Γ = θ η + (1 − θ)

∞ & k=0

ψk∗ ηα k+1 =

θη 1 − (1 − θ )α

(2.41)

Referring to the proxy variable of the scale of enterprises—the distribution function of the quantity of products—that Klette and Kortum (2004), and Lentz and Mortensen (2008) have proposed, we assume Φn∗ stands for the proportion of the incumbent enterprises who own n product lines in times of equilibrium. Similarly, we can describe the distribution function of Φn∗ according to the inflow and outflow equation of products as follows: ∗ v ∗ , n = 0 E ∗ Φ1∗ τ ∗ = E ∗ v ∗ = E ∗ Φ1∗ (x ∗ + τ ∗ ), n = 1 E ∗ Φ2∗ 2τ ∗ + E   ∗ ∗ E ∗ Φn+1 x ∗ = E ∗ Φn∗ x ∗ + nτ ∗ , n ≥ 2 (n + 1)τ ∗ + E ∗ Φn−1

(2.42)

Also similarly, the left side of Eq. (2.42) is product inflow, and the right side product outflow. The first line of Eq. (2.42) describes the entrant entrepreneur. When an incumbent with only one product line has an endogenous damage, products will flow into entrant enterprises outside the market. When a new product is successfully developed by an entrant enterprise with a probability of v ∗ , the product will flow out of the entrant enterprise and enter the market. We can further give the expression of the distribution function of product quantity of enterprises, which is the following Proposition 2. Proposition 2 The fixed distribution function Φn∗ can be expressed as: Φn∗

∗  x ∗  1 E , n≥1 = ∗ ∗ E r n!

(2.43)

As for the proof of Proposition 2, please refer to Appendix 4. Considering that an enterprise may own multiple product lines, we make the fixed distribution function of ∗n satisfy the following equation:

46

2 Theoretical Study: Endogenous Growth Model Embedded … ∞ &

E ∗ Φn∗ = 1

(2.44)

n=1

Based on that, we can further calculate the proportion of incumbent entrepreneurs with Formulas (2.44), (2.43) and (2.35), which satisfies the following equation:   ∗ = S∗ ex p −S∗−1 E

(2.45)

Due to the equilibrium of the labor market entailing an equal sign, we get: ∗ = 1 L∗ + E∗ + E L∗ + 

(2.46)

Up to now, we can ascertain all labor distribution according to Formulas (2.23), (2.37) and (2.46). Generally, after solving the general equilibrium, we need to provide the steadystate growth rate in times of equilibrium. Before that, we should first solve the steady-state growth rate g∗ , which is the following Proposition 3. Proposition 3 When the R&D investment (x ∗ , z ∗ ) at the time of equilibrium is given, the steady-state economic growth is g∗ = x ∗Γ + z∗λ

(2.47)

The proving process of Proposition 3 is as follows. ! 1−β 1−2β β  = β β (1 − β)1−2β ζ 1−β . In this Let Y ∗ = (1 − β) β βζ q. In the formula, β situation, the growth rate of the total output equates that of the average quality of product lines in the entire economy. We can express the average quality q(t) after a short time interval of Δt as follows.     q(t + Δt) = q(t) x ∗ Δt(1 + Γ ) + z ∗ Δt(1 + λ) + q(t) 1 − x ∗ Δt − z ∗ Δt   = q(t) + q(t)Δt x ∗ Γ + z ∗ λ Then the steady-state growth rate will be g=

˙ q(t) = lim q(t) Δt→0

q(t+Δt)−q(t) Δt

q(t)

= lim

Δt→0

q(t)Δt(x ∗ Γ +z ∗ λ) Δt

q(t)

= x ∗Γ + z∗λ

The proving is completed. Then we can define the balanced growth path as follows. For any time point t, the product line j ∈ [0,1] and its quantity q j will combine the following elements to become a balanced growth path:

2.2 Construction of the Endogenous Growth Framework …



47

L ∗, Y ∗ (t), w ∗ (t), k ∗j (t), p ∗j (t)x ∗ , z ∗j , υ ∗ , L ∗ ,  ∗ ∗ ∗ ∗ ∗ ∗ E , E ,g ,ψ ,Φ ,r

' (2.48)

In the path, Y ∗ (t) and w ∗ (t) satisfy Formulas (2.16) and (2.21); k∗j (t) and p ∗j (t) satisfy Formula (2.39); x ∗ and z ∗j can be obtained according to the value equation of Formula (2.24); v ∗ satisfies the first condition of Formula (2.34); labor market ∗ satisfy Formulas (2.7), (2.23), (2.37) and (2.46); g ∗ for L ∗ E ∗ and E shares L ∗ ,  ∗ Formula (2.47), Ψ for Formula (2.40), Φ ∗ for Formula (2.42), and r∗ the Euler equation of Formula (2.16).

2.3 The Evolution of the Thought of Technological Progress Embedded with Innovation Heterogeneity 2.3.1 The Innovation Heterogeneity and the R&D Investment of Enterprises According to the conclusion of Proposition 1, we find that at the time of equilibrium the most efficient investments of incumbents and entrants are respectively ∗

z =

c1−1

x ∗ = c2−1

 

δ1 Aλ − δ2 A(1 + Γ ) δ1 δ2 δ1 Aλ − δ2 A(1 + Γ ) δ1 δ2

 

≡ c1−1 (M1 )

(2.49)

≡ c2−1 (M2 )

(2.50)

For the incumbents, the entrants’ technological innovation efficiency δ2 is an exogenous variable. Fore the entrants, the incumbents’ innovation efficiency δ1 is also an exogenous variable. Based on this, we can get partial derivatives of δ1 and δ2 respectively for Formulas (2.49) and (2.50) : ∂z ∗ 1 1 = (−1) 2 c1 (M1 )[−A(1 + Γ )](−1) 2 ∂δ1 c1 (M1 ) δ1 c1 (M1 )[A(1 + Γ )] = (−1) c12 (M1 )δ12 ∂x∗ 1 c (M2 )(Aλ) 1 = (−1) 2 c2 (M2 )(Aλ)(−1) 2 = 2 2 ∂δ2 c2 (M2 ) δ2 c2 (M2 )δ22 ∂x∗ 1 1 c (M2 )[−A(1 + Γ )](−1) 2 = (−1) 2 ∂δ2 c2 (M2 ) 2 δ1

(2.51) (2.52)

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2 Theoretical Study: Endogenous Growth Model Embedded …

= (−1)

c2 (M2 )[A(1 + Γ )] c22 (M2 )δ12

(2.53)

According to the assumption of the model, c1 (·) and c2 (·) are ( both monotonically ) increasing convex functions, thus satisfying c1 (·) > 0, c1 (·) 0, c2 (·) 0, c2 (·) < 0. ∗ ∗ > 0, ∂∂δx1 > In comparison with Formulas (2.51), (2.52), and (2.53), we have ∂z ∂δ1 ∗ 0, ∂z < 0. That means, for incumbents, the higher the innovative efficiency is, the ∂δ1 more they will invest in exploration and exploitation R&D. Conversely, for entrants, the lower the innovative efficiency, the more the investment in exploitation R&D will be. Based on that, we have Inference 1. Inference 1 If the innovation efficiency of the incumbent is higher than that of the entrant, namely δ1 > δ2 , then the greater the difference in technological innovation efficiency in the market (or the greater the heterogeneity), the greater the investment in exploitation R&D, that is to say, the heterogeneity of innovation is beneficial to the R&D investment of the overall economy. On the contrary, if the innovator’s efficiency is lower than that of the entrant (δ1 < δ2 ), vice versa. Mathematically, the inference above can be expressed as

∂ R2∗ (t) > 0, i f δ1 > δ2 ∂(|δ1 − δ2 |) < 0, i f δ1 ≤ δ2

(2.54)

In the formula, R2∗ stands for the total investment of exploration R&D in times of equilibrium.

2.3.2 The Innovation Heterogeneity and the Level of Technological Progress From Inference 1, we have ascertained the relationship between heterogeneity of innovation and the exploration R&D investment of the entire economy. However, when viewed from the angle of output, the level of technological progress doesn’t agree with R&D input completely. Combining Formula (2.12), we can get the expected value of product quality in the period of t + Δt: '   τ Δtθ (1 + η)q j (t) + τ Δt(1 − θ) 1 + s j q j (t) + z j Δt(1 + λ)q j (t)+    E j q j (t + Δt) =  1 − τ + z j Δt q j (t)      q j (t) − Δt q j τ θ(1 + η) + τ (1 − θ ) 1 + s j + z j (1 + λ) − τ + z j (2.55) 

Based on the formula above, we can calculate the state of technological progress of the general economy in the time interval of Δt, which is:

2.3 The Evolution of the Thought of Technological Progress …

T P(Δt) =

49

q j (t + Δt) − q j (t) q j (t)

(2.56)

In the formula, T P(Δt) stands for the degree of technological progress during Δt. If the t is short enough, then T P(t) = lim

q j (t+Δt)−q j (t) q j (t)

t→0 t     = τ θ (1 + η) + τ (1 − θ ) 1 + s j + z j (1 + λ) + 1 − τ + z j

(2.57)

∗ Taking the most efficient R&D investment scale " into consideration, we have τ =  ∗ q q. At the same time, L ∗ , w∗ = β S∗ x ∗ = S∗ c2−1 M2 , s ∗j = ηα k j , k ∗j = (1−β)ζ w∗ the conditions of clearing the labor market should be considered. In other words, Formula (2.7) gets an equal sign. Based on that, we further convert Formula (2.57) to

    T P ∗ (t) = 1 + λz ∗ + θ (1 + η) + (1 − θ) 1 + s ∗ − 1 τ ∗ = 1 + λz ∗ + θ ητ ∗ + (1 − θ )s ∗ τ ∗

(2.58)

Combining Formulas (2.7), (2.19) and (2.23), we get: τ∗ =

3β − β 2 − 2 ∗ ∗ 3β − β 2 − 2 ∗ −1 L x = L c2 (M2 ) β β k ∗j



(1 − β)2 ζ = β

β

(2.59)

L∗

(2.60)

Combining Formulas (2.59) and (2.60), and (2.49) and (2.50) for a production of partial derivatives of δ1 and δ2 respectively, we further get: ⎧ 2 ⎨ λ ∂z ∗ + θη(3β−β −2) ∂T P∗ ∂δ1 β ! = ⎩ ∂s ∗ τ ∗ + s ∗ ∂τ ∗ ∂δ1 ∂δ1

∂δ1

⎧ 2 ⎨ λ ∂z ∗ + θη(3β−β −2) ∂T P∗ ∂δ2 β ! = ⎩ ∂s ∗ τ ∗ + s ∗ ∂τ ∗ ∂δ2 ∂δ2

∂ L∗ ∗ x ∂δ1

∂ L∗ ∗ x ∂δ2

⎫ ! ∗ + L ∗ ∂∂δx1 + (1 − θ ) ⎬ ⎭

⎫ ! ∗ + L ∗ ∂∂δx2 + (1 − θ) ⎬ ⎭

∂δ2

∗

(2.61) ∗

TP TP According to Formula (2.36), we could infer ∂ ∂δ > 0. However, for ∂ ∂δ , we 1 2 need further conditions. If β is given and θ and η satisfy the following conditions, ∂T P∗ < 0: ∂δ2

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(θ η) β −

(1 − β)2 ζ > β



λβ + 1 − 2β β

 β1 (2.62)

That means if the result of the occurrence probability of major innovation multiplying the degree of technological progress is giant enough (similar to the expected T P∗ < 0 is correct. return being high enough), ∂ ∂δ 2 That’s how we have Inference 2. Inference 2 If the innovation efficiency of the incumbent is higher than that of the entrant, namely δ1 > δ2 , the wider the difference of technological innovation efficiency in the market is (that is, the stronger the heterogeneity of innovation is), the faster the technological progress of the entire economy will be. That is to say, the intensity of heterogeneity of innovation is beneficial to technological progress. On the contrary, if the innovation efficiency of the incumbent is lower than that of the entrant, namely δ1 < δ2 , the wider the difference of technological innovation efficiency in the market is (that is, the stronger the heterogeneity of innovation is), the slower the technological progress of the entire economy will be. In other words, the intensity of heterogeneity of innovation is not beneficial to technological progress. Mathematically, the inference above can be expressed as

∂T P∗ > 0, i f δ1 > δ2 ∂(|δ1 − δ2 |) < 0, i f δ1 ≤ δ2

(2.63)

2.3.3 Innovation Heterogeneity and Balanced Growth Path According to the conclusion of Proposition 3 in the previous section, when the R&D investment (x ∗ , z ∗ ) at the time of equilibrium is given, the steady-state growth rate of the economy is g ∗ = x ∗ Γ + z ∗ λ ≡ c1−1 (M1 )λ + c2−1 (M2 )Γ

(2.64)

For Formula (2.64), we calculate partial derivatives of δ1 and δ2 respectively and get ∂g ∗ c (M1 )[Aλ(1 + Γ )] c2 (M2 )[AΓ (1 + Γ )] = (−1) 1 + (−1) ∂δ1 c12 (M1 )δ12 c22 (M2 )δ12 c22 (M2 )c1 (M1 )[Aλ(1 + Γ )] + c12 (M1 )c2 (M2 )[AΓ (1 + Γ )] 2 δ1 c12 (M1 )c22 (M2 ) (+)(−)(+) + (+)(−)(+) >0 (2.65)  (−) (+)(+)(+) = (−1)

2.3 The Evolution of the Thought of Technological Progress …

  c1 (M1 ) Aλ2 ∂g ∗ c2 (M2 )(AΓ λ) = + ∂δ2 c12 (M1 )δ22 c22 (M2 )δ22   2 (Aλ) λc2 (M2 )c1 (M1 ) + Γ c12 (M1 )c2 (M2 ) = c12 (M2 )c22 (M2 )δ22 (+)[(+)(+)(−) + (+)(+)(−)] δ2 ), the bigger the difference of technological innovation efficiency in the market is (that is, the greater the heterogeneity is), the higher the steady-state growth rate will be, which means innovation heterogeneity has a positive impact on the growth rate of total output. On the contrary, if the innovation efficiency of the incumbent is lower than that of the entrant (δ1 < δ2 ), the bigger the difference of technological innovation efficiency in the market is (that is, the greater the heterogeneity is), the lower the steady-state growth rate will be, which means innovation heterogeneity has a passive impact on the growth rate of total output. Mathematically, the above inference can be expressed as:

∂g ∗ > 0, i f δ1 > δ2 ∂(|δ1 − δ2 |) < 0, i f δ1 ≤ δ2

(2.67)

Through the theoretical analysis of this chapter, we can fully realize that innovation heterogeneity has a “substantial influence” on technological progress and economic growth. Therefore, if we neglect such heterogeneity, our knowledge about the micro mechanism of technological progress will be significantly restricted. Particularly, the chapter proves that, under certain circumstances (e.g. the innovation efficiency of the incumbent is higher than that of the entrant), such heterogeneity will greatly enhance the level of the R&D investment of enterprises in the state of common equilibrium, that of technological progress of the macro-economy and that of economic growth, which suggests that policy makers should fully realize the existence of such heterogeneity, respect the difference of innovation and innovation efficiency between enterprises or industries, and come up with different strategies of technological innovation accordingly.

Chapter 3

Mechanism Analysis: Scientific and Technological Progress and Transformation of Industrial Development Mode

3.1 Transformation of Agricultural Development Mode Driven by Scientific and Technological Progress The most significant aspect of agricultural development mode is manifested by the transformation from extensity one to intensity. Scientific and technological progress helps higher-end productive factors come into place, which surely improves agricultural productivity. The application of new knowledge and high technology helps agriculture grow in productivity and scale and also directly improves the overall quality of the labor force in the industry, effectively boosting their initiative and driving agriculture to develop in a more reasonable way. It can be said that scientific and technological progress has exerted its influence on agriculture in many ways and in this chapter the mechanism of such influence will be analyzed from six aspects.

3.1.1 The Improvement of Labor Productivity Facilitated by Scientific and Technological Progress The improvement of labor productivity is the essential manifestation of the transformation of agricultural development mode, and undeniably, scientific and technological progress is the fundamental guarantee for the improvement of agricultural labor productivity. It is precisely because of the ever improving technology that new agricultural technologies are continuously promoted and applied, that hightech agricultural equipment is continuously put into production, and that the quality of agricultural laborers is incessantly improved, which has led to the continuous transformation of agricultural production mode from extensity to intensity. Simultaneously, agricultural technological progress will promote the scale of such industry, making its production more standardized and streamlined and the division of labor much clearer. Therefore, scientific and technological progress is the core driving force for the transformation of agricultural development mode. © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_3

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In the process of agricultural development, a very important reason for restricting the rapid development of agriculture is the lack of resources. Especially in China, the contradiction between growing population and limited land looms ever larger, and the unpromising land also considerably curtails its development. To solve the problem, it is impossible to rely solely on resource exploitation. Only through scientific and technological progress can resources and factors be more rationally distributed. Some modern resources can replace the traditional ones in agricultural production to make a breakthrough of the resource bottleneck. For instance, in order to solve the problem of too many people and too little land, we should increase the R&D on soilless cultivation to save space. While emphasizing technological progress in agriculture, attention should be paid to the fact that it should conform to China’s actual conditions, and break through different technological barriers according to different stages and forms of economic development. Viewed from concrete production practices, the impact of agricultural technological progress on agricultural production is mainly manifested in the following aspects: multiple cropping, breeding, chemical fertilizers and agricultural machinery application. The application of those technologies embodies the following important features: First, scientific and technological progress has saved labor force and by such means as agricultural machinery, the need of labor force in agricultural production is lowered, but the demand for labor quality has increased; secondly, scientific and technological progress has led to a higher rate of land use, alleviating the land pressure of agricultural development. It has augmented the rate of land use by means of breeding technology and some other innovations, and improved the productivity through technologies such as the application of chemical fertilizer; last but not least, scientific and technological progress has made the level of agricultural production mechanization continuously improved and gradually manpower is replaced by machinery to carry on work, thus effectively promoting the development of agricultural intensification.

3.1.2 Emergence of New Agricultural Industries Facilitated by Scientific and Technological Progress The transformation of agricultural development mode means more than mere an increase in productivity. More importantly, with the increase in the added value of agricultural productivity, new agricultural industries related to our life will spring up. At the early stage of the transformation, such resources as land and labor are factors that may hinder agricultural development. However, with the improvement of people’s living standard, their demands for environmental protection and nutrition of agricultural production are getting higher and higher. To solve these problems, it is necessary to promote new agricultural industries through scientific and technological progress.

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Specifically speaking, new agricultural industries are formed in two main ways. The first one is “induced” agricultural industry, which means to induce new agricultural industries, based on the original industries, by overcoming the barriers to the process of development. The second one is “original” agricultural industry, meaning that unprecedented industries come into being as a result of scientific and technological progress, such as transgenic and microbic technologies. The development of such industries needs to be based on bioengineering. For instance, with economic development, people became increasingly concerned about environmental protection and the proper use of resources. As a result, as early as in the 1980s, precision agriculture begun to exist. Developed countries such as the US, the Great Britain and Germany have developed precision agriculture, making full use of information and biological technologies as well as engineering equipment. The mode of precision agriculture will not only rationalize the use of land, water fertilizers and other resources, but also increase productivity. That’s how it can achieve a coordinated development of society, economy, environment and other aspects. China is also pushing forward the development of precision agriculture. It coordinates the agriculture-related auxiliary resources thoroughly to realize the joint development of production supervision and environmental protection. An important manifestation of the transformation of agricultural development mode promoted by scientific and technological progress is the rise and development of new agricultural industry. The new agricultural industry is characterized by the features of modern industry such as intensiveness, large scale, and industrialization, whose development depends on the scientific and technological progress. The formation of the industries means the transformation of those traditional ones, and also, more importantly, the development of the industries stands for a remarkable manifestation that agricultural technological progress is demonstrated in productivity. It is worth mentioning that the new agricultural industries require not only a large amount of investment in scientific and technological progress, but also the establishment of research institutions to achieve a deep integration of production, study and research. The new agricultural industries entail high standards of agricultural technology, which need a large amount of funds to conduct technological R&D. What’s more, technological R&D also requires the joint effort of universities, corporations and governments. In particular, the main body of R&D should be clearly defined so that the R&D of agricultural technology can be practically applied to agricultural production. To achieve that, the ideal method is to set up a creative agricultural park for R&D. Through the seamless connection within the park, sufficient funds are guaranteed for R&D, and R&D achievements can be linked with the new agriculture and practically put into agricultural production. Only in this way can we guarantee the fundamental transformation of agricultural development mode.

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3.1.3 Change of Demand Structure Facilitated by Scientific and Technological Progress There are stark differences between modern and traditional agriculture. The former has been perfectly integrated into the development of modern economic system. As far as agriculture is concerned, it has to meet the ever diversified consumption structure of people. Therefore, the inclination of scientific and technological progress should be focused on. On the one hand, such progress will improve the productivity of agriculture and the quality of products. On the other, scientific and technological progress will change people’s consumption demand for agricultural products and thereby influence the production of them. Only when enough attention is paid to the inclination of agricultural technology progress can agricultural development mode be effectively transformed. During the period between the establishment of People’s Republic of China and its reform and opening-up, as far as agricultural production is concerned, the most prominent problem was food supply. Resolving the problem of foods was China’s essential goal at that time. Therefore, the priority was to boost crop yield to coordinate supply and demand. For that reason, during the period, agricultural technology was focused on providing productive machinery and the extensive application of pesticides, by which China would increase agricultural yield and realize moderate sufficiency. After that period, when such problem was solved nationwide, the demand for the variety of products began to increase—people require not only basic crops but also other foods such as poultry meat and vegetables. The change of demand structure makes the division of agricultural industrialization more specified. Some people still engage in the production of basic crop while others began to be engaged in poultry breeding to meet the demand of consumers. During this period, the influence of scientific and technological progress on agriculture was exploring breeding techniques and expecting the increase of breeding yield. At the present stage, people’s differentiated demands push the diversification of agricultural products, which requires not only seasonal products, but also non-seasonal products. Meanwhile, people also demand higher quality of such products rather than sheer quantity, and more auxiliary industries such as processing, insurance and transportation. So the contemporary influence of scientific and technological progress on agricultural development mode is manifested by diversified inclinations of technological progress, not only by improvement of production technologies, but also by the upgrading of auxiliary industries such as refinement, examination and transportation. It can be said that on the one hand, scientific and technological progress has promoted the change of consumer demand, but more importantly, the mode of agricultural production has also been adjusted with consumer demand, thus promoting the refinement and intensification of agricultural development.

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3.1.4 Change of Employment Structure Facilitated by Scientific and Technological Progress The influence of scientific and technological progress on employment structure is mainly embodied in two aspects: First, such progress decreases the proportion of agricultural labor and gradually drives the surplus to advanced industrial sectors; second, it improves the quality of agricultural laborers. As for the first aspect, such progress pushes forward the process of mechanization and automation of agricultural labor. It gradually frees human labor force from agriculture, driving the surplus to urban areas and other developed places, which is surely the result of economic development. In the overall economic structure, agriculture is the fundamental sector. However, industrial and service sectors are really the core driving force of economic development, which requires a tremendous amount of labor forces. Scientific and technological progress should meet that need by freeing agricultural labor forces for those sectors, making the overall economic structure more healthy and rationalized. The influence of the second aspect is obvious. Agricultural technology progress necessitates professional human resources in large quantity, who should be not only familiar with basic knowledge about agriculture but also acquainted with the application of advanced technology and equipment. That’s why higher standards for agricultural laborers are required. To cultivate such people, not only universities and colleges but also official institutes need to be motivated or built so as to train them in a large scale. That’s how we can improve the overall knowledge of the agricultural labor forces and achieve a substantial improvement of their quality. Meanwhile, agricultural technology progress gives a push to the specified, professional division of agriculture, which entails high standards of professional quality of the laborers, who should be able to withstand the challenge of the division and accelerate the transformation of agricultural development mode.

3.1.5 Change of the Structure of Trade in Agriculture Facilitated by Scientific and Technological Progress In the wave of world economic integration, international division of labor is becoming more and more specified. Under the fierce competition, developed countries are gradually engaged in the production of technology and capital-intensive products, namely the production of high value-added products. And developing countries are mainly engaged in the production of resource-intensive and labor-intensive products, that is, the production of low-value-added products. As for agricultural products trade, scientific and technological progress can help improve the quality and the added value of the produces, realize the transformation from the export of agricultural raw materials to the export of fine agricultural products, and thus optimize the structure of agricultural products trade

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That scientific and technological progress improves the international competitiveness of agricultural products and optimizes the trade structure of national agricultural products is mainly manifested in the following three aspects: first, technological progress is beneficial to expand the price of agricultural products and lower the production cost of agricultural products by improving the efficiency of agricultural production, and reducing the unnecessary waste of resources in the process of agricultural production to keep price advantage in the international competition of agricultural products and enhance its international competitiveness. Second, scientific and technological progress will increase the added value of agricultural products. The innovation of production techniques brought by the technological progress will enable China’s deep processing of agricultural products. That’s how the quality and added value of such products will be improved, transforming China from a raw material exporting country to the one that exports manufactured goods. Meanwhile, the market share can be enlarged by relinquishing obsolete techniques for the new ones, which will facilitate the upgrading and renewal of agricultural products. Third, scientific and technological progress will help China’s agricultural products to gain a share in the markets of the developed countries by improving the quality of the products to such an extent that they will meet the trading technological standards of them, transcending the technological barriers set by the EU or other countries.

3.2 Transformation of Industrial Development Mode Facilitated by Scientific and Technological Progress 3.2.1 Aiming at Strategic Adjustment of the Economic Structure The complexity of the world economy after the international financial crisis and the gloomy future of the revival of the developed countries are naturally challenges to China. Heavy industries, pivotal for China’s economy, featuring high pollution and energy consumption are difficult to continue. And such a mode of China’s economic development driven by labor-intensive manufacture, export and investment can hardly be sustainable. Therefore, the adjustment of economic structure now looms ever larger for China. To essentially achieve such a goal, China cannot but, we believe, count upon scientific and technological progress. In other words, technological progress is the only way to adjust the economic structure and transform the economic development mode. During the post-financial crisis age, the world is conceiving another wave of technological and industrial revolution, with all developed countries bracing themselves to stimulate their economic revival. Every country is seriously studying the trend of scientific and technological revolution and is proactively preparing themselves to embrace the chance to transform their traditional

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industries to modern ones. China should also follow the trend, grasp the opportunity of scientific and technological revolution to adjust the economic structure and improve the international competitiveness. The obvious downward trend of China’s internal economy doesn’t mean it is in recession. Conversely, it is a necessary process for the upgrading and transformation of China’s economy to become sustainable. Over the past three decades of reform and opening-up, China’s economy has gone through a period of sustained high growth, which are based on high investment and rapid export, and many of the products produced are labor-intensive products with high pollution and high energy consumption. It can be said that the rapid growth has largely taken advantage of China’s demographic dividend. With the economic development and the improvement of people’s living standards, China’s domestic demand structure will become diversified and high-end. And the demand for premium products, sophisticated services in particular, will dramatically increase, and low-end products will gradually be eliminated over time. Overcapacity will become more and more serious, and unreasonable industrial structures will continuously highlight. Unbalanced regional development and low urbanization are likely to provoke social conflicts. Therefore, it is imperative to adjust China’s economic structure. Resource input can but alleviate such problems, while scientific and technological progress will make a breakthrough of those constrains. Scientific and technological progress can increase productivity, improve product quality, innovate production technology, and promote the development of new industries, thereby upgrading the industrial structure, improving the level of urbanization and meeting people’s increasingly diversified demand structure.1 Fortunately, China has paid obvious attention to this point. The 13th FiveYear Plan clearly stated the significance of scientific and technological progress in adjusting the economic structure and transforming the economic development mode. Scientific and technological progress is pivotal for the solution of economic problems left by the history, the optimization of the organization of enterprises, the fulfillment of people’s increasingly diversified demand, the improvement of the international industrial competitiveness, and China’s leading place in the new tide of revolution of new technology and industry. Particularly, we should increase the support to the development of strategic emerging industries, accelerate researches on new energies and new materials, promote the development of green and low-carbon economy, and strive for the leading status in the manufacturing industry. Adjusting the economic structure and transforming the economic development mode also require a vigorous promotion of technological transformation projects and the acceleration of the transformation of traditional industries into modern industries. In summary, we must fully realize that scientific and technological progress is the only way to accelerate the transformation of industrial development mode, which must be carried out with the adjustment of economic structure as the main direction.

1 The

viewpoint has been published in the 4th issue of Zhejiang Academic Journal of 2011.

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3.2.2 Scientific and Technological Progress and Innovation Driving as Pillars Innovation driving is, self-evidently, to accelerate the transformation of economic development mode by relying on scientific and technological innovation. Innovation driving and technological progress complement each other: on the one hand, the latter can promote the former while the former lays a foundation for the latter. As for innovation driving, not only China but also developed countries such as the US, Japan and Germany have stated explicitly that they will facilitate their economic revival by innovation driving in the new tide of technological and industrial revolution. For China, its significance is self-evident. What is hampering further sustainable development of China is the inadequacy of innovation and low levels of science and technology in the process of economic development, although China has maintained a high growth rate for quite a long time. To change this situation, scientific and technological progress and innovation driving must be relied on. China’s industrial structure is predominated by low added-value industries. On the one hand, it’s because China’s overall economy stays in the primary stage and is no match to that of developed countries. On the other, such a situation results from China’s incompetence in independent and secondary innovation and lack of original technologies. Statistics have it that half of the technologies of China are from other countries, far more than those of the developed countries like the US and Japan, which results in China’s industrial structure dominated by low-end manufacture with no prospect of effective upgrading. In the face of the situation, only by adopting the strategy of scientific and technological progress and innovation driving can China improve the ability of independent innovation and get rid of the dilemma. As far as innovation driving is concerned, the relationship between the government, enterprises and universities should be clarified. We believe that enterprise should be the main body of innovation, because the final production is carried out in enterprises, and enterprises know the demands of innovation and can provide it through R&D. And colleges and universities should be the main body of basic research, providing the most fundamental guarantee for scientific and technological innovation from the theoretical perspective. The government should play a guiding and guarantee role, actively guide enterprises and universities to clarify the division of scientific research, and create favorable conditions for their technological R&D.

3.2.3 Improvement of People’s Livelihood as a Starting Point The improvement of people’s livelihood is the goal of both the transformation of economic development mode and economic structural adjustment. Thus the fundamental starting point for promoting the transformation of economic development mode through scientific and technological progress should be on behalf of the interest

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of people, aiming at the improvement of their livelihood and promoting socialist livelihood construction. Since the reform and opening-up China’s economy has scored a major breakthrough and constant growth in terms of volume. It has surpassed Japan and become the second in the world with a big probability to surpass the US in the future. However, because of the large population of China, it lags far behind compared with developed countries in terms of income per capita, and there exists a big gap between urban and suburban areas, despite an ongoing vigorous integration of these areas. To solve these problems, we must rely on scientific and technological progress to accelerate the transformation of economic development mode and adjust the economic structure. The transformation of the industrial development mode by scientific and technological progress should be people-oriented with everything starting from the point of safeguarding the fundamental interests of people and improving their life. Otherwise, all efforts will be in vain. So far the Chinese government has fully realized it and proposed that the sustainable economic development should be people-oriented to meet the demands of people’s free development, effectively configure production materials, and coordinate production activities. China is striving to eradicate poverty and achieve common prosperity. It has introduced a large number of measures to promote the integration between urban and rural areas, to narrow the urban-rural development gap as much as possible, and to achieve social equity and a sustainable development of the whole society. The results of the reform and opening-up are no longer exclusive to some interest groups. Through reforming the income distribution the country is making the fruits of economic development shared by all of its people and truly achieving the goal of common prosperity. Whether it is in the past or in the future, the transformation of the economic development mode through scientific and technological progress must take the protection and improvement of people’s lives as the most fundamental starting point, and a good environment for the masses to live and work should be provided.

3.2.4 Construction of a Harmonious Society as an Important Focus Since the Third Plenary Session of the Sixteenth Central Committee put forward the proposal of constructing a harmonious society, the fundamental task of accelerating the transformation of economic development mode has been the construction of the harmonious society and made the economic development more abide by the objective laws of economic and social development through scientific and technological progress. China, the second largest energy consumer in the world, has been taking the industries of high energy consuming and pollution as backbones. Metallurgy and chemical industries, for instance, consume up to 60% of the energy of the total industry of China, but only make up less than 20% of its total industrial value. Changing such a situation entails scientific and technological progress, which will

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improve the efficiency of industrial production and facilitate the development of new strategic industries. With the above done, the country can build a resource-saving and environmentally friendly society where resources, environment and economy can go forward hand in hand. The transformation of economic development mode is urgent. If still following the original road of development, China’s economic development will be difficult to sustain. If not relying on scientific and technological progress, the country will not be able to change its economic development mode. As far as the transformation of the industrial development mode is concerned, only by increasing investment in technological R&D and enhancing the level of science and technology can China improve production efficiency and reduce energy consumption and pollution so as to promote the development of emerging strategic industries and truly realize new industrialization. In the meantime, the transformation of economic development mode through scientific and technological progress requires the adjustment of the economic structure as the general direction, the innovation driving as the main support, the improvement of people’s livelihood as the fundamental starting point, and the construction of a harmonious society as the ultimate goal.

3.3 Transformation of the Development Mode of the Service Industry Facilitated by Scientific and Technological Progress 3.3.1 Scientific and Technological Progress Being the Decisive Factor of the Modernization of the Service Industry It is generally believed that labor force, natural resources, capital, and technology are essential factors of production. If technology is regarded as an intermediate product of labor force and capital, the factors required for the industrial development are labor force, natural resources, and capital. As far as the service industry is concerned, its industrial specificity lies in a less dependence on natural resources, so the invested factors can be summarized as the two most basic ones, namely labor force and capital. Therefore, the factor structure that influences the modernization of the service industry depends mainly on two factors, namely industrial capital and labor force. Based on that analysis, the study of the factor structure of the modernization of the service industry can be conducted from three perspectives: labor versus capital scale, internal structure of labor force and internal capital structure. The modernization of the service industry is the most important embodiment of the transformation of its development mode, which means that the internal structure of the service industry has turned from a domination of traditional services to that of modern ones. We believe that the industrial structure is microscopically represented

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as a product structure and macroscopically as a structure of resource reconfiguration between departments. As the product structure and the structure of resource reconfiguration depend on the factor structure, the demand structure and the technology of production, core factors that affect the modernization of the service industry are the factor structure, the demand structure and the technological structure. Other factors, such as the regional structure and the institutional arrangement, all first influence the three core factors and through an adjustment of the three act on the internal structure of the service industry.2 Through a further analysis of the relationship between the demand structure, the factor structure and the technological structure, we believe that technology is essentially a mode of production and that the change of technological structure means the change of production mode, which is actually a relative adjustment of the factor structure and the demand structure. Therefore, the core factors that determine the internal structural adjustment of the service industry are the factor structure and the demand structure. Its inherent logic is that the change of the demand structure adjusts the industrial structure through a mechanism of demand elasticity, while the factor structure alters the internal industrial structure by force of reconfiguring factors between industries through marginal returns and marginal output. Scientific and technological progress can promote the modernization of service industry, which is realized by adjusting its internal structure: the progress first improves efficiency, which in turn relatively adjusts its demand structure and factor structure. From the angle of adjusting the demand structure, on one hand, scientific and technological progress improves the overall efficiency of production of the service industry and expands social demands for its service products through a mechanism of demand income elasticity; on the other, asymmetric technological progress promotes asymmetric efficiency of the service industry. Owing to the existence of the mechanism of demand elasticity, the society’s relative demand for subdivided service products will change. From the point of view of regulating supply, on the one hand, scientific and technological progress will increase the marginal and scale returns of factor input of the service industry, which leads to a reconfiguration of factors between departments; on the other, biased technological progress leads to unequal factor-saving degrees, which adjust the factor structure of the service industry. Based on the above analysis, it can be concluded that the mechanism of scientific and technological progress influencing the modernization of the service industry is as follows. On one hand, scientific and technological progress improves its efficiency of production, which leads to a reconfiguration of factors between the service industry and other industries. In turn, the reconfiguration causes changes of its factor structure. Due to the existence of price mechanism, the changes will further influence its internal structure, thereby promoting its modernization. On the other hand, biased technological progress improves the production efficiency of different subdivided service industries, which will lead to a difference in the comparative productivity of service industry and result in factor flow within the service industry sector. It also 2 The

viewpoint has been published in the 4th issue of the Social Science Front of 2014.

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adjusts the internal structure of the service industry from the perspective of factor structure through the price mechanism, and finally promotes the modernization of the service industry

3.3.2 The Mechanism of Element Structure of Service Industry Adjusted by Scientific and Technological Progress 3.3.2.1

The Effect of Factor Reconfiguration Under the Mechanism of Efficiency Improvement

The mechanism of scientific and technological progress improving the production efficiency of the service industry is reflected in two aspects: the progress changes production and management methods of service enterprises so that the scale return of factor input increases on one hand, and the marginal output of a single factor increases on the other. When scientific and technological progress increases the scale return of factor input of the service industry, it will promote capital, labor force and other factors to flow into the service sector, thereby adding its supply of factors. In turn, the increase in factor supply will influence the configuration of the internal factor structure of the service industry through price mechanism and plays a role in its development, which is conducive to the adjustment of the factor structure to its modernization process and thereby promotes its modernization. Scientific and technological progress can increase the marginal return of a single factor, but the process is realized by factors flowing from other departments to the service industry, thereby causing changes in the factor structure of the service industry. In turn, the changes influence the configuration of factors of the internal structure of the service industry through price mechanism and thus promotes its modernization. i. The increase of scale reward and factor reconfiguration of the service industry Not considering factors such as monopoly and externality, the configuration of factors between departments is controlled by the law that the marginal return is equal to the marginal output. Suppose that we have a certain factor “a” whose marginal output in sector A of the industry is higher than its marginal output in sector B. Under such circumstances the marginal return obtained by factor “a” in sector A will be higher than that in sector B. Consequently, factor “a” will “vote with the feet” (Tiebout 1956) and flow to sector A. When scientific and technological progress influences the service industry, the effect is a significant increase of the efficiency of the industry and a continuous rise of its scale return, which will lead to a transfer of labor, capital and other factors from agricultural and industrial sectors to the service industry. Microscopically it corresponds to the law of the development of three industries proposed by Clark

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(1940). However, due to the strong heterogeneity between subdivided service industries, their scale returns vary greatly. In consequence, though there are large-scale labor forces and capitals flowing into the service industry, these factors are not evenly distributed in the industry. Still following the price law that the marginal return is equal to the marginal revenue, labor and capital are structurally allocated to the subdivided service industries. Such a mechanism of resource reconfiguration, from the perspective of the overall service industry, is characterized by changes of the factor structure. According to the analysis in the previous section, the factor structure determines the industrial structure from the perspective of supply. Therefore, scientific and technological progress, which is aimed at increasing the scale return of production, will adjust the industrial structure of the service industry. Further, the modern service industries are mostly newly emerging, high-tech, capitalized, and knowledge-based industries. If we compare the development potential of traditional service industries with that of modern ones, it is obvious that the marginal return of modern service industries is much higher than that of traditional ones. When scientific and technological progress can lead to ever increasing scale returns of modern service industries, (for example, through innovating methods of management or operation, or through technological innovations that can decrease costs of transaction such as using new technologies of information and communications), resource reconfiguration tends to favor modernized service sectors. As a result, the modernization of the service industry will be developed further. ii. The increase of marginal output and factor reconfiguration of the service industry The relative price between factors is equal to the ratio of their marginal returns, while the relative price of factors is constrained by the elasticity of factor substitution. When the elasticity of substitution between factors shows a nonlinear relationship with the size of factors, the relative price between factors will vary with the size of factor input. When scientific and technological progress increases the marginal output of factors, the non-linear of the elasticity of substitution will make change the relative marginal output between factors. As a result, enterprises do not input factors according to the maximum marginal output that scientific and technological progress can provide. Instead, they take advantage of the relative scarcity of factors and use an alternative elasticity to reconfigure them. Here, we can assume that factor input can be divided into labor input and capital input. When scientific and technological progress simultaneously increases the marginal output of labor and capital of the service industry, even if the degree of the increases is different, labor and capital will flow into the industry on different scales. Because of the heterogeneity of subdivided service industries, marginal outputs are quite different between them. Based on the elasticity of factor substitution, the labor will tend to flow to the labor-intensive subdivided service sectors, and the capital will flow to the capital-intensive ones. Such a mechanism of resource redistribution, from the point of view of the overall service industry, is characterized by changes

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in the factor structure. The factor structure determines the industrial structure from the perspective of supply, so the marginal output of factors represents a difference between subdivided service industries that appears in the development of the modern service industry, which makes the service industry with a high marginal output able to develop faster and adapts the structure of the industry to the optimal level of economic development. Because modern service industries are mostly newly emerging, hightech, capitalized and knowledge-based, compared with traditional service industries, they are more likely to absorb capital, technology, knowledge and other resources. When there appears more scientific and technological progress that can increase the marginal return of such factors as capital, the modern service industry will be further developed.

3.3.2.2

The Effect of Factor Reconfiguration of Biased Technological Progress

According to the effect of technological progress on different input factors, different types of technological progress can be distinguished. For example, with capital and labor as a starting point, technological progress can be divided into capital-saving technological progress, neutral technological progress, and labor-saving technological progress (Hicks 1932); starting from primitive labor and human capital, it can be divided into skill-biased technological progress (Caselli 1999) and general technological progress; in addition, based on whether the technological effect saves resources and energy, technological progress can be divided into energy-saving technological progress, green technological progress, and so on. Biased technological progress leads to inconsistent improvements of factor efficiency, which in turn result in changes of the structure of input factors in the development of the service industry. The change of the factor structure will inevitably induce changes in the industrial structure of the service industry. With technological progress, the change of the factor structure tends to favor the capital factor. As the development of the modern service industry requires a large amount of capital input, the final result of the change of the factor structure will promote the modernization of the service industry. i. Capital- or labor-biased technological progress and factor reconfiguration of the service industry On the basis of the classification that input factors are classified into capital and labor, technological progress can be categorized into capital saving, labor saving and neutral technological progress, which correspond respectively to the effect of relatively saving capital, that of relatively saving labor, that of simultaneously and proportionally saving labor and capital. Relatively saving labor is equivalent to relatively increasing the proportion of labor in the factor system, relatively saving capital equivalent to relatively increasing the proportion of capital in the factor system, while neutral technological progress does not change the structure of the factor system.

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When there appears labor-saving scientific and technological progress, the labor factor becomes relatively abundant and the factor system of the service industry changes. Through the analysis of the mechanism in the previous section, we know that the industrial structure is determined by the factor structure, based on which we believe that if the proportion of labor in the factor system structure is increased, the proportion of the labor-intensive service industry in the total service industry will rise too, that capital-saving scientific and technological progress will augment the proportion of the capital-intensive service industry in the total service industry, and that no change will be made in neutral technological progress. A significant feature of modern service industry over traditional service industry is its capitalization, or it is a capital-intensive service industry. Therefore, capital-saving scientific and technological progress is conducive to the development of modern service industry, while labor-saving scientific and technological progress is not. ii. Skill-biased technological progress and factor reconfiguration of the service industry Compared with labor and capital, human capital is a relatively special input factor, which is mainly for two reasons: firstly, technology itself has certain special characteristics; secondly, the relationship between human capital and technology is complicated. That leads to a much more complicated impact of technological progress on human capital than other factors. First of all, from the perspective of the particularity of human capital, the marginal output of human capital as an input factor is not negative in a large range, which means that human capital will produce a higher output efficiency due to the larger scale of output. As a result, the larger the industry is, the more visible the value of human capital. Secondly, from the perspective of the relationship between human capital and technology, on the one hand, technological progress and application require a certain human capital as basis; on the other, technological progress can replace human capital (Goldin and Katzs 1998). In the meantime, human capital can also replace technological progress (Goldin and Katzs 1998). In consequence, technological progress may increase the output efficiency of human capital or reduce its output efficiency. Using that as a starting point, we can divide technological progress into two groups: the skill-enhanced (human capital) and the skill-weakened (human capital) (Caselli 1999). When skill-enhanced or skill-reduced technological progress occurs, it will eventually result in a relatively abundant or scarce human capital factor, which in turn affects the factor system of the service industry. Specifically speaking, the skillenhanced scientific and technological progress will eventually increase the proportion of human capital in the factor system, while the skill-weakened reduce it. Through the mechanism analysis of the factor structure determining the industrial structure, we assume that the former will make the human capital-intensive service industry develop rapidly and augment its proportion in the entire service industry, thereby changing the industrial structure of the industry, while the latter is opposite. Compared with traditional service industry, modern service industry is characterized by knowledge, namely high human capital input. Accordingly, skill-enhanced

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technological progress will be beneficial to the development of modern service industry. However, it is worth noting that human capital as a knowledge input is characterized by non-negative marginal output (within a certain range). In consequence, even if skill-weakened technological progress occurs, if the progress can enlarge the scale of the modern service industry, the marginal return of human capital will increase in efficiency due to the expanded scale. In brief, it is difficult to make a simple judgment of the impact of skill-weakened technological progress on modern service industry.

3.3.3 Mechanism of the Demand Structure of Service Industry Adjusted by Scientific and Technological Progress Under the influence of market rules, price mechanism is effective and the modernization of service industry depends on both factor structure and demand structure. Changes in demand structure impulse the development of modern service industry, and changes in factor structure promote the modernization of service industry. Scientific and technological progress first adjusts the demand structure and the factor structure and then influences the modernization of service industry. Scientific and technological progress adjusts the action mechanism of demand structure as follows: Scientific and technological progress can increase production efficiency and lead to a higher income; the higher income will eventually adjust the demand structure through two demand elasticity mechanisms: demand income elasticity and price cross elasticity.

3.3.3.1

Demand Elasticity Mechanism Under the Condition of Overall Efficiency Improvement

Demand elasticity mechanism includes demand income elasticity and price cross elasticity. The former measures the relationship between income and consumption changes of individual products, while the latter measures the relationship between relative price and consumption changes of two products. Scientific and technological progress promotes the overall efficiency of service industry, for which it may be assumed that the efficiency improvement is the same, as is equivalent to reducing the price of all service products to the same extent. First of all, because the demand and the income elasticity of products of each segment of the service industry are different, when scientific and technological progress enhances the overall efficiency of the industry, the demand structure of each product will change due to the role of demand income elasticity. Secondly, the relationship between subdivided service products is complicated, which may be alternative or complementary. As a result, scientific and technological progress enhances the overall efficiency of the service industry

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through a mechanism of price cross elasticity and lead to complicated changes of the relative demand between products. i. Demand income elasticity The demand income elasticity is Em = (Q/Q)/(I/I), whose economic meaning is the percentage change of demand caused by a change of 1% of income. According to the size of income demand elasticity, products can be divided into three typical products, namely, Giffen goods, normal goods and luxury goods. Correspondingly, their demand income elasticity is less than 0, greater than 0 and less than 1, and greater than 1. One of the remarkable features of the service industry is its strong internal heterogeneity, which means big differences of demand income elasticity between subdivided service products. For example, the demand elasticity of service products of the catering and accommodation industry is significantly lower than that of professional technology and other scientific and technological services. Generally speaking, modern service industry has a higher elasticity of demand and income than traditional ones. When there appears general purpose technologies (GPT) that can radiate the whole service industry, such as the progress of information and communications technologies, the overall productivity of the service industry will be significantly enhanced. Here, we may assume that the general technological progress that favors the overall service industry has the same degree of efficiency improvement in all its segments and that price changes of the segments due to the efficiency improvement is also the same. Because of differences of demand income elasticity of subdivided service products, the greater the difference of demand income elasticity is, the greater the difference of changes of demand for products of subdivided service industries. From the point of view of factor input, the modern service industry is capitalintensive, knowledge-intensive and high-tech. From the perspective of demand, the modern service industry is to meet high-level needs and productive needs. Such characteristics make the demand income elasticity of modern service industry higher than that of traditional ones. As a result, scientific and technological progress that radiates the whole service industry and improves the overall efficiency of the service industry will eventually promote its modernization through the mechanism of demand income elasticity. ii. The mechanism of price cross elasticity Because of the complementary or alternative relationship between products, the increase of income is not simply to adjust the demand structure according to the income elasticity, but to further adjust the structure based on the interrelationship between products. To put it simply, now there are article A and article B. If their price cross elasticity is greater than 0, the two are complementary. If their price cross elasticity is less than 0, it is considered that there is an alternative relationship between them. One of the typical characteristics of service industry is strong heterogeneity between its subdivided industries. The cross elasticity of products between those subdivided industries is complicated.

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Just as the previous analysis, general purpose technologies that radiate the whole service industry lead to a remarkable increase in the overall productivity of the service industry. It is also assumed that they have the same effect for all its subdivided industries and that the price changes of those industries due to the efficiency improvement is also the same. Due to the complex complementary or alternative relationship between subdivided service products, it is difficult to judge the direction of the demand structure change from the perspective of efficiency improvement, as there is an endogenously interconnected relationship between market demands for products. If it is assumed that there is an alternative relationship between service products of modern service industry and those of traditional service industry, general purpose technologies that radiate the whole service industry and lead to its all-round efficiency improvement will promote the modernization of the industry through the mechanism of price cross elasticity. But if it is assumed that there is a complementary relationship between them, general purpose technologies will not play a significant role in the modernization of the industry through the mechanism.

3.3.3.2

The Mechanism of Demand Elasticity Under the Condition of Asymmetric Technological Progress

For open economy, there are three main ways to achieve technological progress: technology innovation, technology diffusion, and technology transfer. The concept of technology innovation was first seen in Schumpeter’s The Theory of Economic Development in 1912. Although his later research made some amendments to the concept, the core idea of technology innovation has not changed, that is, the innovation of production functions. Technology diffusion refers to the process in which an innovative technology will overflow through different channels over time and is finally accepted and applied by the society. (Roger 1983) Technology transfer refers to the process of transferring technologies from one environment of application to another. Technology diffusion is similar to technology innovation, but there are differences between them. The concept of technology diffusion emphasizes the application of technology innovation in the market (Stoneman 1981), or the market application of technologies which bring economic benefits (Gee 1981), for example, the product designs based on technological patents, etc. The concept of technology transfer emphasizes the transfer of technology as a commodity in space, such as the transfer of technological patents from developed to developing countries, or from laboratories to the enterprise sector, etc. (Willis and Gibson 1990). From the perspective of different levels of technological production, we can divide technological progress into three aspects: technology innovation, technology diffusion and technology transfer. Correspondingly, asymmetric technological progress also includes three aspects: asymmetric technology innovation, non-uniform technology diffusion and non-equilibrium technology transfer. Asymmetric technological progress is relatively common in reality. Therefore, it is significant and practical

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to analyze the impact of asymmetric technological progress on the demand structure of service industry. i. Asymmetric technology innovation In reality, technology innovation between industries is not always synchronized and the same in degree, that is, there is usually an asymmetric phenomenon of technology innovation between industries. Technology innovation can change production efficiency. When there is asymmetric technology innovation between industries, the comparative production efficiency between them will change. With the price mechanism in action, the difference of comparative productivity is represented in relative price changes. Further, the relative price changes will be transmitted through demand elasticity mechanism and finally turn into relative demand changes, so the demand structure of products of different industries will change. That is the mechanism of action of asymmetric technology innovation on the demand structure. Observing the evolution of the modernization of service industry from the perspective of asymmetric technology innovation, it is not difficult for us to find that there is strong heterogeneity between service industries, which leads to asymmetric technology innovation occurring much easily between their subdivided industries. As a result, the improvement of production efficiency of the subdivided industries differs. Consequently, the structure of the market demand for service products will vary. From the perspective of the mechanism of elasticity of demand and income, the market demand of the subdivided service industry, which is prone to technological innovation, will be expanded due to technological innovation. On the contrary, the subdivided service industry, for which it is not easy to produce technological innovation, has a relatively shrinking market demand. From the perspective of price cross-elasticity mechanism, it is not easy to simply judge the change direction of the demand structure under conditions of asymmetric technology progress due to the complexity of substitution and complementarity between service products, Considering that technology innovation is more likely to occur in industries characterized by intensive capital, high-tech and high-knowledge input, modern service industry is more likely to have technology innovation than the traditional one, as it possesses exactly the three characteristics of technological innovation. As a result, under the mechanism of asymmetric technology innovation, the market demand structure will change and this change may be beneficial to the development of the modern service industry. ii. Heterogeneous technology diffusion Technology diffusion is a process in which an innovative technology is accepted by members of society through various channels over time. The process involves four key steps or factors, namely technology, time, communication channels and social systems. Accordingly, technology diffusion is seen as the next step of technology innovation (Roger 1983). Technology diffusion and technology innovation jointly promote the product life cycle (PLC) (Vernon 1966). Heterogeneous technology diffusion means that the speed and range of technology innovation in the market are

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not always the same. The heterogeneous technology diffusion between industries mainly includes two aspects: First, he spread rate of general technology (GPT) varies in different industries, and the spread range varies in different industries.; second, there are differences in the speed and scope of technology diffusion among different technologies in the same industry. Observing the modernization of service industry from the perspective of heterogeneous technology diffusion, we find that internal subdivision of the service industry are highly heterogeneous, whose results are: on one hand, the spread of general purpose technology (GPT) in subdivided service industries is different, resulting in different efficiency improvement of general technology progress in different subdivision of service industry, on the other, the technology innovation of each subdivided service industry has spread unevenly in the industry, resulting in a widening efficiency gap between subdivided service industries. According to the analysis of the first section, the efficiency gap will eventually lead to changes in the demand structure: From the angle of the mechanism of demand income elasticity, those subdivided service industries with rapid and wide spread of technology diffusion will increase their market demand; on the contrary, those with slow and narrow spread of technology diffusion will see a relatively shrinking market demand in comparison with that of the former. From the perspective of the mechanism of price cross elasticity, due to the complexity of substitution and complementarity between service products, the direction of demand structure change under conditions of non-uniform technology diffusion can not be simply judged. iii. Non-equilibrium technology transfer In general, technology transfer includes various forms such as the transfer between countries and transfer of technology generating departments to using departments. Non-equilibrium technology transfer refers to the difference in speed and quantity of technology transfer between different industries. Technology transfer and independent technology innovation complement each other and can improve the scientific and technological level of a certain department in a short period of time. Therefore, when there is non-equilibrium technology transfer between industries, it will cause a difference of technological progress between them. If we study the modern development of the service industry from the perspective of non-equilibrium technology diffusion, it is not difficult to find that there exists strong heterogeneity between subdivided service industries and that there is a non-equilibrium technology transfer between the industries, which leads to differences in the improvement of the production efficiency of the subdivided service industry. According to the analysis in the first section, the efficiency gap will eventually lead to a change of the demand structure: From the angle of the mechanism of demand income elasticity, the market demand of those subdivided service industries with rapid and large quantity of technology transfer will increase; on the contrary, compared with that of the former, the market demand of those with slow and small quantity of technology transfer will relatively shrink. From the perspective of the mechanism of price cross-elasticity, the direction of the demand structure change

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under conditions of non-equilibrium technology transfer can not be simply judged due to the complexity of substitution and complementarity between service products. Technology transfer is influenced by various factors. Specifically, the influence is as follows: First, technology transfer is affected by the capacity of technology absorption of a certain industry; the stronger the capacity is, the faster the transfer; second, it is impacted by the structure of the industrial organization; the more rational the structure is, the faster the transfer; third, it is affected by the barrier to entry, the higher the barrier, the slower the transfer. Generally speaking, the better the human capital and technical basis of an industry are, the easier for it to accept technology transfer; the more networked the structure of organization within the industry is, the higher its capacity of technology absorption; the higher the barrier to entry is, the lower the spillover effect within the industry and the stronger the motivation of technology transfer. Compared with the traditional service industry, first of all, the modern service industry has high technology and human capital input and a relatively good technological basis. Secondly, production characteristics of the modern service industry make the linkage relationship between modern industries complex and relatively close to a network. Finally, the modern service industry is relatively more capitalized, so its barriers to entry are relatively high. In short, non-equilibrium technology transfer is conducive to increasing the relative market demand of the modern service industry, thus promoting its modernization.

3.4 Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress Modern service industry is an emerging service industry with high technological content. With the development of high technologies such as information technology and communication technology, the mode of production of manufacturing and service industries is fundamentally changed, making service industry more modernized and the interaction between the two industries closer. It can be said that the advanced service industry provides a solid support for the development of manufacturing industry and the development of the manufacturing industry provides a guarantee for modernization of the service industry. Specifically speaking, the role of scientific and technological progress in the interaction between advanced manufacturing industry and modern service industry is mainly reflected in three ways: First, scientific and technological progress has changed original production methods and raw materials, created new service industries, and promoted the evolution process of modernization of the service industry, which has enabled modern service industry and advanced manufacturing industry to develop interactively and promoted the upgrading of industrial structures; second, as far as the future development of manufacturing industry is concerned, scientific and technological progress has led to an increase of industrial technological content and made the industrial development evolve to a high-tech

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Fig. 3.1 The mechanism of scientific and technological progress promoting the interaction between advanced manufacturing industry and modern service industry

industry; the development of the manufacturing industry requires a strong support of the modern service industry; through high technologies such as information technology, manufacturing industry can be deployed worldwide and reorganize its chain of industrial values, thus upgrading its international competitiveness of products; third, scientific and technological progress can promote the scale effect of modern service industry. Whether the scale effect is external scale return or internal scale return, their improvement can fundamentally reduce the inherent production cost of modern service industry, thereby promoting their development and making it better serve the advanced manufacturing industry to improve the production efficiency of manufacturing enterprises (see Fig. 3.1).

3.4.1 Scientific and Technological Progress, Expansion of Division of Labor and Development of Industrial Transformation From the perspective of industrial development, scientific and technological progress can not only improve production efficiency of modern service industry and advanced manufacturing industry, but also promote a clear division of labor between the two, making the degree of specialized division of labor in the process of their industrial evolution higher and higher. Specifically speaking, the path of scientific and technological progress promoting the interactive development of the two industries can be summarized as the direct one and the indirect one. The direct path refers to scientific and technological progress directly promoting the development of modern service industry. In turn, the development of modern service industry can provide a guarantee for the development of advanced manufacturing industry. The most important is that the rapid development of information and

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Internet technologies has promoted a continuous informatization of manufacturing industry. Information technologies are the most important core of the development of modern service industry. The development of knowledge-intensive industries can change all links of the production chain, enabling enterprises to communicate effectively, configure resources and lay out global production networks. The development of information technologies can also reduce operating costs of manufacturing industry and deepen its specialized division of labor. Taking the e-commerce websites that are emerging presently in a large number for example, e-commerce websites such as Taobao and Jingdong.com have changed people’s consumption patterns and made China’s trades more convenient. Profoundly speaking, the rise and development of such websites provides a wider range of marketing channels and a broader consumer market for manufacturing enterprises, which enables the enterprises to pay more attention to production, reduce production costs, and accelerate the division of labor of manufacturing industry. Meanwhile, relying on information technologies, e-commerce websites can provide “big data”, a great number of samples and more consulting services of information for manufacturing enterprises, enabling them to truly understand real demands of the current market and thus contributing to an effective configuration of resources of the whole manufacturing industry. The indirect path means that scientific and technological progress can promote the development of intermediate products, thereby influencing the development of advanced manufacturing and modern service industries through the input of intermediate products. When the number of intermediate products in the market continues to increase, how to choose these products for manufacturing enterprises will become a major problem. Especially, obtaining the most comprehensive information of those intermediate products is a big challenge for enterprises, therefore, a rapid development of modern service industry is required, which can adjust the intermediate product market correspondingly so that final product production can be fully docked with the intermediate products. Based on the above analysis, it can be seen that the rise of market demands can promote the development of modern service industry. For example, a high-tech company has developed a new intermediate product. For its promotion the company will need the support of modern service industry. In the early stage of product sales, above all, market demands should be carefully investigated and evaluated so as to find how big the demand for the product is. Secondly, in the process of product promotion, sufficient publicity needs to be made to expand its social recognition and sales channels and to enable consumers to remember it. Finally, in exchange for a consumer trust the product should be guaranteed. It can be concluded that although manufacturing enterprises launch products, their supporting service work calls for being completed by a specialized service enterprise. Therefore, scientific and technological progress can promote a coordinated development of advanced manufacturing and modern service industries. Scientific and technological progress can not only directly promote the development of independent industries, but also indirectly promote the efficiency of advanced manufacturing industry and the growth of modern service industry by expanding their division of labor, intensifying their specialization and increasing the variety of intermediate products.

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3.4.2 Scientific and Technological Progress, Reconstruction of Value Chains and International Division of Labor Studying the important role of scientific and technological progress from the perspective of value chains and international division of labor, we can know that such progress has changed the position and role of service industry in the international division of labor of the manufacturing industry, making modern service industry a core link in the production chain of advanced manufacturing industry. It can improve international competitiveness of products and reallocate the division of labor of all countries in the global production network. The traditional productive service industry is only a link of coordination in the production of manufacturing industry. It can be understood as a supplement to manufacturing industry. However, with the technological and information content improving continuously, the development of manufacturing industry needs to find a new way out. We can not copy the experience of other countries and we need to follow a path with Chinese characteristics. With people’s living standards rising, the demand for products have shifted from being simple to being diversified, which requires manufacturing companies not only to provide products, but also to design, package and market them. The development of modern productive service industry can supply design, R&D, marketing and other services for the production of enterprises, which have been integrated into the development of manufacturing industry and become an important influential factor for its product development. As far as the present level of China’s manufacturing industry is concerned, it is dominated by traditional low-end production, in other words, mainly by manufacturing and assembling parts and components, thereby staying at the lowest end of the production chain. Contrary to that, developed countries produce and sell high-tech products that are at the forefront of the chain, which shows to a certain extent that scientific and technological progress can change the importance of service industry in the process of production, and make the core departments of R&D and design increasingly important, and that developing countries must accelerate innovations and increase the technological content so as to enhance their position in the production chain or change the pattern of the international division of labor. For the time being, with an accelerating pace of China’s scientific and technological progress, the country has transformed and upgraded all links of its manufacturing industry, and has continuously attached importance to such core links as product R&D and sales, thus promoting the development of its productive service industry. In view of that, products made in China are no longer merely low-end products such as parts and components, but modern products with high scientific and technological content, having changed from low added value to high added value, enhancing the international competitiveness.

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3.4.3 Scientific and Technological Progress, Externalization of Services and Efficiency Improvement From the perspective of enterprise operation, scientific and technological progress makes enterprises pay more attention to their process of production so that services that are originally provided internally are being gradually separated and outsourced to professional service providers. On the one hand, the outsourcing reduces costs of the manufacturing enterprises, helping them to concentrate resources on production and improve their core competitiveness. On the other, it stimulates the emergence of new service industries, thereby promoting the modernization of service industry. Enterprises determine their externalization of services through measuring costs. When the cost of external services is lower than that of internal ones, the enterprises will choose an externalization of the services to reduce their operating cost, namely outsourcing. A typical example is the application of information management systems in enterprises. In order to manage themselves well, more and more enterprises are building internal networks, facilitating internal communication platforms and managing information. However, as manufacturing enterprises focus on production and the cost of the development of information networks is very high, they will choose to outsource the development of information networks to professional companies so as to lower costs and also make them more professional. Meanwhile, those professional companies are better in carrying out continuous maintenance after the development. In brief, scientific and technological progress has promoted the externalization of services and intensified the fusion and linkage between manufacturing and modern service enterprises. From the above analysis, it can be seen that the externalization of services brings about two reductions for advanced manufacturing enterprises: on the one hand, it decreases their input in service costs; on the other, it reduces the waste of their related resources, enabling them to concentrate strengths on and cultivate their core competitiveness. On the basis of it, the externalization of services continuously perfects the market of modern service industry and makes more and more enterprises engaged in the industry, which in turn intensifies the competition of the market, which provides more choices for manufacturing enterprises. As a result, those enterprises cut down their cost further and achieve the best service at the lowest price. In short, it can be concluded that scientific and technological progress plays an important role in promoting the linkage between advanced manufacturing and modern service industries. It makes advanced manufacturing enterprises more specialized and more focused on production, thus enabling them to incessantly outsource corresponding services and promote the modernization of service industry. In the meantime, it may also enhance the modernization level of service industry, especially the development of information technology. The development of modern service industry can promote the advanced manufacturing industry to reduce operating costs, thus improving the international competitiveness of manufacturing industry. The linkage between the two is complementary and indispensable.

Part II

Experiences and Empirical Studies

Chapter 4

International Experiences of Scientific and Technological Progress and the Transformation of Economic Development Mode

4.1 Scientific and Technological Progress and the Transformation of Economic Development Mode in South Korea 4.1.1 Economic Transformation and the Process of Scientific and Technological Progress Due to the limited supply of land and other resources, and the influence of the Korean War, the domestic economy of South Korea once remained in a state of stagnation. In the late 1950s and early 1960s, its gross national product(GNP) was only 2.4 billion dollars. Its economic situation was even worse than that of North Korea. In its agriculture-dominant structure of economy during that period, the industrialization was far from beginning. That was the background in which South Korea began to develop its modern economy. In the 1960s, the main driving force of South Korea’s economic development came from large-scale investments. The Second World War and the Korean War had plunged South Korea into a state of under-development in all aspects of its economy. In 1964, South Korea officially put forward the policy of “building an exporting country” to make use of its alliance with the developed countries including the U.S. and Japan, and actively encouraged investments from those countries. It happened that the developed countries had completed industrial transformation and upgrading through technological development, hence they had a need to move laborintensive and marginal industries abroad. The economic strategies of South Korea at that time undoubtedly followed the main trend of the economic development of the world. As a result, its policy of “growth through foreign investment” worked effectively. South Korea began with welcoming the labor-intensive industries and exporting the products to the developed countries. Then gradually it focused more on introduction of investment in the technology-intensive industries, which contributed to the development of its overall technology and growth of its economy (Fig. 4.1). © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_4

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Economic growth driven by investment in South Korea in the 1960s

Fig. 4.1 Growth Rate of Fixed Assets in South Korea. Data Source Based on statistics from Statistical Bureau of South Korea

During the 1970s, South Korea gradually changed its development strategy and implemented export-oriented economic policies to promote further economic growth. At the beginning of the 70s, South Korea changed its earlier industrial policy and transferred its economic focus from agriculture to realization of industrialization in order to avoid problems such as shortage of resources. After the economic accumulation in the whole 60s, during which the industrial infrastructure was gradually perfected and the needs of people in everyday life were basically met, the simple and extensive agricultural economy had become insufficient to meet the requirements of the Korean economic development. Industrialization was the general trend. South Korea formulated a plan for developing heavy chemical industry, and vigorously supported the development of key industries such as chemical industry, shipbuilding and nonferrous metals. The process of industrialization had laid foundation for further development of South Korea’s economy. It is undeniable that during this period, the large-scale investments from the United States, Japan and other countries had provided adequate funds for the development of its heavy chemical industry. But the fact is, the main driving force of South Korea’s economy was not industrialization in the 1970s, for exports were the engine of the rapid growth of its economy. On the one hand, it continued the policy of “building an exporting country” proposed in the 1960s; on the other hand, the capital intensive products occupied a higher and higher proportion in the structure of export products, which demonstrated fundamental difference from the exports of labor-intensive products in the 1960s. At this point, South Korea successfully realized the transformation of the economic growth pattern from the post-war large-scale infrastructure investment to the export-oriented economic development. Since the 1980s, the optimization of industrial structure and the development of new high technology to promote coordinated development had become its motive to enhance the economic development. During this period, South Korea had realized the

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Fig. 4.2 Growth Rate of Exports in South Korea. Data Source Based on statistics from Statistical Bureau of South Korea

importance of technological progress for economic growth, so it set up the slogan of “building up the country by science and technology” and regarded technology intensive industry as the focus of its industrial development. The South Korean government redesigned the industrial structure in accordance to its own economic situation at that time. Moreover, in 1987, the Sixth Five-Year Scheme of Economic Development clearly proposed to transform the export-oriented economic growth mode and make a strategic change to gradually redesign the economic structure. From Fig. 4.2, it can be seen that, at the end of the 1980s, South Korea’s growth rate in export had exhibited an obvious tendency of slowing down and even declining, compared to that of the 1970s, the golden era. This also initiated the economic transition period of South Korea in the 1990s (Fig. 4.2). It can be seen from the decades of economic growth in South Korea that its early growth was mainly fueled by investment in fixed assets and export. Investments from its allied countries like Japan and the U.S. played an indispensable role in the development of its economy. But when the growth reached some phase, the two modes of development failed to work efficiently, and that was when the South Korea proposed the strategic guideline of “building up the country by science and technology”. Nowadays the technological development is an important driving force to promote the sustainable development of South Korea’s economy. Although the Asian financial crisis in 1998 had affected its economy and even caused the economic slump to some extent, the direction of South Korea’s economic reform deserves affirmation.

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4.1.2 The Influences of Scientific and Technological Progress on the Transformation of Economic Development Mode South Korea made tremendous achievement in economy since the 1960s, the propelling effect of technological development was only acknowledged since the 1980s, especially after the Asian financial crisis in 1998. The developing modes of investment and export were frustrated and the mode driven by technological progress became the unavoidable option. From the track of its economic development, it can be seen that the progress of technology greatly influenced the economic development of South Korea in three aspects. First, technological progress was the fundamental driving force to promote the transformation of the Korea’s industrial structure, which is similar to the situations of Japan and the United States. The early development of its economy relied on the investment from the allies such as the U.S. and Japan, but the capital came with marginal industries that the developed countries needed to close down at home. Those labor-intensive industries were characterized with heavy pollution and high energy consumption. In the early stage of economic development, South Korea had to accept these investments. It made full use of foreign funds to develop its own economy, and exported labor intensive products to the U.S. and Japan. But at a certain stage, this developing mode was confronted with “the bottle neck”. At that time South Korea needed to break away from the outdated pattern of development and redesign its strategy of economic development to enhance the growth of heavy industry, which involved substantial emphasis on developing technology, for only technological progress could impulse the development of high-end industries, which in turn would drive rapid transformation of its economy as a whole. Second, the progress of technology helped South Korea to promote its urbanization and improve its consumption structure continuously. The process of South Korea’s urbanization was divided into two stages: during the first stage (from 1960 to 1980), the urbanization rate of South Korea reached 57%; during the second stage (from 1980 to 1990) its urbanization rate reached 74%. It can be said that South Korea is a highly urbanized country nowadays, but the inertia of urbanization still exists, which will continue to play a role in stimulating the consumer industry. South Korea’s urbanization is closely related to its technological progress and transformation of economic development, and it has also prompted changes of the consumption structure in the country. The consumption demands of high income residents expand from basic necessities such as household electrical appliances to products with highadded values in culture and tourism, so technological progress is needed to enhance the development of high-end service industries. Third, the economic transformation propelled by technological progress of South Korea brought about the effect of birth pangs in some way, so the government needed to alleviate that through supportive policies. During the period of economic transformation, the growth of South Korea’s economy showed signs of slowing down. In the period before the economic transformation (1985–1991), South Korea’s annual

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increase rate of GDP averaged at about 9.2%, and in the following period (1992– 1997), the annual growth rate gradually fell to 6.9%. And during the time of economic transformation, the pressure of inflation had been high in South Korea. We believe that the transformation and upgrading of economic development propelled by technological progress will cause the earlier increase rate of a country’s economy to drop in some degree, but it can help improve the economic structure and gear up the process of industrious upgrading finally. So the appropriate or mild slowing down of the economic growth will help realize the economic transformation in a country. If a country’s economy is compared to a car running on the express way, the process of economic transformation is like the curve of the express way. When the car approaches the curve, it needs to decrease its speed to drive through it safely. It is the case with the development of Korean economy. Its government eased its excessive focus on the speed of economic growth and paid more attention to its quality.

4.1.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in South Korea It’s evident from the retrospect of the economic development of South Korea that technological progress had played a crucial role in the transformation of the mode of economic development and that of the economic structure of the country. At the same time, technological progress had also played an irreplaceable part in the three upgrading of industries in South Korea. Specifically, its influence on agriculture is mainly reflected on the export of agricultural products; in the field of industry, it propelled the boost of heavy chemical industry, machinery manufacturing, electronic information industry, etc.; and its influence on the service industry is mainly expressed in the development of high-end service industries, which in turn propelled the process of urbanization through the spread of the information networks. In terms of the influence of scientific and technological progress on agricultural development, at the beginning of its economic recovery, South Korea introduced investments from the U.S. and Japan mainly in the field of agriculture, and then agricultural exports became one of the most effective dynamics of its economic growth. On the one hand, technological progress facilitated the refinement of agricultural products, improved the level of mechanization of agricultural production, which helped to achieve the sustainable development of the economy. On the other hand, technological progress helped improve the quality of agricultural production both in early planting and in further processing, and that greatly improved the added value of agricultural products. More importantly, the technological progress had led South Korea to turn from an important agricultural country into an industrial power in the world. In terms of the influence of scientific and technological progress on industrial development, the reason why South Korea implemented the strategy of “building an industrial power” is the fact that trade and investment could not sustain its economic

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development any more. The only way out is to develop its industry and improve the country’s industrial foundation. In the early stage of its industrial transformation, the impact of technological progress is mainly reflected in heavy industries. South Korea had taken a number of measures to support the development of its heavy chemical industry, so as to enhance its industrial foundation and realize its transformation from an agricultural country to an industrialized one. In the later period of its industrial transformation, South Korea became aware of the unsustainability of the low-end industrial development boosted by high-pollution and high energy-consumption, so it focused on advanced manufacturing industries such as electronics and medicine, etc. to achieve high-end and intelligent industrial development. At the same time, the South Korean government actively prepared to welcome the forthcoming technological revolution and the new industrial revolution. It introduced policies and laws, such as the long-term planning of technological development, the long-term layout of industry, etc., to make sure that it could make full use of the revolution of technology and realize the second upgrading of industrial development. The influence of scientific and technological progress on the development of service industry was mainly reflected in how the progress of technology propelled the transformation from the traditional service industry to the modern service industry, which encouraged the high-end services such as health care, education, entertainment, tourism and so on. With the development of economy and the improvement of resident living standard, there arose demands of high-end consumption, such as entertainment, besides the basic ones such as electrical appliances. And the diversification of consumption structure is inevitable in the process of urbanization. Technological progress had fundamentally solved the problems brought about by high-end consumption in the process of urbanization. For example, the progress of information technology supported the adequate development of the Internet which gave rise to a series of entertainment programs to satisfy diverse consumption needs. Hence it’s safe to say, technological progress is crucial for the development of service industry, especially the productive service industry and the high-end service industry.

4.2 Scientific and Technological Progress and the Transformation of the Economic Development Mode in the U.S. 4.2.1 Review of Technological Innovations in the U.S. The United States is the only superpower in the current economic structure of the world. It has created a quarter of the world’s GDP with merely 5% of the world’s population, with no compatible counterparts in the world. Since its independence, the world has witnessed its rapid development in economy. We think the speedy growth of its economy was decided by two factors: on the one hand, the fast increase of its population and the vast land laid solid foundation for the development of the U.S.

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economy, and those advantages played an important part during the early period of the economic growth in the U.S.; on the other hand, it proposed the basic strategy of building an industrial power and implemented the strategy of technological progress. It can be said that the United States followed the pace of every technological innovation and even played the leading role in them, which enabled the U.S. economy to grow continuously. The first technological revolution originated in Britain, and it helped Britain realize the mode of large-scale industrial production with machines such as steam engines and spinning machines. It quickly spread to the United States which soon became an important battlefield of the technological revolution. And in this revolution the U.S. witnessed significant technological breakthroughs. Samuel Slater produced a copy of Arkwright cotton yarn machine in 1790; Eli Whitney invented the cotton gin in 1793; Lowell established a water power loom in 1814; Robert Fulton made a steam boat in 1807; in 1830 the train locomotive “Best Friend of Charleston” made its premier trip. A series of major scientific and technological achievements were applied in production and everyday life, which enormously improved the efficiency of production in America. Moreover, during the late stage of the first industrial revolution, the United States gradually stepped on the road of industrialization in sectors such as leather manufacturing and iron, with more and more machinery production replacing manpower work. In the 1870s, the second technological revolution began in the fields of power, internal combustion engine and chemical industry. Based on its growth during the first technological revolution, the United States became an indispensable force in the second technological revolution, with a number of important inventions born in the country. Thomas Edison, an expert in electricity, invented the light bulb, the electric car and the film projector; Alexander Bell made the first telephone; and Henry Ford invented the first four wheeled vehicle. Progress in technology enhanced the industrialization in the United States, and the major breakthroughs in information and communications, automobile, energy and other fields, paved the way for the United States to become a super power in the world of technology. Meanwhile, the American companies stepped further in enterprise management, and improved production efficiency through process management. The world’s first production line was set up in the U.S. The second technological revolution provided an opportunity for the United States to transform its industrial production and began its new mode of process production. In the third technological revolution which began after the 1940s, the United States became the center of technological research and development in the world, and also the main battle field of technological revolution where a series of breakthroughs were made in its core area. DuPont produced nylon products in 1933; the Avery team confirmed that DNA is the carrier of genetic information in 1944; Remington Rand used the first commercial computer in 1951; the first civilian nuclear power station was established in 1958; the first landing on the moon was successfully made in 1969. All these technological breakthroughs demonstrated the American contribution in the fields of electronic information, nuclear energy, biological engineering, etc. Since the 1990s, the United States put forward the Information Highway Plan and spurred the rapid development of the Internet technology, which caused enormous changes

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of communication technology and deepened the process of world integration. During this period, the economy of the United States also followed the pace of scientific and technological progress, and made a leap forward to the high technology economy. At present, a new round of revolution in technology and industry is sweeping the world, and the United States is also actively preparing to meet the waves of the revolution. The Obama government promulgated A Strategy for American Innovation: Securing Our Economic Growth and Prosperity which emphasized the importance of technological innovation in America’s economic development and suggested that investment be increased in education and scientific research, especially in fundamental researches, to guarantee future innovation. Meanwhile, the American government clearly pointed out that it would first promote the development of clean energy, like wind energy and solar energy, and other environment-friendly economies by making use of the breakthroughs in the fields of new energy and new materials. On the basis of the Program of Information Superhighway, the United States will vigorously develop information technology, build the information network in the twenty-first Century, and consolidate its position as the super power in the world economy. The history of scientific and technological development in America shows that every revolution brought about enormous changes to the modes of economic development in America. The earlier technological revolution improved its level of industrialization and realized process production and automated production; while under the influence of the present or even future technological revolution, the U.S. seizes the opportunity to develop emerging industries like new energy, information, etc., and encourage the growth of green economy. Therefore, from the developing experiences of the United States, we can see that the influence of technological progress on the transformation of economic development mode is reflected not only on the improvement of productivity, but, more importantly, on the change of the mode of economic development and the mode of production.

4.2.2 The Influences of Scientific and Technological Progress on the Transformation of the Economic Development Mode The American economy was remarkably boosted by each scientific and technological revolution. Its labor productivity grew and the industrial structure was upgraded, more importantly, its international competitiveness was enhanced and its economic development mode was gradually oriented to science and technology. The influence of science and technology on the transformation of American economic development mode is reflected in the following aspects. First, technological progress obviously helped improve the American labor productivity and promoted the growth of high-tech industries. Figure 4.3 shows that the cotton yield per person in 1910 was five times that of 1810, while the production

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Fig. 4.3 Growth of output of pig-iron and cotton per capita in the U.S. (1810–1910). Data Source An Overview of the Growth of Global Steel Industries; Shitao Net, November 2016

of iron per person increased 39 times during the same period of time. Comparison between the two groups of data demonstrates that technological revolution can help improve person productivity, and that the increasing rate of iron production is much higher than that of cotton. The production of iron is more technology-oriented than that of cotton; hence the influence of technological progress on both will exhibit different degrees of effect. It’s obvious that the technology-intensive industries will benefit more from technological revolution. Second, scientific and technological progresses accelerate the structural upgrading of industries, especially that of the high-tech industries, and thus continuously increase the technological content of the country’s economy. The changes of American industrial structure reveal that technological revolution led to the domination of industry in the formerly agriculture-dominated structure, and technology intensive industries are becoming the mainstream of the American economic development. After the former technological revolutions, the American industrial structure altered from one dominated by agricultural products to the one dominated by industrial products, and this difference was especially reflected on the change of the structure of exported products. From 1820 to 1970, raw materials no longer played the dominant role in export, with their ratio to exported products dropping from 84.76 to 21.8%. At the same time, the ratio of intermediate goods to exported industrial products also decreased, which means that the American export structure was upgraded and that the final products of industrial sectors gradually dominated the export of the United States. Third, the influence of technological progress on the American economy is reflected on changes of living standard as well as the total amount of its national economic development. In as early as 1894, the American industrial output began to rank the first in the world and it has led the world until the preset day. Meanwhile, the American per capita income has championed the world since 1913. It is obvious that the influence of scientific and technological progress on American economy is not temporary but enduring. At the same time, the economic development supported

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the scientific and technological progress in America. As a result, the U.S. has been the center of every technological revolution since the third technological revolution. A comprehensive survey of the history of American economic development reveals to us that technological progress has played an essential role in promoting the transformation of economic developing modes. The transformation from the early domination of agriculture, to later development of industrialization, and then to the predomination of scientific and technological industry, demonstrated the great significance of scientific and technological progress in the changes of its economic developing mode. At the same time, the American industrial structure was also undergoing profound changes, from the low level structure to the high-end, intelligent and streamlined one. Furthermore, in the latest technological revolution American government is taking measures to promote researches in the fields like new energy, new materials, information network, bio-engineering, etc., in order to build a green and intelligent economy.

4.2.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in the U.S. On the one hand, the scientific and technological progress altered the American mode of production and hence enhanced its productivity; on the other hand, it impelled the three industrial upgrading and expanded the production scales of industries. Specifically, scientific and technological progress enabled the continuous improvement of the level of agricultural mechanization and appearance of precision agriculture, improved the industrial productivity by elevating the knowledge intensity of industrial production, and pushed the development of high-end service industries (Fig. 4.4). In terms of agriculture, the United States has increased investment in science and technology research and in training agricultural professionals, which continuously improved agricultural mechanization so that agricultural production can be refined. The U.S. went through three stages of transformation of the agricultural development mode driven by scientific and technological progress. The first stage was featured by improvement of agricultural mechanization, such as advances of farming technology and replacement of human labor with machines; the second stage was characterized by a high degree of mechanization, steam driven machines were constantly applied to and finally dominated its agricultural production; the third stage was called agricultural automation, during which new technologies such as high-tech equipment and information technology were applied to increase the scale and specialization of agricultural production. To support the development of agricultural technology, the U.S. set up the professional training system to cultivate agricultural professional and interdisciplinary talents through the combination of theoretical research and practice, which portrayed the important role of governmental support in the transformation of agricultural development mode.

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Fig. 4.4 Structure of exported products in the U. S. (1820–1970). Data Source The Strategies of Direct Foreign Investments of American Multinational Corporations and Their Influences on American Trade by Liu Jian, MA Thesis of University of International Business and Economics, 2002

In terms of industrial development, the U.S. has entered the knowledge intensive era, during which scientific and technological progress enabled the continuous growth of its industry. Especially during the period from 1991 to 2012, the American witnessed the robust expansion of economy. In the academic circle, that period is called “New Expansion Era” for its rapid economic growth, low rate of employment and low inflation. Though in the later period the growth of American economy slowed down, it is undeniable that scientific and technological progress played a key role in the development of American industry, even that of its whole economy. It changed the history of the whole American industrial production, even changed the history of its economic growth, from the labor intensive industry to the technology intensive industry, and from its marginal role in the revolution of science and technology to the world center of the revolution. The American high tech industries are distributed in the frontier fields of the world economy, such as capital equipment, production engineering, financial markets, bioengineering, space and aviation, thus the U.S. is able to lead the world in technological progress and economic development. Advances in information technologies enable American industrial production networks to cover the globe, allocate resources of the whole world, and promote the transformation of American industry production mode. In terms of service industry, technological progress bolsters the rapid growth of high-end service industry. With the improvement of life level, the demands for goods of service in fields such as amusement, recreation and education continued to grow, and hence accelerated the development of top service sectors. The astounding advances of modern information technology and net technology raised the productivity of the service industry and derived new industries. The American service sectors boosted by the progress of information technology cover an increasingly high proportion in the whole industry of services. The ratio among four categories of services, namely, commerce, hotel and restaurant, transportation and telecommunication,

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finance, insurance, real estate and producer services, and community and personal services, increased from 25.53:13.66:20.22:18 in 1962 to 18.37:8.78:24.04:31.4 in 2000, which demonstrates the rapid expansion of modern services. The progress of American modern service industry is totally based on development in information technology, biology and communication technology, etc. The roaring development of producer services is especially closely linked with advances in its manufacturing industry. In a word, the influence of technological progress on the service industry is reflected on the birth and growth of top services.

4.3 Scientific and Technological Progress and the Transformation of Economic Development Mode in Japan 4.3.1 The Four Transformation Phases of Economic Development in Japan The Second World War caused unprecedented devastation to Japanese economy. Nearly 40% of its national wealth was lost and the three pillar industries nearly ceased production and development, so it is safe to say that the Japanese postwar economy was totally destroyed. However, through around fifty years of development, the Japanese became one of the most developed countries in the world economy. This is closely related to a series of measures of reform and rapid development of science and technology in Japan. The postwar development of Japanese economy includes four phases. The first phase (1945–1955) includes the ten years from the end of World War II to the Korean War. In this period, the Japanese economy was characterized by the obvious tendency of export-orientation, and was highly dependent on the world economy. Japan set up a fundamental strategy of “national development through trade”. This national strategy was proposed as a response to the outburst of the Korean War and provided a premium chance for Japan to expand its export. As a close neighbor to South Korea, Japan became the military base and material supplier for American army. Japan grasped the opportunity for recovery which was brought about by the Korean War and enormously developed its labor intensive industry and light industry to provide military equipment and necessary materials for the American army. That stimulated the recovery of Japanese economy and shortened the process of its economic recovery. The second phase is 1955–1972. After the recovery of Japanese domestic economy through exports during the Korean War, the momentum of its economic growth decreased, which was reflected on the continuous decline of trade dividends, the unbalanced economic structure dependent on the light industry, and the rising cost of labor, etc. How to initiate a second round of economic recovery became an important issue for the domestic academia and its government. The Japanese government

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at that time proposed a strategy of structural transformation from trade orientation to the domination of domestic consumption, suggesting development of Japanese economy through measures like expansion of domestic needs and stimulation of domestic assumption. During this period, the Japanese government continuously took measures to alter its domestic economic structure, and optimize its industrial structure by encouraging scientific and technological researches and increasing investment in researches and cultivation of creative talents. Meanwhile, it made use of the advantages of traditional trade to achieve a more balanced structure of trade. During the third phase (1973–1985), the transformation of Japanese economic development mode began to take place under the influence of scientific and technological progress. Japan’s early dependence on trade to stimulate the recovery of its domestic economy made it an export-oriented economy, which was highly dependent on the world economy. As a result of the upheaval of the world economy, the Japanese domestic economy fell into an economic crisis, and that rendered the Japanese government to ponder on the necessity to transform the mode of economic development. The depression of world economy prompted Japan to change its traditional strategy of relying on foreign trades to stimulate recovery of its domestic economy, and then set up a long term strategy to boost the economic growth through technological progress. On the one hand, Japan evacuated its marginal industries of heavy pollution and high energy consumption, to other countries; on the other hand, it greatly supported the emerging industries to increase added values to the products, and encouraged technological development to make Japan a powerful country in science and technology. During the fourth phase (1985-now), the rapid development of Internet technology and information technology reminded Japan of the overwhelming influences of information technology over the world economy, and Japanese government decided to re-adjust its national strategy to support the information industry. At the same time, in response to the negative influences of Japanese foreign trade over them, the U. S. and other western countries signed the Square Agreement, enforced appreciation of yin, Japanese currency, and caused Japan to lose its core advantages in its foreign trade. With the continuous development of science and technology, Japanese government actively modulated its strategy of economic development, introduced a number of policies to encourage development of information industry. Advances of information technology breed more intelligent and green manufacturing industries, and nowadays, Japanese technologies in robots and electronics are leading the world.

4.3.2 The Influences of Scientific and Technological Progress on the Transformation of Economic Development Mode After World War II, the transformation of Japanese economic development mode had undergone four phases, and it demonstrated that the technological progress had played an irreplaceable role in the development of Japanese economy. From

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the history of Japanese economic development, the influence of the technological progress on its economic development mode can be summarized in the following three points. First, the Japanese strategy of national development through scientific and technological progress was proposed under the influence of its domestic economic crisis. As the Korean War ended in 1955, the Japanese economic development mode was featured by export-orientation, and Japan stimulated recovery of its economy by developing its export-oriented economy. But after 1972, the depression of world economy spread to Japan, and its domestic economy was confronted with upheavals and even economic crisis. In response to this situation, Japan had to alter its mode of economic development, turning from one dominated by export domination to the one boosted by science and technology. Thus, to some extent, the transformation of Japanese economic mode through technological progress was to passively, not actively, support the development of science and technology. Second, the role of technological progress is to enhance the upgrading of industries. In the early period, because of the low cost in labor and its reliance on foreign trades, Japan emphasized the development of light industries. But those industries caused serious environmental problems, such as exhaustion of energy, serious pollution of environment, etc. With the development of Japanese economy, the marginal industries headed to be transferred to developing countries. Simultaneously it managed to support the development of science and technology, increase investment in technological research and development, and make suitable policies to encourage emerging high tech industries like mechanical manufacturing. It was obvious that the core driving force of industrious up-grading in Japan came from technological progresses. And Japan was sufficiently aware of the importance of its advantageous industries for its self-development, and continuously reinforced the competence of those industries through technological improvement. Third, Japan managed to make full use of the information technology in its transformation of economic developing mode. During the stable period after the Korean War, Japan encouraged scientific and technological progress to push economic development and industrial upgrading. At present, Japan has realized the overwhelming influences of information technology, or internet technology, on the enterprise production and people’s daily life, and tried to seize the opportunity to develop information technology to improve economic informatization and manufacturing intelligentization. Nowadays, the information technology is extensively applied in the manufacturing industry and profoundly influences the day to day life of the people. The emphasis on information industry helped Japan to become one of the high technology countries in the world. At the same time, Japan is actively preparing for the next wave of technological revolution and industrial revolution, and will seize the opportunity to enhance the integration between scientific and technological progress and economic development.1 For instance, Japanese government published the Science and Technology Basic Plan

1 This

viewpoint was published in China Economic Herald (August, 2014).

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as a blueprint of its technological development, to encourage the innovative development of new energy and new materials, promote further transformation of economic development mode, and emphasize the development of green economy. Meanwhile, Japan manages to increase input into high tech researches and improve the efficiency of funds. Large sums of money are invested in the technological research and development to promote the transformation of Japanese economic development mode. The sum of Japanese research funds ranks second in the world in the present period. A series of measures are enacted for Japan to benefit from the technological progress and fasten the transformation of its economic development mode.

4.3.3 The Influences of Scientific and Technological Progress on the Three Industrial Upgrading in Japan The transformation of Japanese economic development mode is directly reflected on the industrial upgrading, that is, the three transformations of the industrial development mode. This part will analyze the relationship between the technological progress and industrial up-gradings in Japan from the perspective of the three industrial sectors: agriculture, industry and services. In terms of agriculture, the increase of investment in technological R&D and the cultivation of professional agricultural talents laid the foundation for the development of agricultural technological progress in Japan. In addition to emphasizing on the personnel training at universities, the Japanese government strongly supported and encouraged organizations of agricultural researches to conduct agricultural researches in response to the needs of markets. Furthermore, rural economic cooperation organizations were set up to bridge the government and farmers. They provide services in finances, taxes, loans, insurances, etc. to inform the farmers of the governmental policies, and provide governments with the farmers’ requirements. The smooth communication between governments and farmers guarantees the efficient production in agriculture. At the same time, the transformation of the agricultural development mode from human labor production to the later mechanized production, and then to the present automated production, embodies the important role of technological progress, especially the development of information technology in the transformation of agricultural development mode. Nowadays, Japanese agriculture has realized automation, and the application of advanced technologies such as GPS, GIS and robots increased modernization and intensification in Japanese agriculture. In terms of the transformation of industrial development mode, the fundamental influence of scientific and technological progress is reflected on the continuous transference of Japanese industrial production to knowledge intensified production. In the early 1970s’, the ratio of heavy and chemical industry in the structure of Japanese industry ranked first in the western world, but the growth of heavy chemical industries caused serious problems such as decrease of resources and deterioration of environment and thus proved this style of development to be unsustainable. Due to Japan’s

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over dependence on the import of raw materials, the turbulence of prices of energy in the world would greatly affect the industrial development in Japan. With such background, Japanese government timely altered its industrial development mode, evacuated the industries of heavy pollution and high energy consumption, developed emerging green industries such as information, electronics and new resources, enhanced the core competence of Japanese industries, and improved the status of Japanese industries in the world division of labor. Application of those measures enabled continuous optimization of Japanese industrial structure. The transformation of developing modes from the one of resource intensity and labor to the one of capital and even technology intensity, enhanced the sustainable development of Japanese economy. For instance, the decrease of investment in energy and raw materials alleviated the influence of Japanese energy crisis, prevented Japan from over dependence on the import of energy. At the same time, the emerging industries enhanced the development of technology in Japan, increased the added value to Japanese products and reinforced the international competence of the Japanese goods. In terms of service industry, the influence of scientific and technological progress is reflected more on producer services. With the development of the service industries, manufacturers will divest themselves of sectors such as accounting, auditing, financing and purchase services in those respects from more professional outsourcing companies which are regarded as productive service industry. Development of the manufacturing industry is the basis of the uprising of the productive service industry whose growth will counteract on the development of manufacturing. On the one hand, the scientific and technological progress boosts the continuous growth of productive services in Japan. Development in information technology deepens the trend of network-orientation in Japanese service industries which in turn promotes intelligentization in the manufacturing industry. On the other hand, the technological progress also arouses the uprising of the high-end service industry, such as the enjoyment service products in amusement, recreation, animation, health care, education, medical treatment and so on. It is worth noticing that the growth of Japanese modern service industry is a result of both the domestic industrial development and the growth of foreign trade and investment. Japanese government issued a series of laws to pave the road for the development of modern service industries, including Act of Information-technology Promotion Agency, Designated Machinery and Electronic Industry Promotion Provisional Law, and Designated Machinery Information Industry Promotion Provisional Law. Especially in the field of information industry, a number of policies and laws were released to guarantee the rapid development of information technology, such as Basic Law on the Formation of An Advanced Information and Telecommunications Network Society. Furthermore, Japanese government drew up development goals and plans to enhance the development of modern service industry.

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4.4 Implications 4.4.1 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in South Korea South Korea has achieved great development in economy since the 1950s. It witnessed similar development contexts to that of China since its reform and opening. They both began with the investment driven mode of economic growth by introducing foreign investment or marginal industries from the developed countries, and then made efforts to promote the transformation of economic growth mode by foreign trade. At present, South Korea has completed mode transformation on the basis of technological innovation; Meanwhile, China is at the critical stage of transformation and upgrading. And the realization of innovation driven development still needs further efforts, so the Korean lessons are of critical significance for China. First, the transformation of economic growth mode should be reinforced by voluntary and active innovation. When the economic growth driven by investments and foreign trade could not continue, South Korea proposed the national strategy of technological improvement, and took measures to inspire development of science and technology in order to achieve the sustainable economic growth. China has already realized the importance of the strategy of developing the nation through progresses in science and technology, but the transformation of economic growth driven by technological innovation is still at its early stage. Hence, it is necessary to issue corresponding documents like policies, laws or strategic plans to emphasize the importance of innovation driven growth and enormous significance of technological progress for the transformation of economic growth mode. Local governments should accept the concept of innovation driven growth and make efforts to facilitate the transformation of economic growth through technological development. Though the economic growth will temporarily slow down during the process of transformation, economic transformation and uprising should not be hindered by any reason. Second, emerging industries of strategic importance should be steadily supported. South Korea chose to support the heavy chemical industry at the early stage of industrial transformation, and greatly developed the advanced manufacturing industries such as electronic information at later periods. This is of great significance for China. Similar to that of South Korea, China’s industry was based on the marginal industries of developed countries, i.e., labor intensive industries. The key to a successful transformation from the old industries to advanced manufacturing industries, is to increase investment in scientific and technological research and development in order to expedite the technological revolution and the development of merging industries, and finally facilitate upgrading of the industrial structure. The decision and layout of strategic uprising industries should involve China’s strategic development and domestic advantages in order to increase the efficiency of transformation. Meanwhile China should jump at the opportunity of the new technological revolution and

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the new industrial revolution, encourage technological breakthroughs in fields such as new resources, new materials, biological engineering, health care and information technology, and strive to become a new center of technological innovation in the world. Third, technological progress should be viewed as the core driving force to promote the process of urbanization and improve the consumption structure. During its process of urbanization, South Korea realized the importance of technological progress and enhanced the development of high-end service industry through more advanced technologies, and it managed to satisfy the diverse demands of consumers. At present, China is launching a new movement of urbanization with more focus on the needs of the people. Satisfaction of the increasingly diverse consumer demands involves the development of modern service industry based on technological progress, and that in turn will promote the urbanization. Urbanization involves improving infrastructure and that increases the need for technological progress. At the same time, urbanization itself can also influence technological development. In a word, technological progress involves human innovation, and a higher level of urbanization leads to the improvement of education which will enhance the motivation and initiative in technological innovation.

4.4.2 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in the U.S. The American government and enterprises played their roles in the process of technological progress and industrial upgrading in America. As a supplier of public goods, the American government was dedicated to encouraging innovation and constructing distribution mechanism in the process of improving the national innovation. Its job is reflected in all aspects: encouraging technological introduction from abroad, building public education system at the earlier stage, supplying basic theoretical achievements and direct investment, issuing immigration policies to attract talents abroad, and building public infrastructure, etc. Its construction of distribution system is reflected in the building of the market economy and effective combination of elements through free competition in the market. In particular, the following four points are important for China. First, China should emphasize the development of information technology in order to achieve modernization of the service industry. An overview of the transformation and upgrading of the American economic development modes show that the progress of information technology played an irreplaceable role in the transformation of American economy. The transformation and upgrading of Chinese economy is facing a critical situation where the development of information technology can help realize the connection between enterprises and market, up-stream enterprises

4.4 Implications

99

and down-stream enterprises, domestic market and foreign market. With the development of Internet technology, the global economy and manufacture are undergoing profound changes, and the international economy will face a high degree of connection. The development of information technology will decide whether China can integrate into the world economy and become a globalized country. So China should pay more attention and increase investment in the development of information economy. Meanwhile, it should encourage the development of modern service industry. And that will promote the development of advanced manufacture and realize the connection between the second and third industries. Second, China should further the reform of the system of scientific and technological development in order to realize innovation of the technologies closely related to market. The American government was fully aware of its own influence in the cultivation of technological innovation, and it did its job to supply the needed elements for innovation and to set up a system of distribution, while allowing the market to lead the technological innovation. But China is still following the old management system of scientific and technological development, which was set up according to the document The Decision on Increasing Technological Innovation, Developing High Technology and Realizing Its Industrialization issued in 1998, which could hardly meet the needs of the technological market at the present stage. Hence Chinese government should help perfect the technological market and reform the existing management system of technological development in order to bride the need and the supply in the technological market. At the same time, the government should build a supportive system for the technological innovation and set up a functional distribution system in order to actualize the vigorous technological market at the present stage. Third, the government should release its regulation and control of the enterprises so that they could grow to be the mainstream in technological research and development. The history of technological innovation and economic growth in America shows that the American enterprises are the mainstream of the innovation of application-oriented technologies and the research centers including universities are the mainstream of theoretical researches of science and technology. But for China at this stage, the responsibility of researches of application-oriented technologies and that of theoretical researches are not clearly defined, and both are conducted at universities and research centers. As a result, the application of new technologies is limited to laboratories and is unable to meet the needs of the enterprise manufacture. So the best strategy for the government is to grant the enterprises initiative concerning the technological innovation, in order to arouse their enthusiasm to conduct technological research and become the mainstream of technological development. Fourth, while introducing more talents from abroad, it is necessary to cultivate local talents. To some extent, the development of American economy depends on its large talent pool. The large number of top universities in America provides best talents of the world who are necessary for the economic growth. In the process of implementing the concept of scientific development, China should not neglect the importance of building high quality talent teams. The practical choice is the strategy of “introduction from abroad and cultivation at home”. On the one hand, it should

100

4 International Experiences of Scientific and Technological …

introduce most creative talents with global visions; on the other hand, it should take measures to accelerate the development of domestic universities to cultivate topclass talents, and increase talent exchanges between China and foreign countries. In particular, besides introducing top talents from abroad and cultivating talents at home, China should send more university students to study abroad and receive foreign training. Those talents should be encouraged to return and work in China after the study and training, and that will improve the overall quality of talents at home. Meanwhile, China should speed the development of universities and help the traditional top universities to become world class ones.

4.4.3 Implications from the Scientific and Technological Progress and the Transformation of Economic Development Mode in Japan The economic situation in China is similar to that of Japan before its implementing of the strategy of technological progress. The present rapid development of Chinese economy is based on the high pollution and high energetic consumption heavy industry. China is also a large exporting country, and its industrial structure is still mainly resource intensive and labor intensive. The developed countries are actively pushing China to raise the value of its currency. What the Japanese government has done to transform its strategy of development is significant for China. Specifically, there are four points which are worth noticing for China. First, the government should initiate the strategy of development, from orientation of foreign trade to orientation of technological innovation. In the fast paced growth of Chinese economy, exporting and foreign investment played an important role. But with the development of economy, the advantages of labor and resources are decreasing in China, so the economic strategy of orientation of foreign trade and investment cannot sustain in the present situation. The sensible choice is to change the present strategy of economic development and implement the new strategy of technological progress. Innovation-driven transformation and upgrading is a feasible road for China to enhance its economy again. In a word, Chinese government should follow the lead of Japan to alter its development strategy, issue related laws to encourage technological development, increase investment in the field of science and technology, and formulate technological strategies, to prepare in policy for the future technological progress. At the same time, implementation of innovation-driven strategy should be conducted according to related laws and regulations. Second, the government should crease investment in scientific and technological research and development, especially the fundamental researches. During its process of technological development Japan invested a large amount of funds to guarantee technological innovation. At present Japan still ranks second in the world in terms of the amount of investment in science and technological research and development. The Chinese investment in science and technology is far less than that of Japan, so

4.4 Implications

101

we believe that China needs to increase investment in technological research and development, especially in the fundamental researches, in order to solve scientific and technological problems in theory. Of course the government should strengthen its supervision on the use of scientific and technological funds and avoid the misuse and abuse of the funds. At the same time, it should establish the functional intermediary market for science and technology, to actually realize the connection between the need and supply of technology, and improve the rate of commercialization of technological achievements. Third, the national plan for scientific and technological development should be ascertained in the form of laws, and the implementation of the plan should be conducted according to the laws. While making strategies for technological progress, the Japanese government issued laws to guarantee the effectiveness of the strategies. This is worth learning for China, especially considering the background of the government’s new concept of running the country according to laws. At the present stage in China, the idea of technological development is still restricted to the process of planning, not defined by laws, and that in some way blocks the implementation of the technological plans. So the government should follow the model of Japan and define the national strategies of technological development in the forms of laws in order to improve the effectiveness of implementation of the plans. Fourth, the concept of scientific and technological research and development should involve the new rising industries, especially the information industry. Japan focuses on the development of its advantage industries, such as electronics, information and animation. So China should choose to support the development of its advantage industries, such as the industry of new resources and new materials, animation, etc. At the beginning of a new round technological and industrial revolution, it is necessary for us to deeply inspect the new trends of the revolutions and follow the latest developments of them, so as to take the initiative to make breakthroughs in science and technology in China. Meanwhile, in the information era, China should pay more attention to information technology, speed the development of internet technology, and enhance the building of information networks, in order to improve the intelligentization, flow process and networking of the advanced manufacturing industries.

Chapter 5

Comprehensive Capacity Measurement and Evolutionary Analysis of the Scientific and Technological Progress in China

5.1 Evaluation of the Comprehensive Capacity of the Regional Scientific and Technological Progress 5.1.1 Selection of Analytical Method The comprehensive capacity measurement of the regional scientific and technological progress usually involves the interaction of a variety of factors. In order to make an overall and objective evaluation of the scientific and technological progress in a region, it is necessary to include all active factors into the calculation system. But it is obvious that involving too many elements into the comprehensive capacity measurement will not only weaken the influences of the principal elements, but also affect the smooth implementation of the measurement system. The method of PCA (Principal Component Analysis) provides a practical way to solve this problem. PCA is an important statistical method to reduce the complicated analysis of various indicators to a more effective analysis of fewer comprehensive indicators, thus simplifies the operation and prevents the loss of information at the same time. Due to such an advantage, PCA is much applicable in fields like social economy and enterprise management, in the forms of comprehensive evaluation of influential factors, analog signal processing, etc. The basic idea of PCA can be summarized as follows: by means of an orthogonal transformation, the original component-dependent random variable can be transformed into a new variable that is not related to the component; from the algebraic point of view, the covariance matrix of variables can be changed into a diagonal matrix of them; from the geometric point of view, the original variable system can be transformed into a new orthogonal system, so that it points to the sample point of the most open orthogonal direction, thus reduces the dimension processing of the

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_5

103

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5 Comprehensive Capacity Measurement and Evolutionary …

multi-dimensional variable system. According to the view of feature extraction, PCA is a method based on minimum mean square error extraction.1

5.1.2 Design of the Index System For this issue, it is inevitable to clarify the connotation of the “independent innovation”. Schumpeter (Schumpeter 1934) defines innovation as the setting up of a new production function or supply function, and the new combination of factors of production and production conditions in the production system. Later, foreign scholars have conducted research and exploration into the innovative capacity from the perspective of technology and institution. Enos (1962), Lynn (1984), Mansfield (1974), Freeman(1973), National Science Foundation (1976) respectively give their definition of “technological innovation”, and R. Museser sorted out and analyzed more than 300 papers on “technological innovation” and defined it as a sudden event, not a continuous one, based on the novel ideas and their realization. New institutional economists, represented by H. R. Coase and Douglass C. North, conducted further research into institutional innovation. American scholars, K. Nielsen and B. Johnson, combine the two respects and point out that “the institutional innovation theory and technological innovation theory are interacting with each other, and now technological innovation theory treats institutional innovation more seriously and uses institutional concepts from a broader and more complex approach than before”. In order to illustrate the independent innovation as the opposite of the innovation of learning and imitation, we follow Schumpeter’s definition of innovation and revise the definition of independent innovation as follows: independent innovation refers to a productive process where, an economic organization, by the investment of its own human capital and innovative factors of research and development, creates new knowledge, technologies, management philosophies and other intellectual property rights of independent innovation, based on its own capacity under certain innovative environment, and then convert these innovations into elements of reproduction. Concerning the above definition we believe that: first, the agent of independent innovation is an “economic organization”, which can be classified into macro agent, meso agent and micro agent, reflecting the act of innovation in three levels: that of a nation, a region (or industry) and an enterprise; second, the investment of human capital and other innovative elements needs a series of conditions like the state financial support before it can be ultimately productive; third, the output of independent innovation should be based on the agent’s own capacity of R&D and production, not on the external powers; fourth, enterprises must have independent intellectual property rights for the achievements of innovation, i.e. the independent property rights; fifth, the process of independent innovation includes the process of transforming innovation results into reproduction elements, that is, put the innovation results into 1 Jian Yu, The Practical Application of PLS Regression Method in Economic System, Master Thesis

of Harbin Engineering University, 2008.

5.1 Evaluation of the Comprehensive Capacity of the Regional …

105

production to realize marketization, which in turn will be put into reproduction as new productive elements; finally, the independent innovation is a creative productive process which involves innovative factors into production of innovative results. Therefore, we believe that independent innovation is the opposite of imitative innovation. Similarly, we believe that the influence on independent innovation is the opposite of that on the imitative innovation in the process of FDI technology spillover. Considering the extensiveness of the connotation of independent innovation, this book makes use of the four first-level indicators,2 and 30 second-level indicators from the Report on the Capacity of Independent Innovation of Chinese Enterprises published by National Economic Prosperity Testing Center of National Bureau of Statistics in 2006, to measure the capacity of independent innovation of the provinces in China. The specific indicators are illustrated in Table 5.1. This book uses the SPSS software to conduct factor analysis on the related 30 indicators to measure the capacity of independent innovation of the provinces. The comprehensive indicators of the capacity of independent innovation of the provinces based on the factor analysis are illustrated in Table 5.2.3 i. The independent innovative capacity of eastern provinces ranking front row in the country According to the average independent innovative capacity indicators, the provinces of Guangdong, Beijing and Jiangsu rank the first three before the others. The independent innovative capacity of eastern provinces heads the whole nation. It is worth mentioning that the independent innovative capacity of middle provinces rose and kept a steady state during the years from 2000 to 2012 (Table 5.3). ii. Gaps of independent innovative capacity still exist in different regions. In terms of absolute value, the independent innovative capacity in the middle region is lower than that of the eastern region. In terms of average levels, the indicators of independent innovative capacity of Shaanxi and Fujian are respectively 101 and 100, clearly lower than those of the eastern developed provinces (Table 5.4).

2 The four first-level indicators are: Technological innovation activity Evaluation indicator, Techno-

logical innovation environment indicator, Potential Technological innovation resources indicator, Technological innovation output capacity indicator. 3 Owing to the incomplete statistics of related indicators in Inner Mongolia, Guangxi, Qinghai, etc. before 2000, the related data during that period cannot be analyzed according to factor analysis. To guarantee the continuity and authenticity of data, the analysis in this book is limited to the years from 2000 to 2012.

106

5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.1 Evaluation indicator system of independent innovative capacity First-level indicator Evaluation indicator of technological innovation

Serial Second-level number indicator

Unit

First-level indicator

Serial Second-level number indicator

Unit

1

Technological Ten Potential staff thousand technological persons innovation resources indicator

17

Proportion of % increased output value of hi-tech industries in industrial enterprises

2

Scientists and Ten engineers thousand persons

18

Value of Hundred imported and million exported dollars high-tech products

3

Technological Persons staff per ten thousand people

19

Proportion of % value of imported and exported high-tech products in that of nation-wide enterprises

4

R&D staff

Ten thousand persons

20

Value of Imported high-tech products

5

R&D scientific workers

Ten thousand persons

21

6

Scientific and Hundred technological million expenditure yuan

Proportion of % value of imported high-tech products in that of nation-wide enterprises

7

Proportion of scientific and technological expenditure in GDP

%

22

Value of exported high-tech products

8

R&D expenditure

Hundred million yuan

Hundred million dollars

Hundred million dollars

(continued)

5.1 Evaluation of the Comprehensive Capacity of the Regional …

107

Table 5.1 (continued) First-level indicator

Serial Second-level number indicator 9

Environment 10 indicator of technological innovation 11

Unit

First-level indicator

Serial Second-level number indicator

Proportion of R&D expenditure in GDP

%

23

Local financial funding for science and technology

Hundred Technological 24 million innovation yuan output capacity indicator

Unit

Proportion of % value of exported high-tech products in that of nation-wide enterprises Patent applications received

Items

Ratio of local % financial funding for science and technology by local financial expenditure

25

Invention patent applications received

Items

Potential 12 technological innovation resources indicator 13

Output value of large scale hi-tech enterprises

26

Patent applications authorized

Items

Ratio of % output value of large scale hi-tech enterprises by that of nation-wide enterprises

27

Invention patent applications authorized

Items

14

Increased output value of large scale hi-tech enterprises

28

Number of Articles scientific and technological papers published on domestic Chinese journals

15

Ratio of % increased output value of large scale hi-tech enterprises by nation-wide enterprises

29

Number of Items contract transactions in technological market

Hundred million yuan

Hundred million yuan

(continued)

108

5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.1 (continued) First-level indicator

Serial Second-level number indicator

Unit

16

%

Ratio of increased output value of large scale hi-tech enterprises

First-level indicator

Serial Second-level number indicator 30

Unit

Value of Hundred contract million transactions yuan in technological market

Source of data National Economic Prosperity Testing Center of National Bureau of Statistics: Report on the Capacity of Independent Innovation of Chinese Enterprises, 2006

5.2 Technological Innovation Efficiency Evaluation of Industries and Enterprises4 5.2.1 The Choice of Innovative Efficiency Measurement Methods According to the definition of efficiency, we can find that the method of efficiency measurement is to choose a suitable model to portray the input and output of technological innovation of the economy so as to measure the efficiency of technological innovation. For the time being, the methods of measuring technological innovation efficiency include frontal analysis and non-frontal analysis method.

5.2.1.1

Non-frontier Measurement Method

Based on the idea of economic efficiency (production efficiency) of traditional economic growth theory, the non-frontal analysis analyzes the production efficiency of technological innovation activities, including the traditional Solow Residual method and the comprehensive index evaluation method etc. In terms of the measurement process of Solow Residual method, to select the input and output index of technological innovation activities, to construct the logarithmic model and to estimate the constant term is Total Factors Productivity (TFP) of technological innovation activities. It is clear that this kind of measurement method is more based on economic assumptions, such as constant returns to scale and so on, and the result of the measurement is the concept of Total Factor Productivity, that is, excluding the impact of all factors other than the input variables of the logarithmic model on output. These factors include not only the input-output efficiency of technological innovation but also some factors that can not be measured, such as the institutional environment of technological innovation. Meanwhile, what is more important is that there is a certain correlation between the Solow residual 4 This

part was published in the 4th issue of the journal Management World in 2014.

80

104

109

74

66

78

Hebei

Sichuan

Liaoning

Jiangxi

Hainan

Heilongjiang

84

81

Henan

Hunan

70

71

Gansu

Guizhou

306

90

Hubei

Guangdong

59

Chongqing

Qinghai

72

Anhui

168

72

Yunnan

Jiangsu

81

70

Jilin

168

105

Shaanxi

Shanghai

226

Beijing

2000

75

76

245

88

87

98

69

154

80

80

77

83

157

87

70

78

111

103

86

103

194

2001

76

76

241

89

87

97

70

155

81

81

77

84

151

88

71

79

113

101

86

105

178

2002

75

75

258

84

83

95

69

172

81

79

74

81

168

84

69

77

108

99

83

100

187

2003

74

72

266

82

81

89

66

185

80

77

72

80

179

81

69

75

107

94

80

97

186

2004

73

71

260

81

78

90

66

192

80

76

70

80

191

80

69

75

101

92

77

95

197

2005

77

73

260

88

82

96

65

175

81

76

69

85

174

78

73

78

110

100

77

103

193

2006

Table 5.2 Independent innovation capacity of 30 Provinces in China from 2000 to 2012

81

82

265

87

81

87

68

179

86

81

73

82

168

86

68

79

106

112

86

98

195

2007

79

84

267

86

83

93

69

178

87

81

74

86

167

87

67

88

102

116

88

92

194

2008

77

82

85

84

84

84

83

94

85

99

101

102

117

107

122

117

126

169

174

197

268

2009

82

84

93

80

84

85

89

94

89

97

106

104

109

105

116

123

127

179

177

199

261

2010

82

82

84

82

85

88

84

92

91

102

106

100

110

111

120

124

129

178

178

201

267

2011

(continued)

85

85

86

89

90

91

92

93

94

96

101

108

110

113

116

123

124

180

186

199

265

2012

5.2 Technological Innovation Efficiency Evaluation … 109

64

64

Ningxia

Inner Mongolia

2001

114

72

70

97

114

71

75

77

111

2002

114

73

71

98

115

71

76

78

116

2003

115

71

70

99

112

69

75

75

114

2004

123

70

68

100

112

68

73

75

120

2005

127

69

69

99

110

67

72

73

120

118

74

69

97

116

72

76

76

113

2006

120

65

67

98

115

71

72

80

127

2007

117

71

66

96

113

72

73

78

120

2008

80

75

73

76

76

76

77

84

82

2009

74

70

74

77

81

76

73

80

83

2010

73

76

78

73

80

77

80

82

88

2011

72

73

74

76

77

77

81

82

85

2012

Source of data All the indicators are from Chinese Main Scientific and Technological Indicator Data Base: http://www.sts.org.cn/kjnew/maintitle/Maintitle.htm

120

103

Fujian

Tianjin

62

109

71

Guangxi

Shandong

71

Shanxi

Xinjiang

105

Zhejiang

2000

Table 5.2 (continued)

110 5 Comprehensive Capacity Measurement and Evolutionary …

Sichuan

Shaanxi

Sichuan

Shaanxi

Fujian

Shaanxi

Fujian Shaanxi

Shaanxi

Fujian

Liaoning Sichuan

Fujian

Liaoning Fujian

Liaoning

Sichuan

Shandong

Tianjin

Zhejiang

Shanghai

Jiangsu

Beijing

Fujian

Liaoning

Shandong

Sichuan

Tianjin

Zhejiang

Shanghai

Jiangsu

Beijing

Shaanxi

Sichuan

Zhejiang

Liaoning

Shandong

Tianjin

Shanghai

Jiangsu

Beijing

Sichuan

Fujian

Liaoning

Shandong

Zhejiang

Tianjin

Jiangsu

Shanghai

Beijing

Fujian

Liaoning

Sichuan

Shandong

Zhejiang

Tianjin

Shanghai

Jiangsu

Beijing

Shaanxi

Liaoning

Sichuan

Shandong

Zhejiang

Tianjin

Shanghai

Jiangsu

Beijing

Sichuan

Liaoning

Shandong

Zhejiang

Tianjin

Jiangsu

Shanghai

Beijing

Shaanxi

Liaoning

Shandong

Zhejiang

Tianjin

Shanghai

Jiangsu

Beijing

10

Liaoning

Shandong

Zhejiang

Tianjin

Shanghai

Jiangsu

Beijing

9

Liaoning

Shandong

Zhejiang

Tianjin

Shanghai

Jiangsu

Beijing

Zhejiang

Tianjin

Shandong

Zhejiang

Shanghai

Jiangsu

Beijing

8

Zhejiang

Shandong

Tianjin

Jiangsu

Shanghai

Beijing

Liaoning

2012

Shandong

2011

7

2010

6

2009

Tianjin

2008

5

2007

Jiangsu

2006

4

2005

Shanghai

2004

Beijing

2003

3

2002

2

2001

Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong Guangdong

1

Ranking 2000

Table 5.3 Top 10 provinces in the ranking of independent innovative capacity in China from 2000 to 2012

5.2 Technological Innovation Efficiency Evaluation … 111

112

5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.4 Average levels of independent innovative capacity of provinces from 2000 to 2012 Province

Average value

Province

Average value

Province

Average value

Guangdong

264

Fujian

100

Guangxi

76

Beijing

196

Hubei

95

Anhui

80

Jiangsu

175

Jilin

85

Shanxi

78

Shanghai

171

Hunan

88

Hainan

72

Tianjin

121

Chongqing

83

Guizhou

76

Zhejiang

118

Heilongjiang

84

Yunnan

75

Shandong

115

Henan

84

Xinjiang

71

Sichuan

104

Jiangxi

80

Qinghai

69

Liaoning

109

Hebei

84

Ningxia

70

Shaanxi

101

Gansu

78

Inner Mongolia

71

value obtained by adopting OLS regression analysis and the input factors, that is, the input factors are linearly related to TFP. Therefore, the measurement based on Solow Residual method is relatively simple, but its accuracy needs to be further improved. It is based on these considerations that later scholars have made some improvements to the original estimation method, introducing the nonparametric estimation method to avoid the above problems. The method of Olley and Pakes (1996) (OP for short) is firstly adopted to solve the problem. The OP method mainly uses the Semi-parametric Estimation method to avoid the endogeneity between production efficiency (such as TFP) and input factors. In the original classic Solo Growth Model, A and K are independent of each other. The reality is that there is a Simultaneity Problem between the two, that is, the enterprises will have more information about their productivity and will determine the amount of elements input according to these information,5 therefore, the assumption that A and K are independent of each other will be challenged. On the basis of the OP Model, econometricians have further refined the estimation method of the Solow Growth Model, the most important improvement of which is the amendment of Levinsohn and Petrin (2003) (LP-SR Method for short). The LPSR Method is mainly the Non-parametric Estimation method of using intermediate inputs as proxy variables. With no consideration of the corelation between TFP and the input of production elements, OLS will overestimate the contribution share of labor to output, while underestimating the contribution share of capital to output.6 Therefore, the LP-SR method will be adopted in this book to estimate the efficiency of technological innovation.

5 Guo-wei

Cai & Yu-jun Lian. The Control Power of the Foreign Investment, Firm Heterogeneitie and Technology Spillovers of FDI—An Empirical Study Based on the Semi-parametric Estimation Method of Olley-Pakes. South China Journal of Economics, 2011, (8). 6 Ming-yong Lai & Wen-ni Wang. The Amended Solow Residual Value Based on the Non-parametric Estimation Method of Levinsohn-Petrin. Statistics and Decision, 2008, (4).

5.2 Technological Innovation Efficiency Evaluation …

113

In addition to Solow Residual method, the comprehensive index evaluation method can also be used to measure the production efficiency of technological innovation activities. The comprehensive index evaluation method is in fact a “Data Dimension Reduction” method. That is, through certain data processing methods, the value of a comprehensive index is pushed backward after computing the weights of the comprehensive index step by step. The dimension-reducing methods usually adopted are principal component analysis, independent component analysis, linear decision analysis and other linear dimension-reducing methods. The advantage of the dimension reduction method is that all aspects of efficiency index can be comprehensively examined so that efficiency can be accurately measured by constructing a more comprehensive index system. However, dimension-reducing method is influenced by the subjective factors such as weight arrangement and index system settings and so on, therefore its objectivity can not be very well guaranteed. More importantly, the composite indicator obtained by the dimension-reducing method is often a dimensionless composite score, which is not very relevant to other economic variables of the economic system operations.

5.2.1.2

Frontier Measurement Method

The frontier measurement method is actually derived from the original idea of production efficiency, that is, the distance between the actual point of production and the maximum point of production. The maximum point of production is the point of the production frontier. Farrel (1957) is the first one to define production efficiency. He thinks that in the production process of enterprises, very often it is impossible to reach the theoretical maximum output value of the production-possibility frontier and that portion between the actual production value of enterprises and the Production Frontier is production efficiency. Based on the idea of Farrel (1957), econometricians have proposed two kinds of measurement method, the core idea of which is to estimate a production-possibility space in which the observed sample is located and to measure the boundary of space by adopting a certain estimation method. On the basis of this, the distance between the actual point of production and the production frontier is calculated, which is defined as production efficiency. The frontier measurement methods of technological innovation production efficiency are usually of two kinds, namely, nonparametric method and parametric method (Berger and Humphrey 1997; Yao 2004). The nonparametric method requires neither the specific form of the production function to be defined in advance nor the inefficient distribution of the sample studied to be assumed beforehand. Data Envelopment Analysis (DEA) is the most common nonparametric method, but its biggest weakness lies in the assumption that the influence of random errors is nonexist. Due to the neglect of the potential errors, it’s possible that random errors may be included in the estimation of efficiency terms, particularly if random errors are included in the decision-making unit which is located on the efficiency frontier, the efficiency estimation of all decision-making units will be affected (Hao 2006). In contrast, the method of estimating parameter can compensate

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5 Comprehensive Capacity Measurement and Evolutionary …

for this deficiency. The most common one is the Stochastic Frontier Approach (SFA), which has the advantage of separating the inefficient items from random error items to ensure that the estimated efficiency is valid and consistent. Researches carried out by some scholars found that the two affecting factors—random perturbation and technological inefficiency lead to production inefficiency (Aigner et al. 1977; Meeusen and Broeck, 1977; Battese and Corra 1977). But the non-observability of random perturbation and technological inefficiency and the strict distribution assumption have become the hurdle for application (Tang et al. 2008). The Stochastic Frontier Method of panel data expanded by Pitt and Lee (1981) greatly expands the degrees of freedom of parameter estimation, allowing the more general assumption of the distribution of the two affecting factors. With the application of panel data and maximum likelihood estimation, Battses and Coelli(1995) introduced time factor and other factors and used one-time regression to directly obtain the result of parameter estimation of the production function and the factors that affect technical efficiency, overcoming the previous assumption of the two-stage method and the theory contradiction. As a result, it has been widely used. Based on the above comparative analysis, we found that the use or non-use of frontier function have both advantages and disadvantages. Even if the frontier analysis method is adopted, DEA and SFA have their own focus. In view of the comparability of the measured results and the data characteristics, the LP-SR method to measure the efficiency of technological innovation will be used in this book.

5.2.2 LP-SR Method and Its Principle LP-SR is to estimate the C-D production function by means of the non-parametric estimation of Levinsohn and Petrin (2003). Technological innovation is defined as the “production process” in which the input of innovative elements brings about the output of innovative product in this book. Thus, given the production function of technological innovation, the estimated Solow residual value is the efficiency of technological innovation.7 Based on it and borrowing from the Gross Domestic Product(GDP) model designed by Levinsohn and Petrin (2003), the process of technological innovation is defined as the following: ln Iit = α + β1 ln RDLit + β2 ln RDKit + β3 ln RDMit + (ωit + εit )

(5.1)

In this formula, Iit is the output of technological innovation; RDKit is the capital input of technological innovation activities, such as the expense expenditure of 7 Dong-yun

Yu (2010) divides the efficiency of technological innovation into economic efficiency and production efficiency. Her definition of production efficiency is similar to the one given in this book but the measurement of economic efficiency is to accept technological innovation (measured in terms of patent and other output) into C-D production function so as to measure the degree of contribution of technological innovation., actually it is the concept of “contribution” instead of the concept of “efficiency”.

5.2 Technological Innovation Efficiency Evaluation …

115

R&D activities and so on; RDLit is the human input of technological innovation activities; RDMit is the intermediate input of technological innovation activities. In Formula 5.1, the residual term contains ωit and εit , among which ωit is the productivity, namely, the output growth eliminating the R&D capital input, human input and intermediate input (similar to the concept of total-factor productivity of the Solow growth model); εit is the error correction term. We assume that the intermediate input of technological innovation activities and the capital input of technological innovation activities is related to productivity, namely: RDMit = m(RDKit , ωit )

(5.2)

Meanwhile, we assume that intermediate input is a monotonous increasing function of technological innovation efficiency, then the following formula is made: ωit = ω(RDKit , RDMit )

(5.3)

If Formula 5.3 substitutes for Formula 5.1, the following formula is educed: ln Iit = β1 ln RDLit + ψ(ln RDKit , ωit ) + εit

(5.4)

Among it ψ(ln RDKit , ωit ) = α+β2 ln RDKit +β3 RDMit +ω(ln RDKit , RDMit ) Based on Formula 5.4, we can find that the LP-SR estimation method generally includes two stages. In the first stage an expression,8 which contains RDKit and ωit , is constructed to estimate ψ(ln RDKit , ωit ) in Formula 5.4 by adopting the nonparametric estimation method, and then the following formula is estimated by the method of OLS parameter: ln Iit = α + β1 ln RDLit +

3  3−k 

j

βi j ln RDKitk · ωit + εit

(5.5)

k=0 j=0 ∧

Based on the OLS parameter estimation of Formula 5.5, β 1 is got and then based ˆ on Formula 5.4, the estimated value of ψ(ln RDKit , ωit ) is obtained: ∧

∧

ψ(ln RDKit , ωit ) = ln Iit − β 1 ln RDKit

(5.6)

ˆ In the second stage, by adopting ψ(ln RDKit , ωit ) obtained in the first stage to record any possible alternative value of the coefficient β2 and β3 of the capital input and intermediate input of technological innovation as (β2∗ , β3∗ ), the following regression equation is constructed to achieve the estimation of technological innovation efficiency ωit : 8 The

approximation formula of a three-order polynomial is usually adopted for substitution.

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5 Comprehensive Capacity Measurement and Evolutionary …

ˆ ωˆ it = ψ(ln RDKit , ln RDMit ) − β2∗ ln RDKit − β3∗ ln RDMit

(5.7)

Through the estimated value ωit got from Formula 5.7, the nonparametric estimation of the following formula is performed to obtain the consensus estimation of ∧ nonparameter E( ωit |ω it−1 ) of conditional expectation E( ωit |ωit−1 ) of ωit : ∧

2 3 ω it = δ0 + δ1 ωit−1 + δ2 ωit−1 + δ3 ωit−1 + ξit

(5.8)

On the basis of this and according to the combination of (β2∗ , β3∗ ), we can obtain the residual error by calculation: ∧

εit +ξit = ln Iit − β 1 ln RDLit − β2∗ ln RDKit − β3∗ ln RDMit − E( ωit |ωit−1 ) (5.9) ∧

Since the conditional matrix of ε it + ξit for RDKit , RDMit , RDLit , RDMit−1 and RDKit−1 is zero, the uniformly valid estimation of β2 and β3 can be obtained by from the following formula:

min

(β2∗ ,β3∗ )

   h

2 (ˆεit + ξˆit )Z h,it

(5.10)

n

Among it, Z it ≡ (RDKit , RDMit , RDLit , RDKit−1 , RDMit−1 ).

5.2.3 Illustration of the Variables and Data of Technological Innovative Efficiency Measurement At the industrial level, among the relevant statistical reports of industries only the data of “large and medium-sized industrial enterprises” are reported (for example, the statistical data of industrial enterprises above designated size is seldom reported in China Statistical Year and China Statistical Yearbook on Science and Technology before 20099 ), therefore, only the standard of “large and medium-sized industrial enterprises” is adopted so far as all the variables in this book are concerned. Of course, this kind of choice will surely affect the conclusions of the regression analysis, especially the scale analysis of the indicators. The reason is that the statistical caliber of industrial enterprises above designated size is much larger than that of large and medium-sized industrial enterprises, with the result that the objects of analysis in this book are limited to relatively large industrial enterprises. In addition, as for industry selection, there have been some changes in relevant statistical caliber in China in 9 Except for China Statistical Year (2005) published according to the data collected in the national industrial censuses in 2004.

5.2 Technological Innovation Efficiency Evaluation …

117

recent years. In order to ensure the availability and continuity of data, the criteria to classify industries in the book China Statistical Yearbook on Science and Technology (2010) is adopted, excluding 35 industries besides “other mining industry”. Taking into account the need to introduce the “intermediate” input of technological innovation in LP-SR method, so the output of technological innovation activities is regarded as the product of the result of marketization, adopting new product sales revenue as the specific measure index in this book. Referring to in-process products and finished products of the development process, which are defined by Chen and Liang (2010), we think that patent and other technical output are the “intermediate goods” of new product output value and other value output. Therefore, the intermediate input adopted in this book is measured by the number of patent applications.10 The statistics of output index to new product sales revenue and that of intermediate index to the number of patent applications are all derived from the China Statistics Yearbook on Science and Technology (2000–2010). As for the measure index of R&D capital stock, in this book Griliches’ (1992) method is used for reference, that is, dividing the R&D investment flows in 1999 by the depreciation rate and the average growth rate of many years after the base period is the R&D stock in 1999, namely, Ri,1999 = Ii,1999 /(δ + ζ ), among which Ii,1999 is the R&D expense expenditure of large and medium-sized industrial enterprises concerning industry i in 1999, δ is the depreciation rate, which is generally set as 10%, ζ is the average growth rate from 2000 to 2009. Based on this, then the perpetual inventory method is used for calculation, the following formula is drawn: the R&D stock in year t = the R&D stock in year t − 1 × (1–10%) + the R&D flow in year t. In R&D capital accounting, in addition to determining the base-period stock, depreciation rate and some other factors, the expenditure of R&D activities still needs careful accounting. First of all, given that R&D capital is separated from R&D activity staff in the efficiency measurement model adopted in this book, it is necessary to deduct the “labor costs of technology developers” from the internal expenditures of R&D expenses.11 Second, taking into account the impact of price factors on R&D activities’ expenses, this book has adjusted the price according to R&D internal expenditures. After excluding the labor costs of technology developers, the internal expenditures of R&D activities of large and medium-sized industrial enterprises includes three parts: the costs of fixed assets, raw material cost and other expenses. 10 In fact, according to the LP Method of the classic Solow growth model, the number of GDP energy consumption (namely 1 million tons standard coal) and so on are usually adopted for measurement (Lai and Wang 2008). 11 Only the statement of R&D internal expenditures of industrial enterprises above designated size and the total gross of R&D internal expenditures of large and medium-sized industrial enterprises in 2004 were reported in China Statistics Yearbook on Science and Technology (2005), so the following method is used for estimation in this book: to calculate the percentage of the total gross of R&D internal expenditure of large and medium-sized industrial enterprises in that of industrial enterprises above designated size, multiply this ratio by the labor costs of technology developers of the statement of R&D internal expenditure of industrial enterprises above designated size to get the labor costs of technology developers of large and medium-sized industrial enterprises in 2004. This method is also applicable for the estimation and accounting of the costs of fixed assets, raw material cost and other expenses of R&D internal expenditures in 2004.

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5 Comprehensive Capacity Measurement and Evolutionary …

As for the costs of fixed assets, the book uses the price indices of investment in fixed assets, taking 1998 as the base period, to adjust it12 ; for the costs of raw materials, firstly the 36 industrial sectors are to combine to make them consistent with the eight categories of industrial industry published in China Statistical Yearbook,13 and then the statement of the price indices of the raw materials of these eight categories (the year 1998 as the base period) are adopted respectively to adjust the costs of raw materials of various industries in this book; and for other costs, the average value of the price indices of investment in fixed assets, the overall price indices of raw materials and the consumer price index, taking 1998 as the base period, is adopted as the price index to adjust it in this book. The statement of R&D internal expenditures is from China Statistical Yearbook on Science and Technology (2000–2010). As for the personnel input accounting of R&D activities, there are two popular methods in academia at present, one is R&D personnel equivalent, and the other is the scientific and technical personnel. Obviously, the former can more accurately measure the personnel input of R&D activities of enterprises, but the index data of each industry has not been published in China Statistical Yearbook on Science and Technology in most of the years, and the regional R&D personnel equivalent reported in the “Science and Technology Statistics Database” on the website of National Bureau of Statistics of China does not indicate its relationship with China Statistical Yearbook on Science and Technology. Besides, there is no statistical data of each industry. Therefore, taking into account the availability and consistency of data, the scientific and technical personnel of large and medium-sized industrial enterprises according to industrial sectors are adopted as the measurement index of R&D activity personnel input in this book.14 The data of the scientific and technical personnel is from China Statistical Yearbook on Science and Technology (2000–2010). The data acquisition of R&D activities on micro-aspects of enterprises has always been a difficult problem in the field of empirical research of technological innovation. Zhejiang micro-data acquired from the second national R&D resource inventory carried out in 2010 is adopted to conduct the study in this book.15 In order to make the measurement methods at three levels as similar to each other as possible, 1867 12 The

data of price indices in this section is from China Statistical Yearbook (2010). categories of raw material industrial industries include fuel, power; ferrous material, non ferrous material; industrial chemicals, timber and pulp; building materials; subsidiary agricultural products and textile raw material. 14 The expression “R&D personnel” was adopted in China Statistical Yearbook on Science and Technology (2010) while “ scientific and technical personnel” were adopted as index in previous China Statistical Yearbook on Science and Technology. After comparing relevant “explanation of index”, we think there are no essential difference between the two, the expression “scientific and technological personnel” is adopted in this book. 15 So far, the official census of R&D activity of enterprises all over our country has been conducted only twice. The first national R&D resource inventory was conducted in 2000. Nearly ten years have passed and the custodian of data at the provincial level has been changed several times, so it is very difficult to get the raw data. What’s more, the specific system and content of the two inventories have changed a lot, It is obvious that its comparability declines. Therefore the data of the two inventories of R&D resources is not compared in this book and coherent operation is impossible. 13 Major

5.2 Technological Innovation Efficiency Evaluation …

119

large and medium-sized industrial enterprises in Zhejiang Province are chosen as the object of sample observation in this book, the timing of which is 2009. Of course, choosing large and medium-sized industrial enterprises as the object of analysis will indeed have a certain impact on the empirical results. As same as choosing the data of the large and medium-sized industrial enterprises at industry-level, larger-scale enterprise groups are chosen to estimate the efficiency of technological innovation in this book. In terms of the output index of technological innovation activities and the input index of intermediate goods, the data selection on micro-enterprise level is consistent with the choice at industry level. That is, new product sales revenue is taken as the output index and the number of patent applications is taken as the intermediate input index. So far as the input index of technological innovation activities are concerned, it is impossible to measure and estimate the R&D capital stock in view of the fact that the statistic year of the R&D resource inventory is only for the year 2009. Therefore, in terms of R&D capital input, the R&D internal expenditure of enterprises is chosen as the basis for measurement in this book. At the same time, with reference to the decomposition of R&D investment at the industry level, the final R&D capital input index will be that part of R&D internal expenditure, from which the “the labour costs of technology developers” is deducted. There is no price processing for specific structure input index because the sample at the enterprise level is only cross-section data and there is no need to exclude the price factor. In terms of the personnel input of technological innovation activities, the scientific and technical personnel of large and medium-sized industrial enterprises are still adopted as the measurement index of the personnel input of R&D activities in this book.

5.2.4 Estimated Results of Technological Innovation Efficiency The results of technological innovation efficiency at industry and enterprise levels, which are estimated by LP-SR method are Shown in Table 5.5. Table 5.5 shows that at industry level LP-SR can rectify OLS’s failure to include endogenous factors. A consideration of relevance between technology innovation efficiency and R&D capital stock finds that the elastic coefficient of R&D capital stock to technology innovation efficiency is higher than that by OLS, while that of R&D staff is lower. It is therefore decided that LP-SR still applies to technology innovation at industry level. However, the estimated result by LP-SR at enterprise level is different from those at industry and national levels. Table 5.5 indicates LP-SR elastic coefficient of R&D capital is no higher than that of OLS, and LP-SR result of R&D staff cost is no lower than OLS. But this does not mean the malfunction of LP-SR at enterprise level.

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5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.5 Estimated results of technology innovation efficiency at industry and enterprise levels LP-SR (Industry)

OLS (Industry)

LP-SR (Enterprise)

OLS (Enterprise)

InRDLit

0.571**

0.822**

0.723***

0.516***

InRDKit

0.579***

0.282***

0.216*

0.250*

InRDMit

0.168**

0.363**

0.154**

0.327**

CRS Estimate

5.56***

8.54***

11.74***

23.35***

N

396

396

1867

1867

Note ***, **, and * indicate respectively passage of examination at 1%, 5%, and 10%. CRS stands for constant returns to scale

For one thing, the cross-section data used in the book provides no chronological clues. Seeking solutions to OLS deficiencies, LP-SR focus on relevance between technology innovation efficiency and R&D investments. Indeed, this relevance is primarily concerned with time. Generally, economic entities, including industries and enterprises, first make investigation and evaluation of their latest innovation efficiency, and then decide their current R&D investments. As a result, the relevance was greatly reduced due to the absence of time in the cross-section data. This might have largely led to the inconsistency between results of enterprises and those of industries and countries. For another thing, R&D capital is measured by capital flow rather than stock, for data about enterprises is cross-section. Capital flow here means R&D internal expenditure except that of labor service. Yet, contribution of R&D capital to technology innovation is achieved more by capital stock from previous investments than by current investment. Therefore, a theory-practice discrepancy of LP-SR appears with capital stock unavailable for calculation. Based on the estimated results, the research calculated technological innovation efficiency at industry level, and an average of enterprises in the industry, as shown in Table 5.6. As Table 5.6 shows, there is no marked difference between technology innovation efficiency at industry level and that at enterprise level. The hypothesis testing results reveal that T testing has a probability of 0.485. Obviously this cannot refute the assumption that there is no marked difference between the mean of industry as a whole and that of individual enterprises in the industry. A conclusion is reached through observation of innovation efficiency of individual industries: the efficiency of technology intensive industries, like electrical machinery and equipment Manufacturing as well as pharmaceutical manufacturing, is around 0.8, which is much higher than the mean of all industries. In contrast, such industries as textile, clothing manufacturing, mining, and processing show an obvious low efficiency. This is particularly true of mining, as well as power, coal, and water supplying whose efficiency is hardly 0.2. The difference of innovation efficiency among industries is clearly shown here.

5.2 Technological Innovation Efficiency Evaluation …

121

Table 5.6 Technological innovation efficiency at industry and enterprise level No.

Industry

Industry level

Summary of enterprise level

1

Coal mining and washing

0.273

0.215

2

Petroleum and gas mining

0.148

0.019

3

Ferrous metals mining and dressing

0.120

0.011

4

Nonferrous metals mining and dressing

0.259

0.161

5

Non-metallic mining and dressing

0.160

0.105

6

Agriculture and sideline products processing

0.607

0.514

7

Food manufacturing

0.700

0.626

8

Beverage manufacturing

0.562

0.477

9

Tobacco industry

0.840

0.787

10

Textile industry

0.681

0.761

11

Clothing, shoes, and hats manufacturing

0.604

0.817

12

Leather, furs, feather (down) products industry

0.695

0.899

13

Lumber processing, and wood, bamboo, vine, palm fibre, grass products industry

0.653

0.562

14

Furniture manufacturing

0.792

0.732

15

Paper manufacturing and paper products industry

0.689

0.666

16

Printing and recording media duplication industry

0.449

0.395

17

Stationary and sporting products manufacturing

0.565

0.551

18

Petroleum processing, coking, and 0.799 nuclear fuel processing

0.674

19

Chemical materials and chemical products manufacturing

0.542

0.428

20

Pharmaceutical manufacturing

0.613

0.577

21

Chemical fibre manufacturing

0.711

0.691

22

Rubber products industry

0.808

0.779

23

Plastic products industry

24

Non-metallic mineral products manufacturing

0.632

0.547

25

Ferrous metals smelting and rolling

0.650

0.593 (continued)

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5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.6 (continued) No.

Industry

Industry level

Summary of enterprise level

26

Nonferrous metals smelting and rolling

0.748

0.603

27

Metal products industry

0.748

0.672

28

General equipment manufacturing 0.773

0.729

29

Special equipment manufacturing

0.781

0.687

30

Transportation equipment manufacturing

0.845

0.845

31

Electrical machinery and equipment manufacturing

0.856

0.801

32

Communication equipment, computers, and other electronic equipment manufacturing

0.852

0.878

33

Instrumentation, education and office equipment manufacturing

0.844

0.795

34

Power and heat production and supply

0.037

0.011

35

Gas production and supply

0.054

0.009

36

Water production and supply

0.093

0.019

Mean

0.574

0.530

Hypothesis testing

−0.702 (p = 0.485)

Note Hypothesis testing assumes that there is no marked difference between the mean of industry as a whole and that of individual enterprises in the industry

5.3 Evaluation of Technological Innovation Efficiency at Country Level16 5.3.1 Illustration of the Variables and Data of Technological Innovation Efficiency Estimation at Country Level So far as country level is concerned, in light of data continuity and availability, the research selects 25 countries as objects to study heterogeneity of technology innovation during 1995–2009.17 The selection is out of two concerns. One is the continuity and availability of data. According to OECD Science, Technology and R&D Statistics, data concerning these 25 countries has relatively good continuity. The other is that annual R&D expenditure of the 22 OECD countries combined 16 This

part was published as a journal article in the 8th issue of Economist in 2011. Selected are OECD countries including U.S.A., U.K., France, Germany, Japan, Canada, Sweden, Turkey, Austria, Belgium, Czech, Denmark, Finland, Greece, Ireland, Holland, Norway, Portugal, Spain, Korea, Hungary, and Poland, as well as non-OECD countries Singapore, Russia, and China. 17 The

5.3 Evaluation of Technological Innovation Efficiency at Country Level

123

takes up more than 90% of the expenditure of all OECD countries; the 3 non-OECD countries, Singapore, Russia, and China, also have a high level of R&D expenditure. The 25 sample countries thus work as an effective reflection of global technology innovation level. Two output indexes of technology innovation are currently used by major approaches in academia. One is the number of patents. Most scholars see as output of technology innovation the number of patent application or patent licensing (Wu 2008). The other is the sales revenue of new products or the number of new product R&D projects. Obviously, definition of new technology is crucial to decide whether a technology innovation really brings new technology. If new technology is seen as a driver of economic growth, the contribution of a technology innovation should be measured by the acceptance of new technology in market. Therefore, the technical indexes that have long been verified by market are superior to those simple ones. But it is a long way to go from knowledge accumulation, technology innovation, and industrialization. So it usually takes a relatively long time for a patent to be industrialized. Chen and Liang (2010) defines middle products and final products in R&D. They see technological outputs such as patents as middle products that equal new final products in output value. The differentiation of middle and final products improves the study in this field. Given different statistic calibers adopted in the sample countries, the sales revenue of new products is taken as technology innovation output index, and the number of three types of patents is taken as middle product input index.18 Input index of technology innovation centers on calculation of R&D capital stock. This is currently done in two major ways: one is the widely adopted R&D investment amount (Keller 1998; Xie and Zhou 2009); the other is R&D investment density adopted by Mansfield to avoid the influence of economy sizes on R&D acclivities(Mansfield 1981). Investment amount is adopted in this research given data availability and the main research purpose for R&D capital stock.19 And perpetual inventory system is employed with 1995 as base period. R&D capital stock in 1995 is calculated by Ri , 1995 = I i , 1995/(δ + ζ ) in light of Griliches (1992).20 Ii, 1995 stands for gross domestic expenditure on R&D; A depreciation rate that is usually set at 10%21 ; B average growth rate from 1996 to 2009. Followed is the perpetual inventory system: R&D capital stock in Year t = R&D capital stock in Year (t − 1) × (1 − 10%) + gross domestic expenditure on R&D in Year t. It has to be pointed out that labor cost is not removed from R&D expenditure due to the absence of OECD data on R&D expenditure structure. Moreover, total 18 In addition to patent application and patent incensing, an enterprise may attain patents through permission and certification. The number of patents is thus taken as intermediate variable. They may be defined as middle product input in the process of technology innovation when seen as knowledge accumulation for new products manufacturing. 19 This part was published as a journal article in the 1st issue of World Economy in 2011. 20 It is a common practice to calculate by average growth rate in the five years following the base period. But Ri, 1995 = Ii, 1995/(δ + ζ ) is adopted here for more accuracy. 21 Analysis of two individual attempts at 5 and 15% reveals no marked difference from that of 10%.

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5 Comprehensive Capacity Measurement and Evolutionary …

Table 5.7 Estimated results of technological innovation efficiency at country level LP-SR

OLS

FE

RE

InRDLit

0.298**

0.371

0.763***

0.586**

InRDKit

0.831***

0.592**

0.449**

0.197*

InRDMit

0.634*

-0.133**

1.034

0.790

CRS estimate

1.03

33.87***

54.44***

23.84***

N

375

375

375

375

Note ***, **, and * indicate respectively passage of examination at 1%, 5%, and 10%. CRS stands for constant returns to scale

researchers in headcount are used to measure personnel, another important factor in input. And all data at nationals level comes from OECD Science, Technology and R&D Statistics.

5.3.2 Estimated Results of Technological Innovation Efficiency at Macro-country Level At country level, a non-parametric estimation is done by LP-SR, using panel data of the 25 countries from 1995 to 2009. Meanwhile, a parametric estimation is done to the same sample space by OLS, FE, and RE. Results are shown in Table 5.7. In light of the estimated results, R&D capital elastic coefficient by LP-SR is higher those by OLS, FE, and RE while R&D personnel elastic coefficient is lower than those of FE and RE. This resembles very much Solow residual value by LP-SR. According to a study of total factor productivity by Levinsohn and Petrin (2003), general parametric estimation tents to underestimate the contribution of capital stock to economic growth while overestimating that of labor force, if endogenous factors of productivity and input are not taken into account. This research, however, concludes that LP-SR still applies in technology innovation. Rather, general parametric estimation tents to underestimate the contribution of R&D capital to technology innovation while overestimating that of R&D personnel, if relevance between technology innovation efficiency and R&D input is not taken into account. In addition, in light of CRS assumption, OLS, FE, and RE all find an obvious progressive increase in technology innovation output function, which contradicts the assumption. On the contrary, LP-SR accepts the CRS assumption and accords with its assumption of output function. Based on the estimated results, technology innovation efficiency of the 25 countries are calculated out as shown in Table 5.8. It can be seen from Table 5.8 that the countries vary much in technology innovation efficiency. Germany ranks the first with 0.885 while Poland the last with hardly 0.4. China and Russia are among the last few. China’s technology innovation efficiency

5.3 Evaluation of Technological Innovation Efficiency at Country Level

125

Table 5.8 Technological innovation efficiency value at country level 1995

2000

2005

2007

2008

2009

Average

0.905

0.811

0.911

0.881

0.878

0.909

0.885

Sweden

0.822

0.899

0.893

0.878

0.896

0.891

0.881

Denmark

0.886

0.781

0.890

0.899

0.854

0.879

0.866

Holland

0.887

0.786

0.842

0.862

0.838

0.900

0.852

Japan

0.869

0.897

0.793

0.801

0.876

0.828

0.851

Austria

0.843

0.796

0.843

0.856

0.820

0.904

0.831

U.S.A.

0.810

0.846

0.793

0.786

0.828

0.764

0.819

Germany

Norway

0.829

0.871

0.760

0.769

0.842

0.819

0.817

Singapore

0.804

0.757

0.830

0.810

0.782

0.814

0.799

Belgium

0.719

0.795

0.750

0.766

0.785

0.755

0.776

U.K.

0.739

0.769

0.763

0.751

0.764

0.744

0.755

Canada

0.737

0.683

0.760

0.771

0.684

0.755

0.713

Korea

0.706

0.540

0.705

0.653

0.621

0.709

0.648

Finland

0.647

0.512

0.660

0.639

0.588

0.655

0.609

France

0.580

0.638

0.609

0.566

0.627

0.587

0.605

Hungary

0.622

0.542

0.587

0.622

0.571

0.607

0.589

Ireland

0.530

0.662

0.560

0.509

0.594

0.594

0.580

Turkey

0.517

0.636

0.494

0.575

0.581

0.542

0.566

Greece

0.618

0.524

0.592

0.568

0.533

0.539

0.555

Czech

0.502

0.591

0.515

0.525

0.562

0.545

0.547

China

0.549

0.458

0.521

0.540

0.495

0.563

0.520

Portugal

0.435

0.596

0.449

0.497

0.524

0.470

0.500

Russia

0.500

0.431

0.550

0.472

0.472

0.553

0.498

Spain

0.454

0.560

0.440

0.393

0.477

0.419

0.467

Poland

0.400

0.495

0.325

0.404

0.408

0.347

0.396

Average

0.676

0.675

0.673

0.673

0.676

0.684

averages 0.520, which means its technology innovation output is merely slightly more than half of what could be achieved theoretically.

Chapter 6

Empirical Studies on the Transformation of Economic Development Mode Promoted by Scientific and Technological Progress

6.1 Scientific and Technological Progress, Government Support and Transformation of Development Mode1 Under the background of economic transformation, the process of decision making concerning technological innovations will inevitably involve government policy. And in some special situation, for example, when the national economy is at a catchingup stage, the enterprises lack the motive of innovation and the government, out of strategic consideration, has to take measures to encourage technological innovation in enterprises on a large scale, then the government policies become the key element. Hence, this section will discuss the current incentive system for enterprise technological innovation in China, and study the influences of government-dominated strategies of scientific and technological progress on the mechanism of enterprise technological innovation.

6.1.1 The Signal Transmission Mode and the Innovation Heterogeneity In this part, we will make use of the Signal Transmission Mode to analyze the interactions between signal transmission of enterprises and the decision making of the government when the government tries to choose and support some enterprises, and we will pay special attention to the influences of heterogeneity of enterprise technological innovations on the interaction. Suppose there are two types of enterprises in the market, one with higher technological innovation ability, the other with lower ability, marked as Type H and Type L respectively. The a priori possibility of the type of enterprises is common knowledge, the possibility of Type H being p, and that of Type L, 1-p. Enterprise type is the private information of the enterprises. The 1 This

part was published as a journal article in the 4th issue of Management World in 2014.

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_6

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government is not aware of that private information, but is concerned with it when choosing among the candidate enterprises. What the government knows is the a priori possibility of the type of each enterprise. At this time, information asymmetry exists between the government and enterprises. So the enterprises need to transmit signals to the government who will in turn make decisions on their type. With analysis of the supporting policy of the government, it should be the common knowledge between the government and enterprises that the comprehensive ability capacity of technological innovation (I) is the signal which enterprises should transmit to the government.2 The comprehensive ability of technological innovation is described by the combination of the input and the output of enterprises. Hence the technological innovation ability of an enterprise is defined as: (6.1) Ri in the formula is a collection of the input elements of the enterprise for technological innovation, including R&D capital, R&D personnel, knowledge accumulation, and so on. Without considering the heterogeneity of technological innovation, the functions of the technological innovation of both types of enterprises are the same, f (·). For convenience of calculation, we define the function as a linear form, with ε as the element outside the system. Meanwhile, the function of the cost of the enterprise technological innovation is defined as: (6.2) In the formula R represents the optimum scale of enterprise input for R&D based on the principle of maximum profit. The scale is determined by the exogenous variables. And among the two types of enterprises, those with higher capacity of technological innovation, that is, R H > R L , will choose to increase its R&D input, so as to be more competitive in technology. From the cost function of enterprise technological innovation, it is obvious that when Ri = R i , the enterprise cost ranks the lowest. Based on the signals transmitted by the enterprises, I, the government, makes its own decision on the types of the enterprises, and chooses to support them differently. Its support can be defined as follows:  G=

2 If

G H if i = H G L if i = L

(6.3)

an enterprise applies for the policy support from the government, it needs to supply necessary data and information to the government. An overall evaluation of the information is regarded as the comprehensive ability of technological innovation of the enterprise.

6.1 Scientific and Technological Progress, Government Support …

129

For technical convenience, the function of the enterprise profit is defined as follows: (6.4)

Based on the above formula, we will try to work out the equilibrium solution of the model. When the information is complete, the government can distinguish the enterprise type correctly and decide on the way of support for the enterprise. As a result, enterprises with higher capacity of technological innovation will receive governmental support, GH , and those with lower capacity will receive GL . Factually, in the situation of complete information, there is no causal relationship between the information transmitted by the enterprises and the support they receive. They choose the optimum scale of technological research and development with the principle of maximum profit. Enterprises with higher capacity of technological innovation choose the input scale, R H , and those with lower capacity choose R L . While in the situation of incomplete knowledge, the government cannot distinguish the enterprise types directly. Then it has to make decisions based on the information sent by enterprises. Since enterprises are aware that the government’s decision will be based on the capacity of technological innovation sent by themselves, the enterprises with lower capacity tend to be motivated to imitate the signals of those with higher capacity, by increasing the input of technological innovation, or to conduct more output of technological innovations through acquiring more patent licenses, in order to apply for more governmental support. Meanwhile, the enterprises with higher capacity are aware of the imitation impulse of those with lower capacity, so they will choose a new scale of technological innovation to differentiate themselves from those with lower capacity, in order to ascertain more support from the government. There will be two possible results of this mechanism. The first is separation equilibrium. The two types of enterprises will finally choose different scale of technological innovation, and thus be separated from each other. Suppose there is such a separation equilibrium, (R H = R ∗ , R L = R L ) and it satisfies the following inequality: ⎧ ⎨

2 R ∗ −R  GH − ( 2 H) ≥ GL 2 ⎩ G − ( R ∗ −R L ) ≤ G H L 2

(6.5)

The enterprises with higher capacity of technological innovation chooseR* and will acquire a profit not less than that in an imitating situation; and the enterprises with lower capacity chooseR* and will acquire a profit not more than that in an imitating situation. The above inequality can be rendered as:

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6 Empirical Studies on the Transformation of Economic …

R L +



2(G H − G L ) ≤ R ∗ ≤ R H +

 2(G H − G L )

(6.6)

To render the separation equilibrium meaningful and distinguish it from that in the √ situation of complete knowledge, we suppose R H − R L < 2(G H − G L ), i.e. there should not be too large a difference between the optimum scales of technological innovation chosen by the two types of enterprises with the principle of maximum profit. When the enterprises do not consider the government’s support, and the difference of optimum scales of technological innovation is too large, the imitation of enterprises with lower capacity will lead to irrational results. And when considering the government’s support, with the large differences of scales, the enterprises with high capacity will lose their motive to enlarge scales of technological innovation, for the enterprises with low capacity are not able to imitate and catch up with them. In fact, even if this assumption does not stand, the result of the separation equilibrium with incomplete knowledge is the same as that with the complete knowledge. Based on the above assumption, we further improve the equilibrium with the criterion of getting rid of the inferior strategy. Through analysis we find that, for the enterprises with low capacity, the profit of choosing R* is not larger than that in the situation of not imitating (the strategy chosen with the principle of maximum profit:  ∗ R L = R√L ). When the government  signal between the intervals: R ∈ √ is aware of the  R L + 2(G H − G L ), R H + 2(G H − G L ) the enterprise cannot be one with low capacity of technological innovation. Meanwhile, if we have another look at the target function of the enterprises withhigh capacity, we will find that√ π is a monotone √ decreasing function in the area: R ∗ ∈ R L + 2(G H − G L ), R H +√ 2(G H − G L ) 3 so for the enterprises with high capacity, choice of R ∗ = R L + 2(G H − G L ) is the best decision. There exists only one separation equilibrium:

 R ∗H = R L + 2(G H − G L ), R L∗ = R L  G H if Ri ≥ R ∗H G= G L if otherwise

(6.7)

From this equilibrium we can find that, when the knowledge is incomplete, the enterprises with high capacity of technological innovation will need to choose a scale of technological innovation larger than that in the situation of complete knowledge, in order to acquire more policy support from the government. Therefore the selection criterion of the government contradicts its original purpose, and enlarges the scale of technological innovation of the enterprises with high capacity which deviates from their optimum choice, and hence exerts negative influence on the improvement of the efficiency of the economy as a whole. The second result is pooling equilibrium, i.e. the activities of technological innovation of both types of enterprises cannot be differentiated, so the government’s supportive policy cannot reach its target enterprises. value when R H = R  , since R H − R L < √ takes the maximal 2(G H − G L ) > R H .

3π

√ 2(G H − G L ), hence, R L +

6.1 Scientific and Technological Progress, Government Support …

131

In fact, when the a priori probability of the enterprises with high capacity of technological innovation is small enough, and in the situation of pooling equilibrium, the optimum choice of the government is to offer support GL to each enterprise. However, the optimum choice of the two types of enterprises are RH = R H , RL = R L, and this contradicts with the pooling equilibrium. So when the existing probability of enterprises with high capacity of innovation is too low, there will not be pooling equilibrium. So when p is highenough, there is a pooling equilibrium solution to the signal transmission model R ∗H = R L∗ = R ∗ , and the solution satisfies the following inequality: ⎧ ⎨

2 R ∗ −R  GH − ( 2 H) ≥ GL 2 ⎩ G − ( R ∗ −R L ) ≥ G H L 2

(6.8)

From this inequality, we have: R H −



2(G H − G L ) ≤ R ∗ ≤ R L +

 2(G H − G L )

√ Similarly, when we suppose R H − R L < 2(G H − G L ), i.e. there should not be too huge a difference between the optimum scales of technological innovation chosen by the two types of enterprises for their maximal profits. And then  √ the prior strategies can be eliminated according to intuitive criterion: R ∗ ∈ R H − 2(G H − G L ), R H . And the pooling equilibrium solution to the signal transmission model is: 

 R ∗H = R L∗ = R ∗ ∈ R H , R L + 2(G H − G I )  G H if Ri ≥ R ∗ H G= G L if otherwise

(6.9)

According to the result of pooling equilibrium, we can find that, in the situation of incomplete knowledge, enterprises need to conduct more innovation activities than needed in the situation of optimal equilibrium. And, in the situation of pooling equilibrium, all enterprises need to enlarge their scale of technological innovation, no matter which type they belong to. According to the definition of technological innovation heterogeneity in this book, it is substantiated as R, the input of technological innovation needed in transmitting the signal, I. Then the capacity of the enterprise technological innovation can be redefined as: I H = g(R H ) = R H + ε

(6.10) (6.11)

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6 Empirical Studies on the Transformation of Economic …

Comparison between the above two formulas clearly tells us that, due to the difference of technological innovation efficiency between the two types of enterprises, there is much difference between their relation functions of transmitted signals and input of necessary elements. For convenience of calculation, we propose the technological innovation efficiency of the enterprises with high capacity is 1, and that of the enterprises with low capacity will be below 1. Hence, in order to transmit the same signal, I, enterprises with low innovative capacity have to increase the input of necessary elements needed for technological innovation. All other assumptions of the signal transmission model agree with the design of the model without the signal transmission. Thus it is feasible to work out the equilibrium solution to the model. In the situation of complete knowledge, the government can distinguish the types of enterprises according to their information and make decisions on its support for them. So enterprises with high capacity of technological innovation can receive support GH , while enterprises with low capacity will receive support GL . Thus in the situation of complete knowledge, the optimal scale of technological innovation is designed by enterprises themselves with the principle of maximum profit. So enterprises with high capacity will choose its scale of innovation, R H , and enterprises with low capacity will choose its scale of innovation, R L /δ. While in the situation of incomplete knowledge, it is equally possible to classify the equilibrium of the models. First, separation equilibrium. We assume there is such a separation equilibrium: (RH = R* , RL = R L /δ), and it is a solution to the following inequality: ⎧ ⎨

2 R ∗ −R  GH − ( 2 H) ≥ GL 2 ⎩ G − (δ·R ∗ −R L ) ≤ G

H

2

(6.12) L

The above formula can be worked out as: √  R L + 2(G H − G L ) ≤ R ∗ ≤ R H + 2(G H − G L ) δ

(6.13)

Similarly, in order to work out a meaningful separation equilibrium solution and differentiate it from the equilibrium solution in the situation of complete knowledge, √ we assume δ · R H − R L < 2(G H − G L ), i.e. there should not be a considerable difference between the optimal scales of technological innovation chosen by the two types of enterprises in order to achieve maximum profits. A comparison of this assumption with the above one without considering innovation heterogeneity reveals that, when considering innovation heterogeneity, R L and R H involve easier conditions, i.e. the difference between the optimal scale of innovation of the two types of enterprises will increase, and the extent of increase is dependent on the difference of technological innovation efficiency of the two. With the increase of the difference, the conditional restriction between the scales of the two types of enterprises will loosen.

6.1 Scientific and Technological Progress, Government Support …

133

After the elimination of inferior strategies, we can work out the separation equilibrium solution to the signal transmission model in consideration of technological innovation heterogeneity: 

R ∗H

R L +

√  2(G H − G L ) ∗ R L , RL = δ δ

=  G H if Ri ≥ R ∗H G= G L if otherwise

(6.14)

A comparison of this solution with that under the condition of complete knowledge tells us that the government’s supportive policy for innovation can encourage the enterprises to expand their technological innovation scales. However, a comparison between this equilibrium solution with Formula (6.7) without considering the technological innovation heterogeneity shows clearly that the optimal scales of innovation of both types of enterprises are smaller than those in the situation of not considering the innovation heterogeneity. More importantly, the expansion of the gap between the innovation efficiency (δ) of the two groups of enterprises will lead to the decrease in the effect of governmental support policy on the expansion of enterprise innovation scales. In other words, if there exists the technological innovation heterogeneity between enterprises, we have to admit that the effect of governmental supportive policy for innovation is obviously over estimated, and the innovation impulse in enterprises will also be affected. Second, pooling equilibrium. By reference to the pooling equilibrium solution in the situation without considering innovation heterogeneity, we can construct  a pooling equilibrium solution R ∗H = R L∗ = R ∗ which satisfies the following inequalities: ⎧ ⎨

2 R ∗ −R  GH − ( 2 H) ≥ GL 2 ⎩ G − (δ·R ∗ −R L ) ≥ G

H

2

(6.15) L

And from the inequalities we work out: R H

−



∗

2(G H − G L ) ≤ R ≤

R L +

√

2(G H − G L ) δ

√ Similarly, we assume δ · R H − R L < 2(G H − G L ). And the √ we can eliminate inferior strategy through intuitive criterion:R ∗ ∈ R H − 2(G H − G L ), R H . So the pooling equilibrium solution to the signal transmission model is: √   R  + 2(G H − G L ) R ∗H = R L∗ = R ∗ ∈ R H , L δ  ∗ G H if Ri ≥ R G= G L if otherwise

(6.16)

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Similar to that of separation equilibrium, in the situation of considering the technological innovation heterogeneity, the maximum value of the optimal input scales of innovation of the enterprises of pooling equilibrium will be smaller than the maximum value without considering the technological innovation heterogeneity. Through the above analysis we find that, when considering the innovation heterogeneity, the effect of government’s policy on innovation scales of enterprises will decrease. Especially when the innovation efficiency of both types of enterprises are obviously different, the effect on scales will reduce significantly. From the signal transmission model constructed in this chapter, ignorance of the innovation heterogeneity will result in over estimation of the effect of the government’s supportive policy, and that will in turn cause the government to reinforce its support, thus worsening the signal distortion. So it is necessary to involve innovation heterogeneity in the system of decision in the process of government’s policy making. And involvement of innovation heterogeneity will exert further influence on the technological progress of the whole economy, which we will discuss further in the third section of this chapter: when innovation heterogeneity is comprehensively and thoroughly involved in the structure of endogenous growth of economy, how the innovation heterogeneity influences the macro technological progress in the situation of equilibrium. Thus this book has expounded in theory that the enterprises demonstrate their capacity of innovation to the government by transmitting the signal of innovation, and the government offers its support to the enterprise innovation with the criterion of innovation. And our study verifies the proposition that support from the government helps improve the technological innovation of enterprises. Involvement of innovation heterogeneity in the theoretical model shows that the effect of government support on the enterprise innovation will be greatly weakened and the situation will worsen with the increase of innovation heterogeneity. In this section we will conduct empirical test on that theory and demonstrate the relationship between innovation heterogeneity, government’s support and enterprise technological progress through analysis of micro data of enterprises.

6.1.2 Governmental Support in the Signal Transmission Mechanism Enterprise research and development activities (especially the theoretical research) are usually related to external factors, and the enterprises cannot ensure the profits from the R&D activities (especially in the market with fierce competitions), so they usually face high risks and costs. The government’s subsidies can compensate for the deficit in the enterprise budget for R&D and reduce the risks, and hence help improve the capacity of technological innovation of enterprises (Gzarnitzki and Licht 2006). The theoretical necessity of government support lies in the externality of the technological innovation activities and the need for clarity of property rights. Public goods

6.1 Scientific and Technological Progress, Government Support …

135

are characterized with features like non-competitiveness and non-exclusiveness, and they are usually supported by the government. Some fields of science and technology belong to the category of public goods. The supply of public goods is usually insufficient, so the technological innovation with the property of public goods also needs financial support from the government. First, technological innovation, especially that in high tech companies, needs large amounts of capital and investment in R&D, which renders it hard for individual enterprises to raise adequate funds, and almost no companies are able, or willing to undertake the huge risks of technological innovation. In this circumstance, it is of great significance for government to provide a guaranty for the technological innovation activities. Thus the companies can acquire necessary R&D investment, or even invest directly. Second, acquiring profits from the investment in theoretical researches is time consuming. If the market mechanism is the only decisive factor in the allocation of resources of theoretical researches, there will appear unbalance between the investment and its profit, which will channel resources from theoretical researches to more profitable applied researches. The weakening of theoretical researches will result in aftereffect of unsustainability of innovation. The market cannot solve the external problems of technological innovation, so people involved in technological innovation will face the problem of inappropriate incomes compared with the social benefits they create. It benefits the whole society for the spread of innovation achievements can unleash the potential of technological innovation, but the unbalanced reward will hurt the enthusiasm of innovators and result in lack of impetus in innovation. Hence, it is of special importance for the government to support enterprises with incentive measures.4 In a word, it is theoretically necessary for the government to support the enterprise technological innovation. However, the government will have to consider the ratio of cost and benefit of the policy when choosing the proper channel of support.

6.1.3 Variables Declaration and Data Sources Usually the channels of government’s support include government procurement, public R&D, government funding for R&D, preferential tax policy, etc. In addition, the government can also guide and encourage the enterprises to increase input in technological development by means like economic leverage, policy or mechanism of orientation and restriction, for example, regulations make by the government, patent protection, governments’ investment in human capital, supportive policies for venture capitals, and funds for innovation, and so on. Those policy instruments can somehow influence the enterprise innovation, and the U.S. regards the institutions of patent protection as the most important policy instrument. However, the above policy instruments are just simple models of the complicate reality. In the real world, no innovative policies work alone. They are usually 4 Lu

Guibao. “The Construction of Government’s Supportive System for Enterprise Technological Innovation”, Journal of Guizhou College of Finance and Economics, 2006, (6).

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6 Empirical Studies on the Transformation of Economic …

combined and work together as the government attempts to influence the enterprises. But at different stages and in different countries, they are combined and work in different ways. And there is interaction between the instruments in the structure of the government’s innovative policies. For example, the government’s financial subsidy has a crowding-out effect on the public research and development, and the aid for R&D has an inverse relationship with tax incentives. So the more significant study in the future should involve government procurement, public R&D, government’s subsidies for R&D and tax incentives into the structure of analysis, and analyze the influences of government policies on the technological innovation and the effects of different combinations of the incentives, from a more comprehensive perspective. It is a pity that we could not find any statistical data of the channel and intensity of the government’s support for enterprise innovation activities in a long period in published resources. The second national survey of R&D resources in 2010 published some latest indexes, and included the following three indexes in the scope of the survey: enterprise expenditure which comes from the government’s funds for scientific and technological activities, tax reduction for enterprise R&D expenditure and tax reliefs for high tech enterprises. But other supportive policies like government procurement and setting up collaborative R&D platform are not available for analysis. So we involve the above three indexes to the calculation and analysis of governmental support. On the basis of the theoretical analysis of Chap. 4, we will go further to examine the influence of governmental support on the enterprise technological innovation and in the examination we will include the innovation heterogeneity in the analysis pattern. In this section, we design the calculation model for empirical analysis as follows: Ii = αi + θi + ψi + βi G i + γi δi G i + ωi X i + εi In this formula, Ii stands for the level of the enterprise technological innovation; G i refers to the governmental support and it is measured by the three indexes: enterprise expenditure coming from the government’s funds for scientific and technological activities, tax reduction for enterprise R&D expenditure and tax reliefs for high tech enterprises; θi is the enterprise type, measured by the ownership structure in this book; ψi is the virtual variable for the industry; X i refers to a series of control variables, including the enterprise R&D capital (RDK), R&D staff (RDL), enterprise size (Size) and technological transformation (Transf), and so on; εi is the random error. The data description of the above variables is shown in Table 6.1, and all the data for empirical analysis are extracted from Compilation of Second National R&D Resources Inventory Statistics. In Table 6.1, the enterprise technological innovation capacity is designed to be measured by two indexes: one is the sale and profit of new products, and the other is the number of patent applications. This design is based on two considerations. First, we expect to conduct further discussion on the results of governmental support

6.1 Scientific and Technological Progress, Government Support …

137

Table 6.1 Measurement method of variables Variable

Expression

Measurement method and data description

Technological innovation capacity 1

Ii

Measured by sale and profit of new products

Technological innovation capacity 2

Ii

Measured by number of patent applications

Enterprise type

θ

State owned company represented as 1; otherwise, 0

Type of industry

ψ

Evaluation according to the industry of companies, from 37 industries

Governmental support

G1

Measured by enterprise expenditures coming from the government’s funds for scientific and technological activities

Governmental support

G2

Measured by tax reduction for enterprise R&D expenditure

Governmental support

G3

Measured by tax reliefs for high tech enterprises

Innovation heterogeneit y

δ

Measured by enterprise technological innovation efficiency calculated in Chap. 3 of this book

R&D capital

RDK

Measured by the expenditure of R&D with deduction of service changes and governmental investment

R&D staff

RDL

Measured by number of staff of R&D activity

Enterprise size

Size

Measured by the income of the company’s main business

Technological transformation

Transf

Measured by the sum of four expenditures from: introducing foreign technology, assimilation of the technology, purchase of domestic technology, and technological transformation

policy, and differentiate the respective effects of governmental support for the marketoriented and non-market-oriented enterprise technological innovations. Second, in the past studies, researchers used to mix them as one representation of enterprise innovation capacity, and usually regard them as substitute variables for each other. We will accept this way of disposal as a channel of stability test. The criteria of data choice also need a little explanation. The data collected in the second national R&D survey is cross-sectional data, so it is impossible to calculate the lag period of variables. It is also impossible to work out the stocks of the three variables concerning governmental support, R&D capital and technological transformation in Table 6.1, and this will weaken the effect of those three variables. The three indexes for governmental support were not included in the scope of scientific and technological survey before the second national R&D resources survey, so they are not available in the statistical yearbooks in this field, like China Statistical Yearbook

138

6 Empirical Studies on the Transformation of Economic …

of Science and Technology and China Statistical Yearbook on High Technology, but they were collected in the statistical caliber of “governmental capital in the R&D funds”. In a word, this section studies the statistical data collected in the second national R&D resources survey (cross-sectional data of 2009), and analyzes the relation between governmental support and enterprise technological innovation.

6.1.4 Results and Discussion of Regression Analysis We measured the parameters of the above technical model with STATA 10.0 and the result is illustrated in Table 6.2. From the results of the parameter estimation listed in Table 6.1, we come to the conclusion as follows: i.

The signal transmission mechanism does exist between governmental support and enterprise technological innovation. From the results of regression analysis, all three indexes representing governmental support are significantly positive. That shows that the innovation capacity is sent by enterprises as a signal and is

Table 6.2 Results of parameter estimation Sales income of new products

Sales income of new products

Number of patent applications

Number of patent applications

C

212.955

179.990

278.296

179.637

θ

1.719

1.964

1.607*

1.420

ψ

0.043***

0.156***

0.286***

0.184***

G1

0.940**

0.036*

0.894***

0.328**

G2

6.615*

2.588**

13.320**

1.099*

G3

7.536*

2.485*

9.865**

4.466

δG1

0.484***

0.276***

δG2

4.605*

0.095**

δG3

3.638**

6.465**

RDK

0.404*

0.306**

0.398**

0.332**

RDL

0.209***

0.414***

0.301***

0.457***

Size

−0.012**

−0.219*

−0.027*

−0.043

Transf

1.913*

1.828

1.457**

3.337

Obs.

1867

1867

1867

1867

F–

196.236

244.647

217.219

194.574

R2

0.885

0.900

0.722

0.821

Note ***, **, and * Signify passage of test at the significance levels of 1%, 5% and 10% respectively

6.1 Scientific and Technological Progress, Government Support …

139

accepted by the government, and this signal transmission mechanism can help increase the output of enterprise technological innovation. ii. In the situation involving the innovation heterogeneity, the effect of governmental support is weakened. When the interactive items of enterprise innovation efficiency and governmental support are introduced into the mode, we can see a clear drop of significance and regression coefficients in the three indexes of governmental support; at the same time, all the regression results of three interactive items are more significant than the original three indexes. Hence, in most situations with on consideration of technological innovation heterogeneity, we overestimated the role of government in promoting enterprise technological innovation. iii. The promoting effect of government’s direct financial support is more obvious than that of the indirect support of tax incentives. From the significance of the regression coefficients of the three indexes of governmental support, the significance of the index “enterprise expenditures coming from the government’s funds for scientific and technological activities” is generally higher than that of the other indexes, “tax reduction for enterprise R&D expenditure”, and “tax relief for high tech enterprises”. This rule even works in the situation of considering technological innovation heterogeneity. We believe that is related to the actual effects of different supportive policies. The direct financial support can influence the enterprise innovation activities directly in the form of funds input or capital investment, and can supplement the inadequate input of enterprises for innovation. In contrast, tax incentive is an indirect policy and it cannot directly improve the enterprise technological innovation. So in terms of the regression results, government’s direct financial support will do better to improve the enterprise technological innovation activities. iv. The positive influence of governmental support on the non-market-oriented technological innovation is more obvious than on the market-oriented innovation. Let’s have a look at the three indexes of governmental support through the regression results. When the Number of Patent Applications is taken as the explaining variable, the intensity and significance of its effect are both higher than when the Sales Income of New Products is taken as the explaining variable. The government pays more attention to technology and its strategic status in the world than to the products. So when making choice among the projects or enterprise candidates, the government shows more preference to technological development than product development. Furthermore, the regression result also verifies the effectiveness of the signal mechanism, i.e., there does exist the phenomenon of mutual packaging among enterprises. In order to win the governmental support, especially direct financial support, some enterprises will seek to enhance their capacity of non-market-oriented technological innovation through some channels, like patent purchases. The signal mechanism distorted the enterprise behaviors. Enterprises will resort to deceitful packaging to win governmental support, for this kind of behavior is in conformity with the principle of maximum profit for enterprises.

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v. Input of R&D human capital plays a larger role in technological innovation than capital input. Seen from the regressive coefficients, the effect of the input of R&D human capital on technological innovation passes the test with significant level of 1%. In contrast, the significant level of the R&D capital input is usually at 5 or 10%. The reason for this situation might be related to the structure of the data in this book. Because the data in this section are all intersectional data, we cannot collect the stock of capital invested in technological innovation, and this will somehow result in under-estimation of the contribution rate of capital input. In addition, a major difference between the technological innovation activity and production activity is that technological innovation is more dependent on human capital, especially in the chains of knowledge transmission, technological spread, etc., and the non-materialized technology usually needs human capital to spread. vi. The effect of ownership structure on the enterprise technological innovation is not significant, the reason of which might be the source of the sample data in this section is Zhejiang Province. Among the sample enterprises from Zhejiang only less than 10% are state owned companies. This data structure might influence the result of the test. In addition, the result of the empirical test shows that the enterprise sizes are significantly negative. We believe this is related to the characteristic structure dominated by small and medium-sized enterprises in Zhejiang Province. Small companies are active in imitating other companies, and large companies are slow in transformation, so the technological innovation achievements of the large enterprises are not significant.

6.2 Scientific and Technological Progress, R&D Management and the Transformation of Enterprise Development Cultivation of technological innovation capacity is the micro guarantee of technological progress. In a long period governments of all levels have actively encouraged to cultivate the technological innovation capacity of enterprises. But governmental support for market-oriented R&D activities is sometimes distorted, especially when there appear major contradictions between the government’s emphasis of long-term goals and the enterprises’ tendency to pursue short-term profits. Furthermore, there is the phenomenon of mismatching between enterprise marketing and R&D management. All those factors greatly affected the efficiency of technological innovation. In this section we will measure the efficiency of technological innovation of 36 industries with the method of stochastic frontier analysis. And we will further involve the distortion of governmental support and R&D management into our analysis pattern, and analyze the determinant elements of innovation heterogeneity.

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6.2.1 Traditional Determinants of Technological Innovation Efficiency From researches in the past, we can see that their focus was still some traditional elements, like enterprise size, market competition, ownership structure, etc. In terms of enterprise sizes, the main concern of classic theories is the relationship between enterprise size and technological innovation capacity, not that between enterprise size and efficiency of technological innovation. Owing to the close relevance between technological innovation capacity and technological innovation efficiency in logical deduction, those two issues are not strictly differentiated in the academic circle. The research of Chen et al. (2004) shows that there is positive correlation between the activity and scale of the enterprise technological innovation, and the economy of scale can help improve the enterprise technological innovation capacity. In contrast Pavitt et al. (1987) proposed that the relationship between enterprise size and its technological innovation capacity is a U-shaped curve, not a simple linear line. Some researchers conducted empirical study in China. Youwei Zhu and Kangning Xu (2006) proposed that there is a linear relationship between the R&D efficiency of high tech enterprises and the enterprise size, and its size is a positive factor in promoting its efficiency of technological innovation. Other industrial researches also support the positive correlation between the enterprise size and efficiency of technological innovation (Yao and Zhang 2001; Qian 2003; Yu 2009; Zhou and Deng 2009). The study of Xiude Chen and Tongying Liang (2010) looks at the issue from a new perspective and shows that the enterprise size plays different roles in the efficiency of intermediate output and that of the ultimate output. Larger sizes help improve the ultimate output efficiency of R&D activities, while smaller companies can do better in improving its intermediate output efficiency of R&D activities. Joseph Schumpeter first proposed the theory of influence of market competition on the efficiency of enterprise technological innovation. Later scholars of Schumpeterism also believe that monopoly will increase the enterprises’ motive to conduct R&D activities for they can bring extra profits. In their empirical studies some Chinese scholars found that the level of market competition is in inverse proportion to the efficiency of technological innovation (Yan and Feng 2005; Chen and Xu 2006; Chen and Liang 2010), so those researches supported the view of Schumpeterists that monopoly helps improve technological innovation. However, some scholars came to a different conclusion through empirical studies. Youwei Zhou and Kangning Xu (2006) measured the R&D efficiency of the Chinese high tech industry with Stochastic Frontier Production Function, and claimed that only the structure of competitive market dominated by oligopolies, that is, larger enterprise sizes and intense competition, can help improve the R&D efficiency. Of course whether this theory holds water or not is yet to be tested in reality. Liqun Zhou and Lu Deng (2009) believe that since the state–owned companies are guided and controlled by the government, their R&D efficiency is not promoted as significantly as that of the joint ventures by the competitive market. It is noticeable that this theory presupposes

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that the R&D efficiency of state-owned companies is lower than enterprises of other forms of ownership, and in that situation the market competition works to help improve the R&D efficiency. However, the concept of inferior efficiency of state-owned companies itself needs further explanation. Only in recent years is the influence of ownership structure on the efficiency of technological innovation noticed by scholars. The ownership structure somehow reflects the relation between market and government. When the state-owned companies are more powerful in market, the structure of their ownership indirectly reflects governments’ intervention in the market. Youwei Zhou and Kangning Xu (2006) demonstrate that the proportions of foreign investment companies and state-owned companies are both positively correlated with R&D efficiency of the whole industry, but increase of the proportion of foreign investment companies contributes more to R&D efficiency than state-owned companies. In contrast, the overall size and R&D capacity of private high tech enterprises are much lower, even though they have made some progress and their R&D input occupies a remarkable proportion. Zhou Youwei and Xu Kangning (2006) think that diversification in ownership structure inspires changes in enterprise management structure and incentive mechanism, facilitates technological spillover, and brings out the efficiency orientation in the allocation of R&D resources in the industry which provides important foundation of institution for improvement of R&D efficiency. Liqun Zhou and Lu Deng (2009) measured the R&D efficiency of state-owned and state-controlled enterprises and joint ventures with stochastic frontier production function and finds that there is significant correlation between the nature of enterprise ownership and industrial R&D efficiency. The empirical studies of Xiude Chen and Tongying Liang (2010) support the above theory. After empirical analysis of the R&D efficiency and its influencing factors of 35 industrial sectors in China, Genfu Feng (2006) proposed that in the industries with a higher proportion of state-owned enterprises, the existence of monopolistic advantage in some degree helps improve the R&D efficiency. However, this study used dummy variable as its measure index (that is, when the proportion of sales of state-owned enterprise is over 50% of the whole sales of the industry, the sale proportion of state-owned enterprises is estimated as 1, otherwise, it is defined as 0.). This disposal of measure index fails to continuously describe the role of stateowned enterprises in the improvement of industrial R&D efficiency, so its result of measurement needs further demonstration. In the traditional explanation, the factor of state ownership restrains the improvement of R&D efficiency mainly because of the problems of unclear of property rights and rigid institutions with state-owned companies (Yao and Zhang 2001; Liu 2003; Zhang et al. 2001). But this type of explanation usually deals with problems on the macro level, and the problems of unclear of property rights and rigid institutions are the reason of low productivity of state-owned companies as a whole, so it is not clear whether the reason of low R&D efficiency can be analyzed in the above framework. In addition to the above three factors, some scholars paid attention to the influence of overseas R&D funds and physical investment on the efficiency of enterprise technological innovation (Yue 2008), or the influence of financial support and R&D

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interaction of financial institutions and scientific research institutions on the innovation efficiency (Chen and Liang 2010).

6.2.2 Government Support and Introduction of R&D Management A summary of the above analysis tells us that all studies, whether they are about the enterprise sizes, the market competition, conditions of openness, or organizational support, are based on the presupposition of complete market and weak intervention of governments. The ownership structure can reflect some dimensions of governmental intervention, but not its direct intervention. So we can say that all the above studies lack adequate attention to governmental support from the perspective of distortion. Distortion of governmental support happens when the government changes its original role and participates in the interactive decision-making, and intervenes in distribution of funds and resources to favor the technological innovative operations it decided to support. It distorts the efficient allocation of R&D resources in market. Its main channel is to set up some technological R&D projects for enterprises to undertake and offer them financial support. From the present proportion of governmental investment in enterprise R&D funds, we find out that the government is more willing to support the industries of transport equipment manufacturing, instrument and equipment manufacturing, and pharmaceutical manufacturing, etc. In 2009, the sum of governmental investment in the industries of transport equipment manufacturing and telecommunication equipment manufacturing accounts for 48.89% of its overall investment. The technological R&D of those industries includes a series of leading technologies (core technologies of strategic industries). So it becomes obvious that the government is more interested in the development of long-term technologies, and it emphasizes the strategic or economic values in the long run (extracting biomass energy from algae, for example) when deciding on the recipients of governmental investment. Though those technologies might bring strategic and economic benefits in the future, their short-term profits are quite limited, for example, the R&D activities of biomass energy cannot lead to industrial manufacture in the near future. So this type of governmental investment obviously will not help improve the short-term R&D efficiency of enterprises. Even worse, the channels of governmental funds are sometimes not under effective supervision. The scientific and technological support projects are usually concluded without strict evaluation of the ratio of enterprise technological achievements to the financial input of the government. Then enterprise usually submits the achievement of more than one R&D projects for the government’s concluding review of one project. And enterprises’ use of the governmental funds is not strictly limited. So the ineffective supervision of the use of funds will also greatly affect the output efficiency of governmental investment. Besides the distortion of governmental support, enterprises’ ability in managing their own R&D activities is another important factor influencing the technological

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innovative efficiency of enterprises. Theoretically, the enterprise R&D management includes planning, administration, personnel, finances, provisioning, facility maintenance and library management that are related to the technological activities. However, the enterprise R&D stuff usually have the background of marketing management in reality. The enterprises’ preference is more focused on fields with better market prospect, the R&D management with marketing backgrounds will have an obvious influence on the efficiency of enterprise innovative efficiency. From the primary analysis above, we find out that the distortion of governmental support and enterprise R&D management will influence the efficiency of enterprise technological innovation. This book will further attempt to precisely measure the efficiency of technological innovation in China in the past few years, and analyze the room of promotion of the technological innovation efficiency. In addition, we will try to distinguish the decisive factors for technological innovation efficiency. In particular, this book will emphasize the analysis of the influences of governmental support distortion and enterprises’ own R&D management on technological innovation in the process of technological innovative activities. In fact, it is after the government’s proposal of the strategy of enhancing technological innovation that the Chinese R&D inputs (R&D funds and personnel) began to increase rapidly, so the influence of governmental support distortion on the efficiency of technological innovation should be considered as an important factor. In addition, the R&D management of enterprises, the inside cause, is another important factor that influences the enterprise technological innovation, which is also excluded from the present studies. Due to the externality of enterprise R&D activities (especially in the field of theoretical research), the enterprises are not able to totally grasp the benefits brought by R&D activities (especially in the competitive market structure), enterprises face high risks and costs in its R&D activities. For this reason, the government’s R&D support can make up for the shortage in enterprise R&D operation, decrease its risks and help improve the technological innovation capacity of enterprises (Czarnizki and Licht 2006). However, the above mechanism involves the technological innovation capacity of enterprises as a whole. Strict differentiation between technological innovation capacity and technological innovation efficiency demands analysis of the specific domain and features of governmental support distortion, which is absent in the present researches. Scherer and Ross (1990) think that the increase of enterprise size, or loosening of management and control, or excessive bureaucratic intervention, will decrease the R&D efficiency. The empirical examination of the influence of governmental support on technological innovation efficiency in China is beginning to gain scholastic attention these years. Junhong Bai et al. (2009) distinguished the direct participants and indirect participants among the influencing factors of efficiency of regional technological innovation by comparing the intensity of correlation between every participant and technological innovation activity. The direct participants include enterprises, universities and scientific research institutions, and the indirect participants include the public organizations such as governments and financial institutions. The SFA analysis where the number of patent authorization is chosen as the index of R&D output

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145

shows that governmental support does not help improve the efficiency of technological innovation. Junhong Bai et al. (2009) proposes two respects of its reason: first, the intervention of governmental funds with the R&D area financed by enterprises brings about the extrusion effect; second, governmental intervention will increase the required resources of R&D activities (especially increase of R&D personnel), which will increase the cost of R&D when the short term supply of R&D resources lacks flexibility, and the enterprise investment will be extruded and turn to other profitable projects. In fact, the explanation of Junhong Bai et al. (2009) was based on two conditions: first, the efficiency of enterprise investment is higher than that of the government, hence the extrusion of enterprise investment will decrease the R&D efficiency; second, the extrusion effect happens only when governmental funds and enterprise investment go to the same field. Concerning the first condition, we can analyze in a deeper dimension: the government’s preference to long-term benefit for its investment in technology and lack of supervision of funds are more likely to decrease the efficiency of its investment, so increase of governmental investment (and it does not necessarily extrude enterprise investment if it goes to different areas) will decrease the average efficiency of enterprise R&D activities. Concerning the second condition, the government’s preference to long-term benefits in terms of R&D investment is obviously different from the enterprises’ emphasis on current profits, and this means there will be no obvious conflicts between the government and the enterprises. Meanwhile, the government’s interest in long-term results does not help improve the current R&D efficiency of enterprises. Different from Junhong Bai et al. (2009), Zongxian Feng et al. (2011) employed the method of Two and Half Stages DEA to measure the efficiency of technological innovation of the industrial enterprises from 30 provinces and analyzed the degree and direction of the influence of governmental intervention on the efficiency of technological innovation. Their result shows that there is insignificant negative relationship between the governmental intervention and the efficiency of innovation activities, and it has somehow significant negative influences on the scale efficiency of innovation activities. Zongxian Feng et al. (2011) analyzed the reason from three respects: first, since the policy-makers in government do not possess the knowledge of the frontier development of technologies, there is a high error rate when the government makes decisions on supporting projects; second, enterprises will take advantage of the possible distortion of governmental support; third, governmental intervention damages the fairness of competition. It is true that as the external force of enterprise technological innovation, governmental intervention will undermine the environment of fair competition, and the government’s supportive effect is likely to be distorted in that unfair environment. But we are more concerned with the mechanism behind governmental intervention. The myth of the first reason they give is not the ignorance of technological frontiers in the government, but its overemphasis on technological frontiers and long-term benefits. This preference prevents the governmental investment from producing short term profits, and causes the high error rate. Wei Xie et al. (2008) measured the R&D efficiency, technological efficiency and scale efficiency of the high tech industries in different provinces in China with the

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method of DEA, and then tested the influence of government’s financial support on the efficiency of regional technological innovation, which turned out to be significantly negative. Wei Xie et al. (2008) concluded that: on the one hand, both the governmental and enterprise emphasis of R&D will help improve the enterprise efficiency of technological innovation; on the other hand, the feature of time delay of R&D investment prevents it from timely supporting the enterprises and other institutions to conduct independent R&D or introduce and assimilate foreign technologies, hence delays the improvement of technological efficiency. This exposition can only explain the reason of low efficiency of the R&D input as a whole, and its failure to differentiate between the roles of the government and enterprises renders it impossible to explain why the governmental support does not improve the technological innovation efficiency. And the degree and perspective of emphasis of enterprises and government on technological innovation need further discussion. Concerning the study of the influence of R&D management on enterprise technological innovation efficiency, the documents are mainly in the hands of the management of enterprises, so there is not adequate empirical study on the industrial level and on the regional level in China. Zecong Chen and Zhongxiu Xiu (2006) paid attention to the relationship between the enterprise R&D management and the technological innovation efficiency and conducted analysis with a two-stage method. They first calculated the value of the technological innovation efficiency of Chinese manufacturing industry with the method of super-efficiency DEA, and on the basis of that, tested the influencing factors of the enterprise technological innovation efficiency with the panel data model. Their result shows that there is significant positive relation between R&D management and efficiency of technological innovation. But there is one defect in their research. They chose the value of technological innovation efficiency by one lag phase as the index of R&D management, so the correlation degree of the two indexes will be high from the perspective of auto-regression. Thus, there are relatively large errors in their research, and there is also the problem of mutual explanation.

6.2.3 Variable Declaration of Determinants and Data Sources In view of the advantages of the method of SFA over the method of DEA in terms of the systematic feature, we choose the method of SFA to measure the efficiency of technological innovation. With the Stochastic Frontier Analysis method we can interpret the changes of productivity in two respects: movements of production-possibility frontier and changes of technological efficiency. With this approach we can describe the conditions of real economy with more vividness and accuracy. Similarly, with the Stochastic Frontier Analysis method we distinguish the random interference factors in the production function as random effort factors and technological non-efficiency factors. The SFA model of Battese and Coelli (1995) is applied in this book to describe the model of technological innovation efficiency. The model of Battese and Coelli (1995) is designed as follows:

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147

Yit = βi X it + (vit − μit ) μit = δi Z it + ωit

(6.17)

With this model, we can define the distance function of “output positioning” according to the method of Coelli and Perelman (1996, 1999, 2000) as follows: D0 (x, y) = min{θ :

y/θ P(x)}

P(x) is the production possibility set, and in terms of y, D0 (x,y) satisfies the conditions of non-decrease, linear homogeneity and convexity. When y belongs to the production possibility set, the value of distance function goes between 0 and 1; when and only when y is at the border of the set, the distance function is evaluated as 1. Meanwhile, the logarithmic form of the distance function is defined as: D0 (x, y, t) = δ0 +

n 

δ j ln x j +

j=1

+ +

n

ϕkh ln yk ln yh +

j=1

η jt ln x j t +

j=1

m 

n

n  m 

k=1 h=1

n 

1  δ jl ln x j ln xl 2 j=1 l=1

ϕk ln yk +

k=1

m m 1 

2

m 

1 ϕ jk ln x j ln yk + γt t + γut t 2 2 k=1

λkt ln yk t

(6.18)

k=1

From the linear homogeneity with y as its distance function we draw the following equivalence condition: m  k=1 m 

m 

ϕk = 1,

ϕkh = 0(k ∈ [1, m]),

h=1

m 

ϕ jk = 0( j ∈ [1, n])

k=1

λkt = 0(k ∈ [1, m])

k=1

Based on the above equivalence condition, in terms of individual i there is: ln D0i − ln ymi = δ0 +

n 

δ j ln x ji +

j=1

+

1 2

m−1  m−1 

m−1 

n n   1 ϕk ln yki∗ + δ jl ln x ji ln xli 2 j=1 l=1 k=1

n m−1      ϕkh ln yki∗ ln yki∗ + ϕ jk ln x j ln yki∗

k=1 h=1

1 γt t + γtt t 2 + 2

j=1 k=1 n  j=1

η jt ln x ji t +

m−1  k=1

 λkt ln ln yki∗ t + vi

(6.19)

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◦ From y*ki = yki /ymi , combined with Formulas 6.17 and 6.19, we have μi = −D0i vit and μit, independent on each other, vit being the random error factor, dependent and identically distributed, there is vit ~ N(0, σ 2v );and μit being the technological nonefficiency factor, there are different assumptions of the distribution of μit in different models. In this book we follow the design of Battese and Coeli (1992a, 1992b) and describe μit with non-negative truncated normal distribution, μit ~ N + (Z it δ i , σ 2μ ), and the specific connotation of Z it δ i refers to the regression model of technological non-efficiency factors. In addition, in terms of the former part of Formula 6.17, this book describes the input and output of technological innovation in hyper logarithmic form. The reason of such description is that, compared with the traditional C-D model, the hyper logarithmic model can break through the rigorous design of technical neutrality and input-output elasticity, and describe the reality more accurately. The first part of SFA model is designed as follows:

ln Yii = β0 + β1 ln K it + β2 ln L it + β3 ln(K it )2 + β4 ln(L it )2 + β5 ln K it ln L it + (νit − μit )

(6.20)

Y is the variable of yield of technological innovation activity; K is the variable of capital input of technological innovation activity; and L is the variable of labor input. The second part of Formula 6.17 is the model of technological non-efficiency factor, Z it being the decisive factor of technological non-efficiency. Different from the present researches, this book emphasizes the influence of factors such as distortion of governmental support and enterprises’ management of R&D activities on the efficiency of technological innovation. On the basis of that, we go further to control the size, competition intensity, ownership structure, performance and openness of different industries, in comparison to the present researches. So the second part of the SFA model is designed as: μit = δ0 + δ1 Sizeit + δ2 Manageit + δ3 Govit + δ4 Compit + δ5 State it + δ6 Foreign it + δ7 Open it + δ8 Perf it + ωit (6.21) The variables are interpreted as: average size of enterprise (Size), enterprise capacity of R&D management and service (Manage), governmental support (Gov), competition intensity between enterprises (Comp), ownership structure of the industry (State and Foreign),5 openness of R&D of the industry (Open), and the average performance of the industry(Perf ). ωit is the correcting factor of the regression model of technological non-efficiency actors, and it is described with the truncated normal distribution, ωit ~ N (0i , σ 2μ ). In this book we adopt industry panel data analysis. In the related statistic report, the; data are basically focused on “large and medium-sized industrial enterprises” (for 5 State

is the proportion of state-owned enterprises, and Foreign is the proportion of foreign enterprises.

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149

example, China Statistical Yearbook, and China Science and Technology Statistical Yearbook seldom reported statistic data of industrial enterprises before 20096 ), so all the variables in this book are modified with the criteria of “large and mediumsized industrial enterprises”. We have to admit that the limit of data will influence the conclusion of regression analysis, especially the index of size, for the statistical caliber of the enterprises above designated size is much larger than that of the large and medium-sized industrial enterprises, and this limits our analysis to industrial enterprises of relatively large sizes. Besides, in terms of choice of industries, the statistical caliber in China changes every year in recent years, so we adopt the criterion of industrial classification in China Science and Technology Statistical Yearbook (2010) and cut out thirty six industries including “other mining industries”. The key to the research of efficiency of technological innovation is to decide the proxy variables of the input and output of technological innovation. First, in terms of the output measurement index, the present researchers mainly adopt two criteria of measurement. One is measurement by number of patents, most scholars adopt the number of patent applications or number of patent authorities as the achievement of technological innovation (Wu 2008); the other is measurement by the sales revenue of new products or the number of projects of new products development. It’s obvious that the key to the measurement of new technologies produced by technological innovation activities is the definition of new technology. Whether a technological innovation activity contributes to economic increase is measured by the acceptance of the new technology produced in the technological innovation activity. So it’s more reasonable to adopt the index of technologies which are already accepted in the market than the simple technological innovation output. It usually costs a long period of time for a technological patent to be assimilated into industrial production, so the technological innovation output can be measured more thoroughly by the index of patent. But most of present scholars adopt as the measuring criterion the number of patent applications among which a large proportion are patents of utility models and designs. These two types of patents contribute far less to the whole economy than patents of invention. Xiude Chen and Tongying Liang (2010) defined the concepts of in-process products and finished products in R&D, and proposed that the technical output like patents are the in-process products of value-added output like values of new products. This differentiation greatly improved the present researches. But there is no progressive relation between the two, and not all patents can become finished products like the in-process ones. By contrast, the patent output and the added value of new products are two different orientations of research and development activities. The added values of new products involves a variety of a market-oriented technological innovation activities of enterprises, while patents represent to a larger degree the non-market-oriented technological innovation activities. In reality enterprises have a lot of patents but cannot involve them in scale production. This is called a “patent strategy”. For example, among developed medicines the pharmaceutical enterprises

6 Except

the Statistical Yearbook in 2005 based on the National Industrial Census in 2004.

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put only one of them into production, but they will patent for many other isomorphic series compounds in case peer manufacturers apply for new patents by merely changing the medicine structure. Based on the above considerations, we choose two groups of indexes to measure the level of outputs of technological innovation activities in this book. First, after considering the market effects of new technologies, we choose the average of the price index of new products of large and medium-sized industrial enterprises as the price index. The detailed data of internal expenditure of R&D come from China Science and Technology Statistical Yearbook (2000–2010). There are roughly two indexes to measure the R&D capital stock: one is the amount of R&D input, which is most frequently adopted in the academic circles (Keller 1998; Xie and Zhou 2009); the other is intensity of R&D input, which Mansfield (1981) proposed to use in order to avoid influences of difference in scales of economic entities on R&D activities. Considering availability of data and the task of measuring R&D capital stock in this book, we choose the index of R&D input amount of large and medium sized industrial enterprises. The calculation of R&D capital stock is conducted with the perpetual inventory method. Having consulted the method of Griliches (1992), we take 1999 as the base year. The R&D capital stock of 1999 is the R&D input flow of that year divided by the sum of depreciation rate and the average increase rate during a certain years after 1999, as is shown in the formula: Ri1999 = I 1999 /(δ + ζ ). We take Ri1999 as the R&D expenditure of the large and medium sized enterprises of a certain industry, δ as the depreciation rate, usually set at 10%, and ζ as the average rate of increase during the period from 2000 to 2009. Through calculation with the perpetual inventory method, we have: the R&D stock of the number of year, t, after the base year = the R&D stock of the year (t–1) × (1–10%) + the R&D flow of year t. In the accounting of R&D capital, besides factors like stock of the base year and depreciation rate, the expenditure of R&D activities needs careful calculation. First, considering the separation of R&D capital from R&D personnel, it is necessary to deduct the service charges of technology development personnel from the R&D inside expenditure. Second, we regulated the prices involved in the R&D inside expenditure due to the influence of the element of price on the expenditure of R&D activities. After deduction of the service charges, the inside expenditure of R&D activities of large and medium sized enterprises consists of three proportions: cost of construction of fixed assets, cost of raw materials and other costs. The cost of construction of fixed assets is modulated with the price index of fixed asset investment. As to the cost of raw materials, we will first rearrange the grouping of thirty one industrial sections according to the eight industrial categories released in China Statistics Yearbook, and then modulate the cost of raw materials of every section according to the detailed price indexes of the raw materials of the eight categories (with 1998 as the base year). The other costs are modulated by the price index represented as the average of the price index of fixed assets investment, the composite price index of raw materials and the consumer price index with 1998 as the base year. The detailed data of R&D inside expenditure come from China Science and Technology Statistical Yearbook (2000–2010).

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151

In the present academia there are two popular methods for accounting personnel of R&D activities: one is called personnel equivalent, the other is called scientific and technological personnel. Obviously the former can measure the personnel input of enterprise R&D activities more accurately, but China Science and Technology Statistical Yearbook didn’t publish data of this index in different industries. In the Science and Technology Statistics Database released on the official website of National Bureau of Statistics we can find the personnel equivalent of regional R&D activities whose relation with China Science and Technology Statistical Yearbook is not indicated, neither is there statistic data of different industries. Considering the availability and consistency of data, we adopt the scientific and technological personnel of large and medium-sized enterprises of different industries as the measurement index of personnel input of R&D activities. Those data come from China Science and Technology Statistical Yearbook (2000–2010). Concerning the influential factors of technological innovation efficiency, we focus on the following seven factors: enterprise size, R&D management and service, governmental support, intensity of competition in industries, industrial ownership structure, industrial openness and management performance. As far as enterprise size is concerned, since no average size of industrial enterprises was reported in the related yearbooks, we adopt the gross industrial output value of the large and medium-sized enterprises in different industries respectively divided by the number of large and medium-sized enterprises in each industry as the average size. The treatment of the price element in the gross industrial output value is similar to the treatment of cost of raw materials in the inside expenditure of R&D funds. As for R&D management and service ability, we take the ratio of scientific and technological personnel of the large and medium-sized enterprises with the deduction of the number of scientists and engineers against the totality as the index of capacity of R&D management and service. According to the interpretations of scientist and engineer in China Science and Technology Statistical Yearbook,7 we propose in this book that the main responsibility of the rest of the scientific and technological personnel focuses on corresponding service and management. The governmental support is measured by the ratio of governmental funds in the raised funds of scientific and technological activities of the large and medium-sized enterprises. The index of industrial competition intensity is measured by the arithmetic average of the following four proportions: the proportion of the total output value of large and medium-sized enterprises against that of enterprises above designated sizes; the proportion of the number of large and medium-sized enterprises against that of enterprises above designated sizes; the proportion of the total value of assets of large and medium-sized enterprises against that of enterprises above designated sizes; and the proportion of the sales revenue of large and medium-sized enterprises against that of enterprises above designated sizes. 7 Scientists

and engineers refer to the scientific and technological personnel with senior or intermediate technical titles, and those with a university degree or above though without senior or intermediate technical titles.

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With regard to ownership structure, it is measured by two proportions: the proportion of the gross industrial output value of state-owned and state-controlled enterprises according to their industries against that of the enterprises above designated sizes; and the proportion of the gross industrial output value of foreign-funded enterprises according to their industries against that of the enterprises above designated sizes. The openness of industrial R&D is measured by the proportion of foreign funds against the raised funds for scientific and technological activities in large and medium-sized enterprises. The index of industrial average management performance is the rate of the profit for the cost of large and medium-sized enterprises. Among the above indexes, the data of governmental investment and foreign investment in the raised funds of R&D are from China Science and Technology Statistical Yearbook (2000–2010), and the rest data are from China Statistical Yearbook (2000–2010).

6.2.4 Analysis of Influencing Factors of Technological Innovation Efficiency We measured the technological innovation efficiency of different industries with the software Frontier 4.1, and the overall average efficiency of technological innovation is shown in Table 6.3. From this table we can see that, the output efficiency of market-oriented technological innovation activities (embodied in the production Table 6.3 The overall average technological innovation efficiency during 2000–2009 Year

Output of number of patent applications

Output of number of new product development projects

Output of production Output of sales value of new revenue of new products products

2000

0.629

0.548

0.400

0.424

2001

0.624

0.546

0.398

0.398

2002

0.624

0.542

0.387

0.391

2003

0.646

0.573

0.407

0.423

2004

0.701

0.576

0.496

0.514

2005

0.676

0.611

0.528

0.531

2006

0.680

0.613

0.548

0.557

2007

0.701

0.623

0.548

0.582

2008

0.706

0.607

0.603

0.593

2009

0.716

0.731

0.610

0.609

Average

0.670

0.597

0.495

0.502

6.2 Scientific and Technological Progress, R&D Management …

153

value and sales revenue of new products) is lower than that of non-market-oriented activities (shown by the number of patent applications and the number of new product development projects). The technological innovation efficiency measured by the number of patent applications averages 0.67. It keeps rising and reaches 0.716 in 2009. Meanwhile, the technological innovation efficiency of the other respect of non-market-oriented technological innovation, i.e. the number of new product development projects, is also higher than that of the market-oriented activities. From the table above we can see that the overall average efficiency of technological innovation in China is still relatively low. The efficiency of market-oriented technological innovation activities averages only around 0.5, which means there is a gap of 50% between its real position and that of the frontiers. According to the measuring mechanism of SFA, we find that the overall average efficiency of technological innovation in China has a huge potential of improvement. For the efficiency of market-oriented technological innovation activities, the improvement space is nearly 50%. As for the reasons of the low efficiency of the overall technological innovation activities we will expound later. In addition, from the dimension of industries, there is obvious heterogeneity in the processes and achievements of technological innovation of different industries. Consequentially, there will be heterogeneity in the technological innovation efficiencies of different industries. In order to analyze the industrial difference of technological innovation efficiency more relevantly, we choose the first fifteen industries according to the rank of average gross industrial output value during the years from 2000 to 2009. From the result of Table 6.4, it is clear that the technological innovation efficiency of the industry of communications ranks first among all the industries. In particular, the efficiency of the market-oriented technological innovation activities reaches over 0.8. In comparison, though the efficiency of traditional manufacturing industry is higher than the average of all industries, it is still relatively low. For example, the four indexes of technological innovation of the industry of electrical machinery and equipment manufacturing all average at around 0.7, with much room of increase. Even worse, the situation of the innovation efficiency of the traditional high-tech industries is not optimistic. The average efficiencies of the industries including general equipment manufacturing, office equipment manufacturing, medical equipment and instrument manufacturing, pharmaceutical manufacturing (with the exception of communication equipment manufacturing) are lower than the average of the industry of manufacture as a whole. More importantly, the market-oriented technological innovation output efficiency is significantly lower than that of the non-market-oriented activities in high tech industry. Hence, the technological innovation efficiency of the high tech industry in China is in need of improvement, especially that of the market-oriented activities. From Table 6.4 we can see that there is obvious difference between the technological innovation efficiency of different industries, and the reason can be analyzed in details with the valuations of SFA indexes, which is shown in Table 6.5. From the analysis of the first part of Table 6.5, the second-order coefficients of R&D capital stock and scientific research personnel both passed the significance test, and

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Table 6.4 Technological innovation efficiency of some industries Industry

Rank of gross industrial output

Index of patent application

Index of number of projects of new product development

Index of output value of new products

Index of sales revenue of new products

Communication equipment, computers and other electronic equipment manufacturing

1

0.599

0.917

0.855

0.893

Ferrous metal smelting, calendaring and processing

2

0.355

0.304

0.529

0.552

Transportation equipment manufacturing

3

0.612

0.730

0.853

0.810

Electricity, heat production and supply

4

0.452

0.241

0.025

0.021

Petroleum processing, coking and nuclear fuel processing

5

0.287

0.290

0.662

0.657

Chemical raw materials and chemical products manufacturing

6

0.642

0.595

0.392

0.407

Electrical machinery and equipment manufacturing

7

0.722

0.821

0.770

0.743

Textile

8

0.680

0.705

0.738

0.700

General equipment manufacturing

9

0.698

0.728

0.694

0.667

Nonferrous metal smelting, calendaring and processing

10

0.574

0.389

0.614

0.591

Petroleum and natural gas extraction

11

0.233

0.188

0.084

0.059

(continued)

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155

Table 6.4 (continued) Industry

Rank of gross industrial output

Index of patent application

Index of number of projects of new product development

Index of output value of new products

Index of sales revenue of new products

Agricultural and 12 sideline products processing

0.728

0.693

0.503

0.499

Coal mining and 13 washing

0.498

0.169

0.214

0.207

Nonmetallic 14 mineral products

0.724

0.536

0.409

0.408

Special equipment manufacturing

0.688

0.637

0.698

0.657

Average of manufacturing

0.703

0.693

0.616

0.623

Average of all industries

0.670

0.597

0.495

0.502

15

the degree of significance are both higher than the first-order coefficients. So it is more effective to conduct SFA analysis with hyper logarithm model in this book than with logarithm model. From the second part of Table 6.5 we draw the following conclusions. First, owing to the government’s preference to long-term technological innovation and lack of supervision over the use of funds, the governmental direct or indirect interventions did not help improve the technological innovation efficiency, or even worse, they exerted a negative influence, especially on the market-oriented technological innovation efficiency. According to Table 6.5, the coefficients of state-owned enterprises are significantly positive, which means that the industries with higher proportions of state-owned enterprises have a higher degree of technological non-efficiency, thus the proportion of state-owned enterprises offers a negative contribution to the technological innovation efficiency. In comparison, the coefficient of the proportion of governmental funds in the R&D funds is not significant. Thus we draw the conclusion that the governmental support failed to play the role as supposed in industrial technological innovation activities. Besides some administrative measures, the governmental support for technological innovation includes the financial support for activities of industrial enterprises. But from the results of our studies, governmental investments did not play a positive role in improving their efficiencies. On the one hand, governmental investment is characterized by potential intervention from the governments; on the other hand, the use of funds is usually beyond necessary supervision. The first factor means that governments usually encourage technological innovation activities with strategic and economic

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Table 6.5 Results of stochastic frontier analysis of technological innovation efficiency of different industries Number of patent applications as output

Number of new product development projects as output

Output value of new products as output

Sales revenue of new products as output

0.481C

−5.683***

−4.210**

15.646***

12.747***

ln k

1.859***

1.208**

0.247*

−0.173*

ln l

−1.478*

−0.366

−1.621*

−0.535

ln k ln k

−0.279***

−0.110**

0.028**

0.079***

ln l ln l

−0.352***

−0.067

0.083

0.097***

ln k ln l

0.650***

0.190**

−0.007

−0.104*

Input elements

Non-efficiency elements C

0.481

0.800*

8.072***

6.393***

Gov

−0.091

2.164*

0.722

5.018

State

0.142*

1.001*

19.541***

21.539*** −3.243**

Manage

0.015

1.969

−4.457***

Size

0.034***

0.017***

0.023**

0.038**

Comp

0.545**

−0.677*

−29.625***

−31.223***

Foreign

−0.320

−4.988***

−3.548**

−3.757**

Open

0.025**

4.280

13.567

16.447

Capital

−0.041***

−0.023***

−0.025

−0.036

Dummy

YES

YES

YES

YES

σ2

0.869***

0.455***

3.955***

4.943***

μ

0.044***

0.497***

0.988***

0.982***

Log likelihood function

−502.341

−315.962

−396.828

−428.632

LR test of one-sided error

22.260

210.267

519.255

522.420

Note ***, **, and * Signify passage of test at the significance levels of 1%, 5% and 10% respectively

benefits in the long run. This preference to long-term benefits of governments obviously conflicted with the short-term interests of enterprises, so this type of R&D funds could not bring about the direct improvement of the R&D output efficiency of enterprises. In reality, some enterprises packaged their technological level and then managed to apply for the scientific and technological funds or projects financed by governments, and made use of the funds to develop other projects, or even worse, to purchase or build equipment or factory buildings instead of conducting technological innovation. This is also the result of the lack of supervision on the use of funds which is more characteristic of governmental funds than others. The interaction of the two factors is eventually reflected on the macro dimension, and the result is that increase

6.2 Scientific and Technological Progress, R&D Management …

157

in the proportion of input of governmental funds failed to play a positive role in the improvement of the technological innovation efficiency of the industrial enterprises. In addition, the participation of state-owned enterprises can be regarded as another indirect channel for the government to intervene market economy. Empirical tests show that the technological innovation efficiency is lower in the industries with higher proportions of state-owned enterprises, and this also confirms that the technological innovation efficiency of state-owned enterprises is lower than that of enterprises of other ownerships. More importantly, the negative influence is more significant in the market-oriented technological innovation activities. The fact is that state-owned enterprises usually receive more administrative guides and directions. For instance, in the field of new energy, the government regards some emerging technologies (for example, extracting fuel from algae)as the direction of development for the future in the field of new energy, and then some state-owned companies will undertake some related R&D projects set up by governments. But the new products of this type of R&D activities cannot bring substantial benefits in the short term, and the best result is some non-market-oriented technological innovative achievements (like patents of refining process). The short-term production cost of those non-market-oriented technologies far outweighs the possible benefits. And technology barriers exist in the field of new technologies. So there is little possibility for those patents to be used in scale production. Undertaking too many of such technological innovation projects will naturally decrease the technological innovation efficiency of state-owned enterprises, especially that of the market-oriented technological innovation. Second, enterprise R&D management featured with marketing management can help improve efficiency of market-oriented technological innovation, but it does not contribute significantly to the improvement of non-market-oriented technological innovation. From the result of SFA analysis, it is obvious that there is not significant influence from the intensity of R&D management on the efficiency of non-market-oriented technological innovation activities. Furthermore, we find that the present management of technological innovation activities oriented to patents and new projects is outdated, and the R&D management capacity of these activities restrains the improvement of technological innovation activities of enterprises. Though from the result of the overall efficiency test, the efficiency of non-market-oriented technological innovation activities is higher than that of the market-oriented ones, the model of enterprise R&D management which is characterized with marketing management is not suitable for the non-market-oriented technological innovation activities of enterprises. Due to pursuit of short-term benefits, enterprises usually conduct R&D management with the philosophy of marketing management in order to obtain more short-term profits in return, but this does not help improve the efficiency of the non-market-oriented technological innovation activities. In contrast, intensity of R&D management can contribute positively to the improvement of the efficiency of market-oriented technological innovation activities. Whether the new technologies of enterprises can boost the development and profit of enterprises, and whether technological innovation can enhance the capacity

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of profit and the competition of enterprises, is not a pure technical problem, but an important problem of management. Enterprise R&D management with characters of marketing management will pay more attention to the sales revenue of new products and the liquidity of output value, and management in these two respects will emphasize the orientation of profit, thus improvement of the intensity of R&D management will help improve the market-oriented technological innovation activities. Third, for large and medium-sized industrial enterprises, decrease in the average size of enterprises or increase in the intensity of industrial competition both can help improve the efficiency of technological innovation, and increase of intensity of industrial competition is more effective to improve the efficiency of market-oriented technological innovation. From the traditional Schumpeterian viewpoint, monopolistic advantage contributes positively to the capacity of technological innovation, for monopolies can invest large amount of money in R&D, undertake the risk of uncertainty of R&D, and ensure the extra profits brought by the R&D achievements. So Schumpeterians usually advocate the importance of monopolistic advantages. However, monopolistic advantages do not help with the technological innovation or result in the progress in a macro dimension, for the monopolistic industries usually settle for the monopoly profits brought by a new technology, and this means lack of new motives to conduct revolutionary and continuous R&D activities. There will appear the unbalanced state between the input and output of technological innovation, so the advantage in efficiency of technological innovation obviously is not sustainable in the long term. In contrast, in the situation of adequate supply of funds and risk tolerance, moderate competition can help maintain continuous improvement of enterprise innovation. The research samples we chose are the large and medium-sized industrial enterprises which are no longer confronted with problems of capital size and risk taking, so for those enterprises, sharper competition will inspire higher capacity of technological innovation. In addition, from the index structure of the intensity of competition, we can see that competition mainly happens in the domains of products and markets. Increase of the competition intensity will cause the entrepreneurs to pay more attention to the marketization of R&D activities, that is to say, higher competition intensity usually leads to the improvement of the efficiency of market-oriented technological innovation. Fourth, overseas R&D investments can only help improve patent-oriented technological innovation efficiency,while the high proportion of foreign capital helps the efficiency of market-oriented technological innovation. Overseas investment in R&D plays a supportive role in enterprise technological innovation activities. Compared with foreign investment, R&D capital pays more attention to patent-oriented, non-market-oriented technological innovation activities. Due to its vigilance to problems of use of funds and technological rewards of capital, overseas investment can better help improve the capital efficiency than domestic R&D funds (especially governmental investment mentioned above), and can better increase the output of patents, that is, help improve the efficiency of patent-oriented technological innovation.

6.2 Scientific and Technological Progress, R&D Management …

159

Different from overseas R&D funds, the proportion of foreign investment in different industries reflects the importance of foreign-funded enterprises in the market of products. It is obvious that the market-oriented technological innovation activities, rather than the non-market-oriented activities, are more susceptible to the influence of foreign-funded enterprises. So in terms of efficiency, the proportion of foreign investment in different industries is more influential to improve the efficiency of market-oriented technological innovation activities.

6.3 Technological Progress, Heterogeneity and the Transformation of Development Mode8 Developed countries represented by OECD have long been emphasizing the importance of R&D investment and tried to maintain a consistent level between the R&D funds input with national economy. For instance, the proportions of R&D investments in GDP of Sweden, Finland and Japan are respectively 3.9%, 3.6% and 3.4% in 2009, ranking the first three in the world, and the ratio in the U.S. reached 2.8% in that year. In the situation of abundant international R&D investment, technological spread brought by the transnational flow of R&D investment will provide an important channel for China to pursue technological progress. Since the Reform and Openingup, with the increase of import and export trade and the government’s continuous efforts to introduce FDI, the materialized capital and technology in imported products have gradually spread to China (Huang and Zhang 2005; Li and Zhu 2006; Gao and Wang 2008; Xiao and Lin 2010). However, the reality is not as optimistic as the theoretical assumption. Introduction of foreign investment and growth of import and export trade brought possibilities for China to attract the flowing international R&D investment, but as the second largest economy in the world and the third in foreign trade and introduction of foreign investment, China obtained much less technological spillover through international technological spread than other countries on the same economic level. The level of technologies introduced to China by the R&D funds through channels like import trade, introduction of foreign investment and investment abroad is much lower than that of Japan, Germany, and even South Korea. Unfortunately, all the present theories and empirical studies are based on the assumption of uniform spread of technology, without involving the heterogeneous effect of technological spillover of international R&D capital into their analysis frameworks. Owing to China’s low status in the world technology, the level of its acquired technological spillover from the flow of international R&D capital is usually overestimated. The difference of the effects of technological spillover will be reflected on its promotion of a country’s technological progress. Since the shortage of R&D investment and low efficiency of R&D in China, it is important for China to search 8 This

part has been published as an academic paper in the 8th issue of Economist in 2011.

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6 Empirical Studies on the Transformation of Economic …

for the most efficient approach to promote technological development in the situation of steady economic growth. Hence, in this section we will make an attempt to analyze and compare China with Japan, and demonstrate the existence and even self-reinforcement of the heterogeneity of the technological spillover which greatly influences the mechanism of decision making concerning technological development in China and Japan.

6.3.1 International Technology Heterogeneity Diffusion and its Manifestation Due to the differences in innovation efficiency, there will be significant differences in the technical level of absorbing overseas R&D capital in enterprises’ decisionmaking. In the situation of complete information, economic entities will choose to introduce or assimilate technologies appropriate for its own level. With the existence of the significant difference between the efficiency of enterprise technological innovation in China and that in Japan, the international technological spread which is brought about by the flow of international R&D investment has an obvious character of heterogeneity.

6.3.1.1

Influence of International Technology Heterogeneity Diffusion on the Difference of Technology Import Source and Industrial Structure between China and Japan9

Introduction of technology is an important channel for a country to make use of technological spread brought by foreign R&D investment, and the most direct one, too. So the situation of introduction of technology can describe the level and capacity of a country to obtain technological diffusion. From Table 6.6 we can see that the contract value of technological introduction in China is higher than that of Japan, but the source of Chinese technological introduction include the fifteen countries of European Union (EU-15)10 the U.S. and Japan, while the Japanese introduction of technology mainly comes from the U. S., which accounts for 71.6% of its overall contract value. Besides, 15% of the Chinese technology import contracts are from Southeast countries and regions, and 17.5% are from Japan. That means more than 30% of the imported technologies in China are from Asian countries whose level of technology is far below that of the western countries. In a word, the situation 9 The

main viewpoint of this part was published as an academic paper in the 8th issue of Study and Practice in 2011. 10 Considering that the member countries of the European Union due to the two eastern expansions in both 2004 and 2007 are central and eastern European countries, there is a large gap between the technology level and economic development level of these countries and that of the original 15 member countries of the EU., in this book we only analyze the technological diffusion of the original 15 member countries of the EU.

6.3 Technological Progress, Heterogeneity and the Transformation …

161

Table 6.6 Main sources of technology imports for China and Japan in 2007 Main sources of technology imports for China

Main sources of technology imports for Japana

Country (region)

Contract value Proportion (million dollars) (%)

Country (Region)

Contract value Proportion (million dollars) (%)

Total

25415.34

–

Total

6033.97

–

EU-15

9105.17

35.8

U.S.

4319.32

71.6

U.S.

6831.61

26.9

EU-15b

1579.62

26.2

Japan

4439.60

17.5

#Germany

315.92

5.2

South Korea

1916.76

7.5

#Britain

280.25

4.6

Hong Kong, China

887.04

3.5

#France

267.52

4.4

Singapore

446.46

1.8

#Sweden

156.26

2.6

British Virgin Islands

307.52

1.2

#Holland

146.92

2.4

Swiss

255.18

1.0

Swiss

125.69

2.1

Norway

222.46

0.9

South Korea

50.11

0.8

Taiwan, China

196.99

0.8

China

34.82

0.6

a

Notes The values of Japanese technology imports are converted into dollars according to the year average middle price between yen and dollars in 2007 b Owing to the incompleteness in the data published by Japan, only the first five countries in EU are listed here Source of data China Statistical Yearbook of High Technology Industry (2008); Japan Statistical Yearbook (2010)

of heterogeneity happens between China and Japan in the process of international technological diffusion. In addition, differences of the industrial structures exists between the import contracts of the two countries. Import contracts of the industry of electronic and communication equipment cost Japan only 59.7 billion yen in 2007, accounting for 8.1% of the overall value of the technology import contracts in Japan (Japan Statistical Yearbook 2010), but most of the imported technologies in this industry are from the U.S. While in China the technology import expenditure reaches 10.4 billion yuan in electronic and communication equipment industry in 2007, accounting for 79.8% of the overall value of the technology import contracts of that year (China Statistical Yearbook of High Technology Industry 2008), and most of the imported technologies are from Japan. So we can draw the conclusion that, at least in the industry of electronic and communication equipment, the advanced technology is imported to Japanese companies who study, assimilate, transform and improve the technologies, and then spread some of them to China through the channel of technological imports.

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6.3.1.2

The Influence of International Technology Heterogeneity Diffusion on the Import Trade and Utilization of Foreign Capital Between China and Japan

For countries featured with export-oriented economic development mode, import trade and use of foreign investment bring not only commodities and capital, but also spread of technology. In terms of import trade, the import of high technology commodities signifies a country’s need for high tech products, and the deeper reason is its need for the technologies attached to the commodities. So by studying the imports of high tech commodities we can investigate the heterogeneity of technological diffusion in different countries. From the data in Table 6.7 we can find that, the import of high tech products in Japan has long been the predominant part of its import of industrial products, accounting for more than 41% of the overall import. By comparison, the proportion of imported high tech products in China in its import of industrial products is steadily increasing, from 30% in 2000 to 44% in 2008. According to the data from Japan Statistical Yearbook (2010), the sources of Japanese import of high tech products are mainly EU countries and the U.S. For instance, 43% of its imported electronic devices are from Germany, with 19% from Sweden, and 24% from the U.S. While 60% of the imported electronic devices in China are from Japan, Chinese Taiwan and South Korea, import from the U.S. and EU countries accounts for only 12% of the total (China Trade and External Economic Statistical Yearbook 2009). The conclusion is that, despite the importance of high tech products in the import of industrial products in both countries, there is huge difference between the technological values of imported products in those two countries, and there are heterogeneous features in the technological diffusion through import trades in both countries. Table 6.7 Imported and exported high tech products in China and Japan in recent years Imported high tech products

Exported high tech products

Proportion in totality of imports (%)

Proportion in totality of exports (%)

Proportion in exported industrial products (%)

Proportion in imported industrial products (%)

China

Japana

China

Japanb

China

Japan

China

Japan

2000

23.3

27.73

29.4

44.71

14.90

22.98

16.60

28.30

2005

30.0

25.76

38.6

43.40

28.60

17.19

30.60

22.40

2006

31.2

25.30

40.9

43.95

29.00

16.40

30.70

21.60

2007

30.0

24.62

40.3

43.12

28.60

14.11

30.10

18.90

2008

30.2

21.21

44.4

41.76

29.10

13.24

30.80

18.40

a, b

Notes The proportions of imported high tech products in Japan were calculated on the basis of data from Japan Statistical Yearbook (2010) which were converted according to the definition of high tech products presented by the World Bank Source of Data World Bank, World Development Indicators (2009); China High Tech Industry Statistical Yearbook (2009)

6.3 Technological Progress, Heterogeneity and the Transformation …

163

It is worth noting that China has realized trade surplus in the trade of high tech commodities since 2004 and turned from an importing country of high tech products into an exporting country. But the trade surplus in China was mainly achieved by trade of processed products, while in terms of general trade, the import of high tech products roughly equals the export of them. Another device to investigate the intake of international technological diffusion in the export-oriented economy is the use of foreign capital, especially foreign direct investment. The transnational flow of R&D investment and international diffusion of technology are realized by multinational corporations who, out of the consideration of maximum self-profits, decide to invest in other countries and bring their advanced technologies to the host countries. A comparison of the distribution of FDI industries in China and that in Japan shows that, the proportion of high tech industry is still low in the intake of FDI in China. Even after including the total amount of the professional equipment manufacturing industries in the category of high tech industry, that proportion reaches only around 13%. In the non-manufacturing industries, the FDI of scientific researches, technological services and geological explorations involve some technological diffusion of which the proportion in the Chinese intake of FDI is also on a low level. In contrast, the Japanese FDI focuses on the non-manufacturing industries, and the foreign investment in scientific researches accounts for more than 30% of the totality of FDI (Table 6.8). In 2008, 64% of the Chinese FDI are from Chinese Hong Kong, Chinese Taiwan, South Korea, Malaysia and British Virgin Islands, with only 8.1% of the total amount from the U.S., Japan and Germany. In contrast, 74.3% of the Japanese intake of FDI is from the U.S. and Western Europe in 2008. It is obvious that the technological level of Chinese FDI in terms of the source is significantly lower than that of Japan. Thus we can say there is significant heterogeneity in the international technological diffusion brought by FDI in China and Japan.

6.3.1.3

The Influence of International Technology Heterogeneity Diffusion on the Geographical Structure and Technological Characteristics of Chinese and Japanese Foreign Investment

Besides the introduction of foreign products and capital, another important channel for enterprises to obtain foreign technological diffusion is to invest directly in corporations abroad. Thus they can employ the R&D talents from host countries, make use of the R&D facilities and absorb the advanced technologies of the host countries. So a country’s ability to absorb foreign advanced technologies can be described by the analysis of the geographical distribution of the country’s investment abroad. The geographical preferences of a country’s investment abroad somehow reflect the country’s capacity to take in international technological diffusion, and that situation is an example of the heterogeneous diffusion of technology. From the data in Table 6.9, we find that China’s investment abroad is focused on Asian countries and regions, especially Hong Kong. China’s investment in that region accounts for more than a half of its total investment. In contrast, China’s investment

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Table 6.8 Distribution of FDI in industries in China and Japan in 2008 Industrial distribution of Chinese FDI (option)

Amount (billion dollars)

Proportion (%)

Industrial distribution Amountb (billion of Japanese dollars) FDI (option)

Totality

92.395

–

Totality

Manufacturing

49.895

54.00

Manufacturing

#Medicine manufacturing

0.658

0.71

Non-manufacturing industries

#Manufacturing of communications equipment, computers and other electronic equipment

8.451

9.15

#Transportation

#Professional equipment manufacturinga

2.816

3.05

#Information and communication services

18.590

20.12

#Wholesale and retail

1.236

Information transmission, computer services and software industry

2.775

3.00

#Scientific researches

8.733d

Scientific researches, technological services and geological explorations

1.506

1.63

Real estate industry

24.422 2.270 22.152 0.041

−0.942c

Notes a Professional equipment manufacturing includes but not limited to medical equipment manufacturing and electronics and electrical machinery manufacturing. These two industries can be included in the category of high tech industry b The data of Japanese FDI are amounts of net inflow, which are converted into dollars according to the annual average middle price between yen and dollars c Negative value signifies happening of investment withdrawal in FDI d FDI of scientific researches comes from the foreign investments in the related statistics of R&D activities Source of data China Trade and External Economic Statistical Yearbook (2009); Japan Statistical Yearbook (2010)

in Europe (including countries in central and eastern Europe) covers only 5.81% of its total investment, among which less than 1% is the direct investment in Germany and Holland. Besides, China’s direct investment in the U.S. is also relatively small. Different from the situation in China, Japan’s direct investment in the U.S. accounts for 20.55% of the total of its investment abroad, and Europe is also a main recipient of Japanese investment. More importantly, its investment in Europe mostly goes to developed countries in Western Europe, like Holland, Britain and France (the sum of the investment in the three countries accounts for 7.98% of its total investment). That is quite different from the structure of Chinese investment in Europe. The choice of direct investment abroad is decided by the enterprise’s investment motive, so the

6.3 Technological Progress, Heterogeneity and the Transformation …

165

Table 6.9 Geographical structure of outward foreign direct investments in China and Japan Geographical structure of China’s investments Abroad (2007)

Geographical structure of Japan’s investments Abroad (2008)a

Country (region)

Amount (billion dollars)

Proportion

Country (region)

Amount (billion dollars)

Proportion

Asia

16.59315

62.60

Europe

14.218

10.43

U.S.

27.735

20.35

Europe

1.54043

5.81

13.73235

51.81

Cayman Islands

2.60159

9.82

Holland

4.221

3.10

British Virgin Islands

1.87614

7.08

Britain

4.21

3.08

Canada

1.03257

3.90

China

4.165

3.06

Pakistan

0.91063

3.44

Brazil

3.344

2.45

Britain

0.56654

2.14

Australia

3.338

2.45

Australia

0.53159

2.01

Germany

2.455

1.80

Singapore

0.39773

1.50

France

1.110

0.81

Germany

0.23866

0.90

Singapore

0.697

0.51

Mexico

0.205

0.15

Hong Kong, China

U.S.

0.19573

2.74

Holland

0.10675

0.40

Notes a Data of Japan’s direct investment abroad is converted into dollars according to the annual average middle price between yen and dollar Source of data Statistical Bulletin of China’s Outward Foreign Direct Investment (2010); Japan Statistical Yearbook (2010)

Japanese direct investments in western countries reflect Japan’s motive to pursue high technologies, while China’s direct investments in southeastern Asia reflect their motives of seeking for low labor cost and market. That inference is confirmed by the result of the survey conducted by China Council for Promotion of International Trade (CCPIT). The survey of CCPIT (2010) showed that Chinese enterprises’ investment in developed countries is mainly inspired by the government’s favorable conditions and the need to expand foreign markets, and their investment in developing countries is driven by the government’s favorable conditions and the pressure of high domestic labor cost. Thus it is obvious that there is heterogeneity between China’s investment abroad and that of Japan. The above analysis demonstrates the obvious character of heterogeneity between China and Japan in their intake of international technological diffusion through channels of import trades, FDI and introduction of technology. The technologies China takes in through international technological diffusion are lower in level than those introduced into Japan. Hence, the empirical studies of some scholars on the basis of homogeneous diffusion of international technology overestimated the technological diffusion China took in through those channels. So in this book we will testify the

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existence of heterogeneity in the international technology diffusion in China and Japan and further demonstrate that the heterogeneity is determined by innovation efficiency.

6.3.2 Innovation Heterogeneity and Modification of C-H Model In the C-H Model, the total factor productivity (TFP) of a country is dependent on the accumulation of its R&D capital. And the accumulation of its R&D capital includes not only its domestic R&D capital, but also part of the accumulated foreign R&D capital which is taken in by the host country through the channel of technological diffusion. Specifically, the TFP of a country can be defined as:  TFP = f (S) = f S D , S F

(6.22)

In Formula 6.22, S D signifies the accumulation of domestic R&D investment, and S F represents the accumulation of foreign R&D investment. The difference of macro technological innovation efficiency in different countries lead to different levels of technological spillover in obtaining the accumulated foreign R&D capital, hence the function in Formula 6.22 will display structural differences among different countries. With reference to the disposal of Wen Xiao and Gaobang Lin (2010), we will deal with the channel of international technology diffusion from three respects: import trade, FDI and technology import. We regard the contracts of technology import as the direct channel for international technology diffusion, for they can lead to direct acquisition of foreign technologies which are used in production. By comparison, what import trades and FDI can bring are products and investments, which can be treated as materialized technology and can be transformed to technologies through the process of study and competition.11 Thus we define these two channels of technological diffusion as indirect channels. In this sense S F in Formula of 6.22 can further be defined as:   S F = f S F D , S F I = f S TIC , S IMP , S FDI

(6.23)

In this formula, S FD represents the level of foreign direct spillover of the overseas R&D capital; S FI is the level of indirect spillover; S TIC is the fund stock of foreign direct technological contracts introduced to the host country; S IMP is the foreign 11 Specifically, in terms of the channel of import, the host country can improve its own technological level by innovation and imitation of the finished or unfinished products they imported from abroad; in terms of the channel of FDI, the host country can improve its own technological level by the effect of competition and the effect of talent flow brought by the behaviors of investment of FDI enterprises in the host country.

6.3 Technological Progress, Heterogeneity and the Transformation …

167

R&D funds spillover introduced by imports to other countries; and S FDI stands for foreign R&D funds technological spillover introduced to the other countries when they conduct direct investment to the host country. Combining Formula 6.22 with Formula 6.23 we can define the increase of TFP in a country as:    TFP = f S D , S F = f S D , S F D , S F1 == f S D , S T1C , S 1MP , S FD1

(6.24)

Furthermore, we should point out that the level of the technological spillover effect acquired through indirect channels is influenced by the absorbing ability of the country. When its absorbing ability is high, the technological spillover effect of the flow of international R&D capital will contribute positively to the technological progress of the host country; otherwise, the acquired technological spillover effect is not significant, though the flow of each channel is high. So, on the basis of Formula 6.24, we involve the absorbing ability into the former frame and define the increase of TFP as:  TFP = f S D , S TIC , S IMP , S FDI  = f S D , δ TIC S TIC , δ IMP S IMP , δ FDI S FDI

(6.25)

In Formula 6.25, δ TIC , δ IMP , δ FDI are the indicators of the host country’s absorbing ability in each channel. Factually, though a country’s macro absorbing ability is fixed, there are still differences in its ability to absorb technological spillover effects of different channels. So in Formula 6.25, the three indicators are not the same. On another dimension, δ TIC , δ IMP and δ FDI also represent the efficiency of technological innovation of the host country which includes both the efficiency of technological innovation of high tech industries and the overall innovation efficiency of the country.

6.3.3 Technology Spillover Channel and Innovation Efficiency Measurement 6.3.3.1

Measurement Method of Technology Spillover Channel

For a long time the measurement of the technological spillover channels of the flow of international R&D capital has been a subject in academia that needs further clarification. The method is generally regression analysis on the basis of measurement of funds through the channels of FDI, import trade and so on. The presupposition of this measurement is that, the technological spillover effect through the channels of FDI, import and so on of different countries are evenly distributed among the technology absorbing countries, and the contribution of each channel on the technological progress of the host country are equivalent. It is clear that with this method we cannot avoid the obvious character of heterogeneity between China and Japan expounded in the first part of this section.

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More importantly, though former researches have noticed the influence of the host country’s absorbing ability on the technological spillover of channels like FDI and import trade, the analysis frame of the absorbing ability is basically limited to the analysis of a country, short of study of heterogeneity in the absorbing ability of different countries. Meanwhile, the measurement of absorbing ability is also random, relying on irrelative output capacity (like number of patent applications), or input intensity (like human capital, R&D investment, etc.), short of descriptions from the perspective of innovation efficiency of enterprises. This disposal is incomplete. The approach of this book: first, measure the stock of foreign R&D capital both China and Japan face with reference to the method proposed in Wen Xiao and Gaobang Lin (2010); second, calculate the total stock of foreign R&D capital both China and Japan face by measuring and adding the intensity of activities like FDI and import trade between other countries and the two; at last, in the examination of high tech industry, evaluate the technological character of the technology spillover of international R&D capital flowing to China and Japan, which will be represented as the heterogeneity of the technological spillover effect.12 Specifically, since first hand data of the direct channels of foreign R&D technology spillover can be obtained from the “capital stock of introduced technological contracts”, next in this part we will chiefly explain the related variables and the measurement of technology spillover effect obtained by China and Japan through the two main indirect channels of FDI and import trade.

6.3.3.2

Several Variables of Indirect Channel Measurement

The indicator in Formula 6.25, S IMP is defined as: = SiIMP j

EXPi j S D i = j, i ∈ [1, 2], j ∈ [1, J ] EXPtotal −i j j

(6.26)

S IMP is the R&D capital flow obtained by the country i (China or Japan) from the ij channel of import from the country j; S D j represents the stock of the domestic R&D capital in the country j; EXPij is the export from the country j to the country I; and EXPtotal − ij is the total import of the country j. From Formula 6.26 we can see that the domestic R&D capital in the country j can flow to the country i through its export trade with i. Of course, the domestic R&D capital in the country j can also flow through OFDI to the country i. On the basis of that, we can also calculate the R&D capital flow through the channel of FDI from the country j to the country i, that is:

12 It’s important to note that since the data of foreign direct investment collected in China and Japan could neither meet the requirement of the time span of 1990–2009 adopted in the part of empirical research in this book, we only examined three channels in the empirical study of this book.

6.3 Technological Progress, Heterogeneity and the Transformation …

SiFDI j =

OFDIi j S D i = j, i ∈ [1, 2], j ∈ [1, J ] OFDItotal−i j j

169

(6.27)

OFDIj is the FDI from the country j to the country i and OFDItotal − j is the total outward investment from the country j. Based on the calculation of Formulas 6.26 and 6.27, we can further study the total sum of R&D capital flow from the country j obtained by the channels of import and FDI, represented the  country i through J FDI and respectively as Jj=1, j =i SiIMP j=1, j×i Si j . j In order to measure the character of heterogeneity of technology spillover that the international R&D capital flow brings to China and Japan, we will choose the high tech products and high tech industries in the two countries as the subject of measurement. The presupposition of the method used in this book is that, the level of the technology acquired through high tech products and high tech industries is the highest level the country can obtain. So the technological differences between China and Japan reflected on the high tech products and high tech industry. Based on this approach, we can calculate the technology spillover effect taken in by China and Japan through imports of high tech products and high tech FDI, which can be represented as Formulas 6.28 and 6.29: SiFDI =

SiFDI =

6.3.3.3

IMP H −i IMPtotal −i FDI H −i FDItotal−i

J 

SiIMP j

(6.28)

SiFDI j

(6.29)

j=1, j =i J  j=1, j =i

Measurement of the Technological Innovation Efficiency of the Host Country

In this book we will measure the efficiency of technological innovation with the method of stochastic frontier analysis (SFA). With this method we transform the changes of productivity to the movements of the boundary of productive possibility and changes of technological efficiency, through which the economic reality can be described more meticulously and accurately. Compared with the traditional C-D models, super logarithmic models can better simulate the reality by breaking the rigid hypotheses of neutrality of technology and input-output elastic fixation. So the SFA model is described as: ln Yit = β0 + β1 ln K it + β2 ln L it + β3 ln(K it )2 + β4 ln(L it )2 + β5 ln K it ln L it + (vit − μit )

(6.30)

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In this formula, Y is the variable of the output of technological innovation activities; K represents the variable of the capital input of technological innovation activities; and L signifies the variable of labor input. In the error correction term (vit − μit ), vit and μit are independent from each other. vit is the  random error term, independent and identically distributed, so there is vit ∼ N 0, σ 2 μ . And μit is the technical non-efficiency term, and there are different hypotheses of the distribution of vit . In this book we follow the hypothesis of Battese and Coelli (1992), and describe μit with non-negative truncated normal distribution, with μit ~ N + (Z it δ i ,σ 2μ ), wherein the implication of Z it δ i can be consulted in the regression model of the technical non-efficiency term. In addition, owing to the availability of data, we follow Wen Xiao and Gaobang Lin (2010) with their equivalent hypothesis of the technology diffusion of different channels, i.e., the international technology diffusion obtained through import trade and FDI can be assimilated with equivalent efficiency.

6.3.4 Data Interpretation and Regression Analysis According to Formulas 6.25 and 6.30, we design the regression model of the technology diffusion effect of international R&D capital flow as follows: ln TFPt = α + β1 ln StD + β2 ln StTIC + β3 ln StIMP + β4 ln StFDI + β5 δtTIC × ln StTIC + β6 δtM P × ln StIMP + β7 δtFDI × ln StFDI + εt (6.31) Wherein δ signifies the innovation efficiency of China and Japan, which is used to measure the heterogeneity of the domestic assimilation capacity of different countries. Considering most of the international R&D capital comes from member countries of OECD, we choose twenty four countries as the sources of international R&D capital according to the distribution of international R&D capital and the main trade partners and FDI sources of China and Japan.13 The measurement of related indicators and data sources are illustrated as below: Table 6.10 In this book we conduct regression analysis of China and Japan respectively with Formula 6.31. The sampling scale covers the period from 1990 to 2009, with twenty samples. With Software Stata 10.0 we conducted regression analysis on China and Japan and the result is shown in Table 6.11.

13 The choice of main member countries of OECD is similar to that we have made when we measured the innovation efficiency of different countries in the Third Chapter, that is, twenty two OECD members together with Russia and Singapore. We regard Japan as one of the sources when calculating the sources of R&D investment in China, and China as one of the sources when calculating the sources of R&D investment in Japan.

6.3 Technological Progress, Heterogeneity and the Transformation …

171

Table 6.10 Measurement of variables and data explanation Variable

Measurement

Explanation and origin of data

TFP

Solow residual method

Capital stock is the gross capital formed in the gross domestic product accounting with the expenditure approach. Quantity of employment is the totality of social employment. GDP is the gross domestic product. All the figures are deflated according to corresponding price index and then converted to the constant price level in 1990. Data source: International Statistical Yearbook (1991–2010)

SD

Perpetual inventory method

The R&D stock in 1990 is the R&D investment flow in 1990 divided by a fixed rate of depreciation and the average growth rate from 1990 to 2009. The rate of depreciation in China is 10%, and that in Japan is 5%. Data sources: China Science and Technology Statistical Yearbook (2000–2010); OECD Main Science and Technology Statistics Dataset

S TIC

Perpetual inventory method

Base period: 1990. The calculation and rate of depreciation of base period stock are both similar to that of S D . Measurement is conducted with the value of technology import contracts. Data sources: OECD Main Science and Technology Statistics Dataset

S IMP

See Formula 6.26 and its explanation

The import data of China is from the China High Tech Industry Data on the website of Department of Science and Technology of China; The import data of Japan is from Japan Statistical Yearbook (1991–2010); and the data concerning other countries is from International Statistical Yearbook (1991–2010).

S FDI

See Formula 6.28 and its explanation

The FDI data of Chinese high tech industry is from China Foreign Economic Statistics Yearbook and International Trade (2005–2010); that of Japan is from Japan Statistical Yearbook (1991–2010); and the data concerning other countries is from International Statistical Yearbook (1991–2010)

δ TIC

See Formula 6.30 and its explanation

Value of innovation efficiency on the level of the country. The measurement of R&D investment is similar to that of S D ; the index of R&D personnel is measured as scientific and technological personnel; innovation output is measured by the number of patent applications. Data sources: China Science and Technology Statistical Yearbook (2000–2010); OECD Main Science and Technology Statistics Dataset

δ IMP

See Formula 6.30 and its explanation

Value of innovation efficiency of high tech industries. The measurement of input-output and source of data are both similar to that of δ TIC

δ FDI

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Table 6.11 Results of model regression Variable

Model 1 (China)

Model 2 (China)

Model 3 (Japan)

D ln St−1

−0.242

−0.181

0.257***

Model 4 (Japan) 0.246***

ln S TIC

0.012**

0.025*

0.012**

0.127c

S IMP

0.209**

0.317**

0.138**

0.100**

0.088

0.105

0.202*

0.141

ln

ln S FDI δ TIC δ IMP

× ln

S TIC

0.338***

0.275**

× ln

S IMP

0.294**

0.192**

0.056*

0.177*

δ FDI × ln S FDI C R2 − Adj. F–

−1.394

−0.119

−3.232

−4.084

0.522

0.681

0.780

0.884

12.09***

15.29***

18.15***

20.72***

Chow– test (model 1 and 3)

14.82***

Chow– test (model 2 and 4)

13.53***

Note

***, **

*

and represents passage of test on the significant level of 1, 5 and 10%

The result of Chow-test shows that there is significant difference between the regression coefficients of Model 1 and Model 3, and between those of Model 2 and Model 4. That result demonstrates that there is significant difference between the contribution of foreign R&D capital on the increase of the productivity of China and Japan. The data of Table 6.11 can be interpreted more specifically from at least two respects: First, there is significant difference between the contribution of both the direct spillover channel (ln S TIC ) and the indirect channel (ln S IMP , ln S FDI ) of foreign R&D capital flow on the productivity increase in China and Japan. In other words, the technology spillover effects of international R&D investment obtained by China and Japan are heterogeneous. Second, the regression coefficients of interaction terms between technological innovation efficiency and the channels (δ TIC × ln S TIC , δ IMP × ln S IMP , δ FDI × ln S FDI ) are more significant than the regression coefficients of the channels alone (ln S TIC , ln S IMP , ln S FDI ). Thus the level of domestic technological innovation efficiency determines a country’s ability to take in the technology spillover effect which is materialized in the international R&D capital flow: when the level of domestic technological innovation efficiency is low, the level of the technology obtained through technology spillover will be low. In other words, the difference of technological innovation effects aggravates the heterogeneity in the respective technology spillovers obtained by China and Japan.

6.3 Technological Progress, Heterogeneity and the Transformation …

173

6.3.5 The Matthew Effect of R&D Spillover Heterogeneity In the situation of complete information, the reasonable enterprises will choose to learn, assimilate and reinvent the technologies according to their own technological innovation efficiency, in order to realize maximum input-output ratio in technological innovation. The enterprise behaviors at the micro level will be reflected on the innovation efficiency of a country at a macro level. When the domestic technological innovation efficiency is low, the level of technologies obtained by the country will be low, and, in an open economy, the technology spillover effect obtained through the R&D capital flow is also low. In the situation of an open economy, the main channels of R&D capital flow include economic activities like import trade, FDI, technology introduction and so on, and that somehow reflects the level of a country’s involvement in the international division of labor. The countries obtaining low-level technologies through R&D spillover will be involved in the lower links of the value chain, and in the international technology spillover only the low-level technologies can match their capacity, so the technology spillover effect they obtain through R&D capital flow will be at a low level. On the other hand, when a country is involved in the higher links of the value chain, accumulation of advantages occurs through division of labor and technology spillover, and it will obtain high-level technologies and higher technology spillover effects. That is to say, the Matthew Effect works in the heterogeneity of R&D spillover. Compared with Japan, China has begun to develop high technology for a shorter period of time, and thus the technological innovation in China consequentially exhibits a lower level. According to the analysis of the above transmission mechanism, technological progress in China has sunk into the trap of the Matthew Effect. This also explains why the regression coefficients of interaction terms between technological innovation efficiency and the channels are more significant than the regression coefficients of the channels alone. Heterogeneity of R&D spillover and its Matthew Effect conduct significant influences on the determining mechanisms of technological development in China and Japan. Through comparison between Model 2 and Model 4 we can draw out the following conclusion: First, Japanese domestic R&D capital stock is the main driving force to sustain the increase of its productivity, and its contribution to improvement of productivity is significantly higher than the spillover effect obtained through international technology diffusion. In other words, Japan develops its technology through a road of independent research and development complemented with borrowing and assimilation. In comparison, the accumulation of Chinese domestic R&D capital failed to play a dominant role in improving its productivity. That is to say, China achieved much more technological development through international technology diffusion than through independent research and development, and this situation justifies its strategy of borrowing and assimilation complemented with independent research and development.

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Second, in terms of the channel of international R&D spillover, the import trade of high tech products contributed most to the improvement of its productivity. That is to say, the most effective way for China to improve technology to advance relatively fast is the process of study, assimilation and reinvention through importing high tech products or unfinished products. That is verified by the pattern of Shanzhai and Development in some fields of high tech manufacturing. Third, technology introduction and foreign investment in high tech industries do not play a significant role in promoting the productivity in China. This conclusion is not surprising, for on the one hand, it can be partially explained with the theory of heterogeneity of R&D spillover and the effect of Matthew Effect; on the other hand, in terms of rational motive of actions, the investment of foreign companies in the high tech industry of China is based on pursuit of maximum profit. The purpose of their investment in China is to enter Chinese market and reduce the cost of production, so less technology transfer is involved in its investment. By far we have come to the conclusion: even when a country borrows and assimilates foreign advanced technologies in order to realize technological development at a faster speed, it is much more effective to choose to borrow according to its own need is much more effective than passive acceptance. The difference of the contributions of import trade, technology introduction and foreign investment in high tech industries on the improvement of productivity in China is a typical proof for that point.

Part III

Industries Studies

Chapter 7

Scientific and Technological Progress and the Transformation of Agricultural Development Mode: Agricultural Intensification

Since the Reform and Opening-up, as a basic industry China’s agriculture has developed rapidly, which has made a great breakthrough not only in quantity but also in the transformation of agricultural production mode promoted by agricultural technology. With the application of such advanced technologies as agricultural water-saving irrigation, new soilless culture and transgenic production, agriculture is no longer the traditional backward industry. With the improvement of agricultural modernization and technologization, technological progress and agricultural development has been closely combined, promoting agricultural intensification.

7.1 Embodiment of Agricultural Development Mode Transformation Promoted by Scientific and Technological Progress 7.1.1 Transformation of Agricultural Development Mode from Extensification to Intensification It has been recognized by the academia both theoretically and empirically that technological progress promotes economic growth. According to the frontier theory of agricultural development, technology is considered as the same production factor as labor, land or capital. The transformation of agricultural production mode is embodied in two aspects: on one hand, the input of agricultural factors has transformed the production mode and on the other, technological innovation has greatly improved the agricultural productivity, which may be summarized as traditional factor and modern factor respectively. Whether agricultural development mode is intensive or extensive depends on the input percentage of these two factors. If technology input accounts for more than 60%, the agricultural development mode is intensive, otherwise it is extensive. © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_7

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Traditional agricultural development has fallen into bottleneck, the main reason for the lowering of its status in modern economic system lies in its low efficiency equilibrium. Agricultural technology progress can break the low efficiency equilibrium of traditional agriculture’s resource allocation, making it possible for agricultural growth to be transformed into intensive development mode by increasing the input of technological factors. With the increase of factor price, the income from investment in agriculture is getting lower and lower, therefore farmers are less motivated to continuously input production factors and some even no loner increase factor input. Traditional agricultural development whose growth depends on factor input slows down till it comes to a halt. Fundamentally, the growth of traditional agriculture depends on the increasing input of such factors as land, labor force or capital. So long as farmers are willing to continue this kind of investment, sustainable growth is achievable. However, modern industrial progress greatly increases the opportunity cost of factor investment, leading to a higher factor price and thus farmers are reluctant to maintain the high investment in agriculture. However, agricultural technological progress has changed this dilemma. Technology, as a new type of production factor, has been applied to the process of agricultural production, and the labour productivity has been improved through the recombination of factors to achieve new high agricultural growth. Agricultural development is often restricted by such initial resources as land and laborers, etc., resulting in the flow of comparatively expensive resources to more profitable industries, such as human capital in the later stage. In order to solve this problem, technological progress is needed to alleviate the shortage of initial resources. For example, with the development of industry, human capital may pour into industrial sectors and the cost of human capital in agricultural sectors will increase. Therefore, technological progress is needed to invent machines and equipment to replace human labor, as well as to improve the mechanization level of agricultural production. For instance, land area is becoming increasingly scarce. In order to increase agricultural output per unit of land, the progress of chemical fertilizer and pesticide technology will be brought to improve agricultural production efficiency. It can be seen that the agricultural development mode is changing from the extensive growth mode of factor input to the intensive development mode of technology input. Observing China’s agricultural development within a long period, the rapid growth of agriculture at the initial stage of rural reform is considered to be the performance of system innovation of agricultural production. With the enactment of household contract responsibility system, the rural incentive system becomes perfect and the policy becomes more preferential for farmers, consequently farmers’ enthusiasm for production is fully mobilized. This incentive system encourages farmers to input factors especially labors for production. What’s more, it has motivated farmers to take better advantage of those idle resources. This kind of mode is inevitable in the initial stage of agricultural development; however, it also makes agricultural development fall into the trap of extensive type. When the economy develops to a certain extent, it is hard to maintain the agricultural development mode which promotes agricultural development solely by relying on resource input. At this moment, the disadvantages of extensive agricultural development are constantly emerging, and the demands for

7.1 Embodiment of Agricultural Development Mode …

179

intensive agricultural development are gradually increasing. Meanwhile, the agricultural technology has made a breakthrough, enabling the overall technical level of agricultural production in China to achieve leapfrog development. A large number of advanced agricultural technologies, such as super rice, hybrid corn and transgenosis, etc. have been successfully tested in China, making China a world leader in agricultural technology. Moreover, technological progress has significantly promoted the improvement of agricultural mechanization level, and its contribution to agricultural production has increased to nearly 50%. However, it is undeniable that China’s overall agricultural development mode is still extensive. Compared with the developed countries where the contribution rate of technological progress to agricultural production is 60–80%, China lags behind for about 15–20 years.

7.1.2 Development of Agricultural Organization Form Toward Industrialization In a long period of time, China’s agricultural organization continues its historical tradition, taking the form of being “small but complete”. Farmers are engaged in not only grain production, but also the breeding of poultry, pigs and cattle as well as planting vegetables and fruits, etc. There is no specialized division of labor within agricultural sectors. However, along with the progress of agricultural science and technology, advanced agricultural science and technology are adapted to local conditions and time, and the targeted development of crop varieties suitable for local growing environment makes the production efficiency and investment income of this kind of crop much higher than other crops, and the production focus of farmers gradually shifts. Advanced agricultural technologies generally require supporting investment in fixed assets, such as specialized agricultural machinery, greenhouses, irrigation facilities, etc. Such fixed investment further consolidates the specialization of agricultural production, and professional farmers come into existence gradually. The division of labor within individual agriculture sector is the agricultural industrialization for the first time. Traditional agriculture is closed, which cuts off its connection with the external modern industrial economy. Farmers are engaged in all operations from breeding, planting, harvesting to processing. They repeat their labor year after year without the introduction of foreign technology or resources, which leads to the long-term stagnation of agricultural development. The progress of agricultural science and technology has brought new production factors for traditional agriculture and promoted the specialized division of traditional agricultural production chain. Advanced breeding techniques in modern agriculture have significantly increased per unit area yield. So farmers no longer breed seeds by themselves, but buy the seedlings from professional seed companies, and the breeding process is separated from the traditional agricultural chain. The emergence of mechanized and efficient agriculture product processing equipment has separated agriculture product processing from traditional

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agricultural sectors. Some farmers buy agriculture product processing equipment and specialize in agriculture product processing, while professional farmers only engage in planting and harvesting. The emergence of large harvesters further subdivided the agricultural production process. The progress of agricultural technology can be said to be a reshuffle of the traditional agricultural production chain, what is more, it can promote the subdivision of traditional agriculture to form a new industrial chain. From the perspective of promoting the progress of agricultural science and technology, there are generally two ways: one is promoted by government, which is mainly used in the early stage of agricultural science and technology development; the other is driven by leading enterprises. In order to obtain better raw materials, the leading processing enterprises will extend their production chain by cooperating with farmers. Enterprises are responsible for the breeding of fine seedlings, guiding farmers throughout the planting process to promote the application of new agricultural technologies. This kind of mode is more and more popular in developed countries, becoming the main means of agricultural science and technology progress. The progress of agricultural science and technology breaks the traditional agricultural production chain, and reintegrates it to form the modern agricultural industry chain, promoting the industrialization of agricultural organization form.

7.1.3 Large-scale Development of Agricultural Management Mode The theory of Economies of Scale is one of the important theories in microeconomics to discuss the income and cost of enterprise production. It is the consideration of market economy after socialized mass production has developed to a certain extent, which is of great significance for guiding enterprise production. With the continuous development of agricultural production, scale economy has been constantly emerging in the field of agricultural production, thus forming the theory of agricultural scale economy, which is of great significance for guiding agriculture to carry out scale production. Economies of scale refer to the decreasing trend of production cost of a unit product in a certain range under the given corresponding conditions (Marshall 1890). In short, economies of scale refer to the decreasing trend of average cost due to the expansion of production and management scale. The application of some new technologies, such as agricultural machinery and irrigation and so on, have high requirements for the agricultural production area. It requires sufficient production area, for the application of new technologies will promote the transformation of agricultural production mode only when the production area meets the lowest standard. Otherwise, these technologies cannot play their due role and furthermore might give rise to serious technological risks, such as the divergent sowing of paddy field, “flower arranging” management, hybridization between adjacent fields and damaging the fine genes from breeding, and so on.

7.1 Embodiment of Agricultural Development Mode …

181

Since the Reform and Opening-up, China has implemented the household contract responsibility management system. In short, the land is distributed to all rural households so that every household has their own land. However, it disrupts the scale effect of centralized production. To transform the production mode by means of new technology, we must integrate the rural land of households and make full use of allocation and resources so as to exert the influence of technology-input on agricultural production. There are two ways to realize this goal. One is to absorb rural surplus labor forces in the process of developing industry and service industry and the idle land in rural area should be rent to the specialized farmers to realize its professional and scale management and promote the development of scale agriculture through technological progress. This is the path of agricultural modernization that the developed countries in the West usually take. The other is to form regional scale management through households’ cooperation. Although the ownership of the land does not belong to the same person, farmers can grow the same species on a certain amount of land through government dominance or households’ spontaneous adjustment and integration, sharing planting technology and advanced machinery, which could also facilitate the agricultural scale production and management. Currently, both of these two forms have appeared in China’s rural areas and the second one dominates. The first one, namely, the scale management due to the alteration of land ownership, has been realized only in a small number of villages in eastern developed regions or the suburbs of large cities, which is mainly determined by the current situation of China’s economic development. Although China’s economy has developed rapidly, the secondary and the tertiary industry is not developed enough and they have too much pressure in solving the problem of urban laborers’ employment to spare more efforts in solving the same problem for rural laborers. Therefore, the scale effect of agricultural production via land transfer can be exerted only in some regions. The integration of agricultural resources are mostly through the cooperation between rural households. The large-scale management through farmers’ cooperation is adapted to China’ national conditions, showing a thriving development trend, and has derived a variety of organizational forms. The mode of “company + peasant household” is initiated by leading enterprises to cooperate with the company’s industrial chain. Under this mode, farmers grow crops and raise livestock according to the requirements of company, which provides them with seedlings, breeding poultry and stock as well as the whole technical guidance. Farmers are also required to apply weeding and insect-resistant technology on a large scale and livestock disease prevention technology to realize scale management. It can also be organized by local government departments to form the organization mode of “professional cooperative + peasant household” under the collective management system.

182

7 Scientific and Technological Progress …

7.1.4 Transformation of Agricultural Organization System Toward Combination Agricultural organization system refers to the basic framework of agricultural production that peasant households combine according to certain goals, principles, procedures and division of labor. Technological progress calls for large-scale production, which requires agricultural production not only to have specific practical organization but also to be industrialized, thus resulting in the combination of agricultural organizations. The organizational mode of “company + peasant household” and “professional cooperative + peasant household” mentioned above are both the forms of agricultural organization combination. Apart from them, there are agricultural association, agricultural land joint-stock company, agricultural corporatization management and large rural household economy, etc. In short, agricultural organization system is the way in which peasant households combine. The combination of agricultural organization system is in accordance with the industrialized and large-scale development of agriculture, whose fundamental driving force is also agricultural technological progress. The agricultural technological progress helps to break path dependence, resulting in the combination of peasant households. Based on North’s Path-Dependence theory, agricultural organization system has a mechanism of increasing returns and selfenhancement, which ensures that the established direction of agricultural organization structure will be self-enhanced once it steps into a certain path in future development. The development of agricultural organization structure along the established path may lead to two different outcomes. If the agricultural organization is used properly, it will be conducive to the promotion of agricultural production, leading to a virtuous cycle; otherwise, if it is used improperly or even misled, it is most likely that the agricultural organization will hinder agricultural development and the original path planning proves to be a mistake from the very beginning, thus causing the agricultural development to stagnate in a certain inefficient state. When an individual peasant household engages in production and sale on his own, he does not have the impetus to break the barriers to implement combination. However, technological progress requires cooperation among peasant households, in other words, it usually produces good effects in a certain range, which has broken the original “go it alone” path, enabling farmers to “band together” to join the corresponding agricultural organization, thus fulfilling the transformation of agricultural development mode by improving its system.

7.1.5 Improvement of Agricultural Laborers’ Quality As the main body of agricultural production, farmers are both recipients and applicants of agricultural technology, and the development of technological progress

7.1 Embodiment of Agricultural Development Mode …

183

requires that farmers improve their professional quality constantly. As for agricultural technological progress, it is only through farmers’ operation and practice that the labour productivity can be improved eventually. The specialized machinery and equipment need to be operated by farmers and the specialized planting and breeding techniques need to be put into practice by them, too. Therefore, to improve the overall quality of agricultural practitioners is both an important link and the direct driving force of agricultural technological progress. Agricultural technological progress not only requires but also promotes the improvement of farmers’ quality. The emergence of new agricultural technology can greatly improve the existing labour productivity, which also stimulates farmers’ enthusiasm for this kind of technology and enhances their enthusiasm for learning it. Agricultural industry segmentation promoted by technological progress has made it possible for farmers’ professional planting and breeding, and a large number of highly skilled farmers have emerged. The quality of agricultural laborers plays an important role in the progress of agricultural technology. It is obvious that the process of improving the quality of agricultural laborers only through their spontaneous learning is slow, which cannot meet the requirements of the spread and application of agricultural science and technology. Therefore, all countries in the world resort to their government to promote the quality of laborers. As the laborers specializing in agricultural work, agricultural technicians need to pass professional skill tests, which is not an easy job. Therefore, developed countries attach great importance to the training and education of agricultural skills. In Germany, a complete system of agricultural skills education has been established, including a doctorate in agricultural skills. In Japan, it takes more than 10 years of work experience to be admitted to the agricultural sector. Compared with the developed countries, the quality of Chinese farmers is still not high, whose average education level has not reached that of junior high school graduates. In rural areas, especially in poor areas, the overall cultural quality of rural farmers is relatively low, and their professional skills are even more lacking. This requires the country to speed up the establishment of agricultural education and training system, increase the input of agricultural education, and extend education to remote rural areas, so as to truly improve the quality of agricultural practitioners and cultivate real cutting-edge talents in the field of agriculture.

7.2 Overall Level Measurement of the Progress Rate of Science and Technology in China’s Agriculture The progress rate of science and technology (S&T) in agriculture is the most basic quantitative index to measure the level of agricultural technology of a country. There are usually two important factors to influence economic growth or output growth: one is the increase of input of production factors and the other is the improvement of

184

7 Scientific and Technological Progress …

productivity resulting from technological progress. In the process of measuring the progress rate of science and technology, the main task is to distinguish one from the other.

7.2.1 Overall Level Measurement 7.2.1.1

Relevant Measurement of the Progress Rate of Science and Technology in Agriculture

i. Measurement of the progress rate of science and technology in agriculture under C-D production function According to the model of growth rate, firstly the model of C-D production function needs to be established to measure the input-output elasticity coefficients of such factors as material cost, labour force, land and so on in order to measure the progress rate of science and technology in China’s agriculture. The variables needed to construct the model of C-D production function include gross value of agricultural output and the input factors in agricultural production including material cost, labour force and land.1 As the statistical data cannot be completely consistent with the actual production, there is no fixed standard for the selection of statistical variables and data. So it is necessary for the author to explain the criteria for the selection of statistical variables and data in this book. The data comes from China Statistical Yearbook, China Agricultural Statistical Yearbook, and Compilation of Data on the Cost-benefit of National Agricultural Products. The processed data is shown in Table 7.1. In terms of the connotation of agriculture, it can be divided into the broad one and the narrow one. Agriculture in the broad sense explains the meaning of agriculture from the overall level, including farming, forestry, animal husbandry and fishery. Agriculture in the narrow sense only refers to farming. The agriculture mentioned in this section is in its broad sense, namely, farming, forestry, animal husbandry and fishery. The term farming will be adopted to replace the concept of agriculture in the narrow sense when it is needed. (1) Gross output of agriculture Y The gross output of agriculture can be literally understood as the gross output value of agriculture, that is, the total output of farming, forestry, animal husbandry and fishery and the supporting service expenditure to achieve these output. It can be said that the gross output of agriculture reflects the level and scale of a country’s agricultural development in a certain period. The measurement of the gross output of agriculture is usually to calculate the output of each major industry on the basis of 1 Jianqin

Li, Qi Zhang, Guoda Gu. “Construction of the Production Function of China’s Silkworm and its Quantitative Analysis”. Sericulture Technology, 2011, (4).

7.2 Overall Level Measurement of the Progress Rate …

185

Table 7.1 Input-output factors of China’s agriculture (1978–2010) Year

Index of gross output value of farming, forestry, animal husbandry and fishery Y

Input of material cost Arable area M K (one hundred (thousand hectares) million yuan)

Number of employees in primary industry L (ten thousand persons)

1978

100.00

369.50

150,104

28,318

1979

107.50

425.70

148,477

28,634

1980

109.01

543.37

146,380

29,122

1981

115.33

602.28

145,157

29,777

1982

128.36

671.69

144,755

30,859

1983

138.37

712.86

143,993

31,151

1984

155.39

761.86

144,221

30,868

1985

160.67

854.12

143,626

31,130

1986

166.14

980.31

144,204

31,254

1987

175.77

1079.60

144,957

31,663

1988

182.63

1287.91

144,869

32,249

1989

188.29

1228.86

146,554

33,225

1990

202.60

1334.87

148,362

38,914

1991

210.10

1404.37

149,586

39,098

1992

223.54

1548.29

149,007

38,699

1993

240.98

1700.03

147,741

37,680

1994

261.70

2142.24

148,241

36,628

1995

290.23

2233.31

149,879

35,530

1996

317.51

2093.70

152,381

34,820

1997

338.78

2358.64

153,969

34,840

1998

359.11

2596.79

155,706

35,177

1999

375.83

2717.55

156,373

35,768

2000

389.36

2804.69

156,300

36,043

2001

405.72

2951.42

155,708

36,399

2002

425.77

3065.36

154,636

36,640

2003

442.80

3428.67

152,415

36,204

2004

475.81

3733.72

153,553

3483

005

502.75

3960.21

155,488

33,442

2006

530.00

3842.10

152,149

31,941

2007

550.47

4310.88

153,464

30,731

2008

581.99

4296.74

156,266

29,923

2009

608.76

4558.37

158,614

28,890 (continued)

186

7 Scientific and Technological Progress …

Table 7.1 (continued) Year

Index of gross output value of farming, forestry, animal husbandry and fishery Y

Input of material cost Arable area M K (one hundred (thousand hectares) million yuan)

Number of employees in primary industry L (ten thousand persons)

2010

635.55

5073.38

27,931

16,065

Note The data in the above table is compiled according to China Statistical Yearbook (2011) and China Agricultural Statistical Yearbook (2011). The material cost is converted into the data with 1978 as the base year

the price level in the same period, so as to calculate the total output of agriculture or the total output value of agriculture. In order to simplify the econometric model and make the index of gross output more explicit, the index of gross output of agriculture adopted in this section comes from the index of the total output of farming, forestry, animal husbandry and fishery in China Statistical Yearbook. (2) Material cost K Because there is no direct statistical data, the input of material cost needs to be calculated. The total output value and value added of farming, forestry, animal husbandry and fishery are calculated in China Agricultural Statistical Yearbook. The difference between the total output value and added value is the input of material cost of farming, forestry, animal husbandry and fishery. In this book, the difference between the two is directly selected as the representative variable of the input of material cost. Then, according to the price index of agricultural means of production (from China Statistical Yearbook), the material cost is converted with 1978 as the base year. (3) Land M The input of land is denoted by the total sown area of crops with thousand hectare as its unit and the data comes from China Statistical Yearbook. Whether the land is arable or not, it should be included in the total sown area of crops so long as it has been sown or transplanted. The measurement of the sown area of crops mainly refers to the planting or transplanting of crops including grain, cotton, oil, sugar, hemp, tobacco leaves, vegetables and melons, medicinal materials and so on. Some of the land factor in farming, forestry, animal husbandry and fishery are not included in the total sown area of crops. However, as planting accounts for a large proportion in agriculture, it can approximately represent the input of all land factors in farming, forestry, animal husbandry and fishery. (4) Labour force L The input of labour force is denoted by the number of employees in the primary industry with ten thousand as its unit and the data comes from China Statistical Yearbook. The employees refer to those who are aged 16 years or above, having

7.2 Overall Level Measurement of the Progress Rate …

187

participated in social labor work and having obtained labor remuneration or business income within a certain period, which to a certain extent can reflect the actual utilization of labor resources in the society at that time. So the number of employees in the primary industry can be used to represent the input of labor factors in agricultural production. In China Statistical Yearbook, the number of employees in the primary industry is the base number of the year, namely the stock, which does not match with the gross output value of agriculture. Considering that the number of employees in China’s primary industry is relatively stable, the base number of the year approximately represents the input of labor factors in that year in this book. (5) Time variable t The value of time variable is according to the rule t 1978 = 1978,t 1979 = 1979,…,t 2010 = 2010. When estimating the parameters of input factors, we assume constant returns to scale in order to avoid the negative effect of multicollinearity on the elastic estimation of all production factors, i.e. α+β+γ=1

(7.1)

Divide both sides of the equation of C-D production function in its general form by the input of labor factors, and we get Eq. (7.2) Y =c L

    K M α βeδt L L

(7.2)

Take the natural logarithm of both sides of Eq. (7.2) and it is changed into the following equation: L ∩ Y − L ∩ L = Ln ⊂ +α(L ∩ K − L ∩ L) + β(L ∩ M − L ∩ L) + δt (7.3) Suppose Y  = InY − InL, C  = Inc, K  = InK − InL, M = InM − InL, substitute it into Eq. (7.4), and we get the following: Y  = C + α K  + β M + δ t

(7.5)

ii. Measurement and analysis of the progress rate of science and technology in agriculture According to Eq. (7.5) and the values of each variable, the least squares linear regression analysis on the model was performed with Software Eviews6.0 and we get the following: Y  = −6.12 + 0.2191K  + 0.8298M  + 0.04t (−17.22)(2.82) (12.90)(6.85)

(7.6)

188

7 Scientific and Technological Progress …

the adjusted R2 = 0.9957 F = 2451.10 The number in the brackets of Eq. (7.6) is the t-statistic value of each variable coefficient and the absolute value of t-statistic vale of input factor variable is generally very large, indicating that the coefficients before each variable have passed the test. In addition, the adjusted R2 reached 0.9957, indicating that the input factors such as material costs, land and labour force, etc. selected when constructing C-D production function, had covered a majority of the factors that had an impact on the total output value of agriculture. The F statistical value of the model is comparatively large, indicating that the whole model have passed the test. According to the result of constructing C-D production function, we can see that α = 0.2191 and β = 0.8298. Based on the supposition of invariability of scale payment, γ = 1 − α − β = −0.0489. The elasticity of nationwide agricultural material cost input is 0.2191 and that of land input is 0.8298 and that of labor force input is − 0.0489. Therefore, in China’s agricultural production, the increase of material cost and land exerts positive influence on the total output value of farming, forestry, animal husbandry and fishery while the increase of labour force does not. This also shows that the growth of the total output value of farming, forestry, animal husbandry and fishery in China from 1990 to 2009 is more dependent on the input of material costs and land, especially the former. The progress rate of science and technology in farming, forestry, animal husbandry and fishery over the past three decades is calculated respectively based on the following: the input-output elastic coefficient of material cost, land and labor and so on measured by C-D production function, the growth rate of the total output value of farming, forestry, animal husbandry and fishery as well material cost, land  and  as K M L . The − α + β + γ labor force, and according to the equation δ = Y Y K M L calculating result is shown in Table 7.2. As can be seen from Table 7.2, the progress rate of science and technology in China’s agriculture from 1978 to 2010 was comparatively stable, which basically maintained between 2 and 4%. iii. Measurement and analysis of the contribution rate of S&T progress in agriculture The progress rate of science and technology in China’s agriculture has been calculated above. The corresponding contribution rate can be calculated according to the following formula. TFP = δ/

Y × 100% Y

The contribution rate of S&T progress in agriculture calculated is shown in Table 7.3. As can be seen from Fig. 7.1, the progress rate of science and technology in China’s agriculture and its contribution rate showed the same change trend in most of the years from 1978 to 2010, but they deviated from each other during the two periods of 1990–1994 and 2000–2004. The same change trend indicates that the change of the

7.2 Overall Level Measurement of the Progress Rate …

189

Table 7.2 Progress rate of science and technology in China’s agriculture (1980–2010) Year

Growth rate Y

Growth rate K

Growth rate L

Growth rate M

Progress rate of S&T

1980

0.0490

0.1790

0.0169

−0.0111

0.0198

1981

0.0617

0.1667

0.0253

−0.0084

0.0334

1982

0.0830

0.0950

0.0228

−0.0055

0.0678

1983

0.1047

0.0818

0.0122

−0.0022

0.0891

1984

0.0783

0.0837

0.0030

−0.0026

0.0623

1985

0.0637

0.1125

0.0011

0.0005

0.0387

1986

0.0420

0.1234

0.0085

0.0017

0.0140

1987

0.0437

0.1473

0.0119

0.0029

0.0096

1988

0.0427

0.0828

0.0206

0.0054

0.0210

1989

0.0487

0.0778

0.0733

0.0078

0.0287

1990

0.0480

0.0308

0.0687

0.0107

0.0357

1991

0.0590

0.0803

0.0552

0.0056

0.0395

1992

0.0597

0.0842

−0.0106

−0.0014

0.0418

1993

0.0760

0.1535

−0.0215

−0.0030

0.0438

1994

0.0910

0.1335

−0.0281

0.0020

0.0587

1995

0.0963

0.0800

−0.0260

0.0104

0.0689

1996

0.0900

0.0355

−0.0165

0.0127

0.0709

1997

0.0737

0.0550

−0.0032

0.0128

0.0508

1998

0.0579

0.0913

0.0090

0.0087

0.0311

1999

0.0475

0.0598

0.0114

0.0050

0.0308

2000

0.0415

0.0436

0.0115

0.0000

0.0325

2001

0.0425

0.0410

0.0081

−0.0037

0.0370

2002

0.0438

0.0698

0.0015

−0.0083

0.0355

2003

0.0547

0.0820

−0.0144

−0.0046

0.0398

2004

0.0571

0.0894

−0.0299

0.0019

0.0344

2005

0.0618

0.0399

−0.0409

−0.0005

0.0514

2006

0.0498

0.0509

−0.0409

−0.0001

0.0367

2007

0.0500

0.0296

−0.0364

0.0018

0.0403

2008

0.0473

0.0599

−0.0329

0.0140

0.0210

2009

0.0491

0.0569

−0.0313

0.0154

0.0223

2010

0.0450

0.0869

−0.0339

0.0140

0.0127

contribution rate of S&T progress in agriculture is due to the change of the progress rate of science and technology, while the trend of deviation indicates that the change of the contribution rate of S&T progress in agriculture during these two periods is mainly due to the change of the growth rate of total output of agriculture, which is not closely related to the progress rate of science and technology.

190 Table 7.3 Contribution rate of S&T progress in China’s agriculture (1980–2009)

7 Scientific and Technological Progress … Year

Contribution rate of S&T progress

1980

0.4047

1981

0.5410

1982

0.8173

1983

0.8516

1984

0.7953

1985

0.6072

1986

0.3326

1987

0.2193

1988

0.4931

1989

0.5907

1990

0.7437

1991

0.6693

1992

0.7013

1993

0.5762

1994

0.6453

1995

0.7154

1996

0.7873

1997

0.6901

1998

0.5375

1999

0.6479

2000

0.7831

2001

0.8703

2002

0.8106

2003

0.7280

2004

0.6035

2005

0.8323

2006

0.7371

2007

0.8047

2008

0.4434

2009

0.4542

• progress rate of science and technology in agriculture • Contribution rate of S&T progress in agriculture. iv. Analysis of factors influencing the total output value of agriculture The impact on the total output value of agriculture is mainly reflected in two aspects: one is that the input of agricultural production factors leads to agricultural growth, and the other is that the promotion of the productivity of agricultural production factors

7.2 Overall Level Measurement of the Progress Rate …

191

Fig. 7.1 Progress rate of science and technology in agriculture and contribution rate of S&T progress in agriculture

increases the total output value of agriculture. As far as technological progress and the transformation of agricultural development mode are concerned, the improvement of the productivity of factor input is the concrete manifestation of technological progress. The increase of input of agricultural production factors leads to the increase of total output value of agriculture only in the case of the existence of scale economy. However, with the continuous increase of total output value of agriculture, the input of agricultural production factors cannot truly affect the development of agriculture. It is the improvement of productivity that makes the transformation of agricultural development mode possible. So far as the theoretical model is concerned, the increase of the productivity of input factor is the technological progress referred to in the Solow Model. Therefore, the factors influencing China’s agricultural economic development also include the input of production factors and technological progress. The progress rate of science and technology in agriculture and its contribution rate were measured by using the growth rate equation in the previous part. While measuring the elasticity of each input factor by means of C-D production function, the basic factors influencing China’s agricultural development were also measured. The results show that the increase of the input of material cost and land has a positive effect on the total output value of agriculture while the increase of labour force does not. This also indicates that the growth of the total output value of farming, forestry, animal husbandry and fishery in China from 1978–2009 is more dependent on material costs and land input. The elasticity of the input of national agricultural material cost is 0.2191, which indicates that the input of agricultural material cost has a great impact on the total output value of farming, forestry, animal husbandry and fishery. If agricultural material cost increases by 1%, the total output value of farming, forestry, animal husbandry and fishery will increase by 0.2191%. Therefore, the increase of material cost is the main factor that affects the growth of the total output value of agriculture. The elasticity of labor force input is −0.0489, which indicates that the increase of labor

192

7 Scientific and Technological Progress …

force will decrease the total output value of farming, forestry, animal husbandry and fishery instead of making it increase. If the input of labor force increases by 1%, the total output value of farming, forestry, animal husbandry and fishery will decrease by 0.0489%. The overall level of the labor contribution rate in China’s agricultural production is always below 0, indicating that the labor contribution in China’s agricultural production has always been negative, rising gradually before the year 2002 and falling gradually after the year 2002. This indicates that China’s agricultural development has no longer relied on labour force input which has become a surplus in China’s agricultural production. In the future development of agricultural economy, the input of labor force should not be the driving force for the growth of the total output value of agriculture, but should focus on improving the contribution rate of S&T progress. The elasticity of China’s agricultural land input is 0.8289, which indicates that the increase of land input has a positive impact on the growth of the total output value of agriculture. If the land input increases by 1%, the total output value of farming, forestry, animal husbandry and fishery will increase by 0.8289%. Since the arable land area per capita is comparatively small in China, land becomes scarce in agricultural production. Meanwhile, the elasticity of land factor is relatively large. If the agricultural land area is further reduced, the total output value of agriculture will be greatly reduced, which will have an impact on the production and life of Chinese people. On the whole, the input factors such as the material cost, labour force, land and so on in China’s agricultural production as well as the productivity improved by technological progress have important impact on the total output value of agriculture. However, in recent years, the contribution rate of S&T progress has been decreasing year by year, and the contribution rate of input factors has fluctuated a lot. This poses a severe test for China’s agricultural production, which requires us to maintain sufficient vigilance to eliminate the impact.

7.2.2 Planting and Animal Husbandry The growth rate equation is used to calculate the progress rate of science and technology in China’s agriculture from the overall level, but there is no progress rate of science and technology in farming, forestry, animal husbandry and fishing respectively, which makes it impossible for us to know which industry is really driving the agricultural technological progress. Therefore, in this section, we decided to measure the progress rate of science and technology in planting and animal husbandry respectively, which account for a large proportion of the total output value of agriculture, and explored the difference between the progress rate of science and technology in each industry and agriculture as a whole. The method used is still the same as that in the previous part. First, the C-D production function is constructed, and then the progress rate of science and technology is measured with the growth rate equation.

7.2 Overall Level Measurement of the Progress Rate …

193

i. Measurement of the progress rate of science and technology in planting industry According to the characteristics of planting industry, when constructing the C-D production function of planting industry, the index of the total output value of planting industry is selected to represent the total output of planting industry. The input factors selected include material cost, land area and labor force. The index of the total output value of planting industry is derived from China Statistical Yearbook, while the material cost from China Rural Statistical Yearbook and according to the price index of agricultural means of production it is converted into the data with 1990 as the base year. In this book the effective irrigation area is used to represent the land input of planting industry and the data comes from China Statistical Yearbook. The effective irrigation area covers the better part of the land of planting industry. This kind of data-processing method partly avoids the impact of drought and flood on the total output value of planting industry, making the model data more reasonable. Since there is no detailed statistics on the input of labour forces for planting industry, the product of the average number of workers per hectare of three kinds of grain and the sown area of crops is selected to approximately represent the input of labor in the production of planting industry. The data comes from Compilation of Data on the Cost and Benefits of National Agricultural Products, with a unit of 100 million per day. The data of input and output of planting industry is shown in Table 7.4. Suppose Y = InY − InL, C  = Inc, K  = InK − InL, M  = InM − InL. According to the data in Table 7.4 and the equation of C-D production function, the C-D production function of planting industry can be constructed by means of Software Eviews 6.0. The result is as follows: Y  = −64.78 + 0.1124 K  + 0.8721 M  + 0.0155t (−7.65) (1.89) (15.48) (6.90)

(7.7)

the adjusted R2 = 0.9986 F = 3789.93 According to Eq. 7.7, the elastic coefficient of material cost α = 0.9161; the elastic coefficient of land β = 0.2947; the elastic coefficient of labour force γ = 1 − α − β = 0.2108. The progress rate of science and technology in planting industry over the years was calculated respectively according to the following: the elastic coefficient of such input factors as material cost, land and labour force measured by C-D production function, the growth rate of the gross output valueof planting industry, material cost, − α K + β M + γ L , as is shown land and labour force and the equation δ = Y Y K M L in Table 7.5. As is shown in Table 7.5, the progress rate of science and technology in planting industry remains between 1 and 4%, which is obviously divided into two fluctuating periods characterized by rising first and then falling with 2000 as the dividing year. The cycle is about ten years. The peak appeared in 1993 and 2003, in both of which

194

7 Scientific and Technological Progress …

Table 7.4 Input and output factors of China’s planting industry (1990–2009) Year

Index of total output value of planting industry

Material cost (one hundred million RMB Yuan)

Effective irrigation area (thousand hectare)

Quantity of labor (one hundred million per day)

1990

100.00

1355.67

47,403

385

1991

1000.90

1418.45

47,822

355

1992

105.14

1517.14

48,590

355

1993

110.60

1686.35

48,728

350

1994

114.14

2009.87

48,759

336

1995

123.16

2076.19

49,281

357

1996

132.77

2176.49

50,381

359

1997

138.74

2253.34

51,239

353

1998

145.54

2460.28

52,296

322

1999

151.83

2558.86

53,158

300

2000

153.95

2565.66

53,820

286

2001

159.50

2681.57

54,249

280

2002

165.72

2717.46

54,355

267

2003

166.55

2380.69

54,014

254

2004

180.70

2613.27

54,478

230

2005

188.19

2672.02

55,029

224

2006

198.34

2902.60

55,750

198

2007

206.22

3071.05

56,528

188

2008

216.08

2929.27

58,472

180

2009

224.34

3274.05

59,261

172

the progress rate of science and technology reached more than 6%. At present, the progress rate of science and technology in agriculture is in a downward cycle and practical actions are needed to promote the development of agricultural technological innovation. ii. Measurement of the progress rate of science and technology in animal husbandry The production mode of animal husbandry is different from that of planting industry, so the input factors selected are also different from that of planting industry in the construction of C-D production function of animal husbandry. As is shown in Table 7.6, the index of the total output value of animal husbandry is selected as its output index. The data is derived from China Statistical Yearbook, which is converted into the index of the total output value of animal husbandry according to the absolute value of the total output value of animal husbandry and the index of the total output value of animal husbandry with 1990 as the base year and one hundred million RMB Yuan as the unit. In calculating the material and service cost of animal husbandry,

7.2 Overall Level Measurement of the Progress Rate …

195

Table 7.5 Progress rate of science and technology in China’s planting industry (1991–2009) Year

Growth rate Y

Growth rate K

Growth rate M

Growth rate L

Progress rate of S&T

1991

0.0420

0.0696

0.0161

0.0024

0.0201

1992

0.0520

0.1115

0.0028

−0.0147

0.0372

1993

0.0320

0.1918

0.0006

−0.0411

0.0105

1994

0.0790

0.0330

0.0107

0.0646

0.0650

1995

0.0780

0.0483

0.0223

0.0039

0.0530

1996

0.0450

0.0353

0.0170

−0.0153

0.0264

1997

0.0490

0.0918

0.0206

−0.0879

0.0220

1998

0.0432

0.0401

0.0165

−0.0685

0.0254

1999

0.0140

0.0027

0.0125

−0.0473

0.0036

2000

0.0360

0.0452

0.0080

−0.0201

0.0243

2001

0.0390

0.0134

0.0019

−0.0483

0.0366

2002

0.0050

−0.1239

−0.0063

−0.0486

0.0251

2003

0.0850

0.0977

0.0086

−0.0951

0.0679

2004

0.0415

0.0225

0.0101

−0.0260

0.0305

2005

0.0539

0.0863

0.0131

−0.1143

0.0346

2006

0.0398

0.0580

0.0138

−0.0495

0.0220

2007

0.0478

−0.0462

0.0346

−0.0427

0.0235

2008

0.0382

0.1177

0.0135

−0.0469

0.0139

2009

0.0420

0.0696

0.0161

0.0024

0.0201

the material and service costs of each scale pig are used to approximately represent the material costs for each animal raised (the data coming from Compilation of Cost and Benefits of National Agricultural Products), The sum total of the annual base number of live pigs, sheep and big animals is used to represent the number of livestock breeding, and the product of the two is used to represent the input of the material cost of animal husbandry each year. Then, according to the index of the total output value of animal husbandry, it is converted into the data with 1990 as the base year and RMB10,000 as the unit. The calculation of labor used is similar to that of material cost: the number of labor used per unit of main product of scale live pigs (the data coming from Compilation of Cost and Benefits of National Agricultural Products) is multiplied by the total number of livestock (the data coming from China Statistical Yearbook) to obtain the number of labor used for animal husbandry with day as the unit. Since land is less important for livestock production than that for planting industry. In addition, it is hard to calculate land of animal husbandry effectively and objectively. Therefore, in constructing the C-D production function of animal husbandry, land is excluded from the important influential factors, without taking it into account. The data of the input and output of animal husbandry is shown in Table 7.6.

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7 Scientific and Technological Progress …

Table 7.6 Input and output of China’s animal husbandry (1991–2009) Year

Gross output index of animal husbandry

Material cost (10,000 Yuan)

Number of labor used (day)

1991

109

990

537,115

1992

118

1091

1151,482

1993

131

1168

1039,776

1994

153

1564

1122,139

1995

176

1653

1407,300

1996

198

1768

1204,191

1997

216

1706

1688,464

1998

231

1777

767,602

1999

242

1877

568,740

2000

257

1969

822,837

2001

273

2110

692,333

2002

290

2259

590,175

2003

311

2499

689,934

2004

333

2883

723,524

2005

359

2909

701,157

2006

377

2964

652,795

2007

386

3239

582,093

2008

412

3425

591,054

2009

436

3334

557,962

Suppose Y  = InY − InL, C  = Inc, K  = InK − InL. According to the data in Table 7.6 and the equation of C-D production function, the C-D production function of planting industry is constructed by means of Software E-views 6.0. The result is as follows: Y  = −107.8115 + 0.9639K  + 0.0526t (−4.81) (6.49) (4.84)

(7.8)

the ajusted R2 = 0.597 F = 190.76 According to Eq. 7.8, the elastic coefficient of the input of material cost in animal husbandry α = 0.9639. The elastic coefficient of the input of labor force in animal husbandry β = 1 − α = 0.036. According to the elastic coefficient of the input of material cost and labor force in animal husbandry measured by C-D production function, the gross output value of planting industry, thegrowth rate of  material cost K L , the progress − α + γ and labor force and based on the equation δ = x y K L rate of science and technology in animal husbandry from 1992 to 2009 is calculated respectively, which is shown in Table 7.7.

7.2 Overall Level Measurement of the Progress Rate …

197

Table 7.7 Progress rate of science and technology in China’s animal husbandry (1992–2009) Year

Growth rate Y

Increase rate K

Increase rate L

Technological progress rate

1992

0.0880

0.1023

1.1438

−0.0519

1993

0.1080

0.0703

−0.0970

0.0437

1994

0.1670

0.3390

0.0792

−0.1626

1995

0.1480

0.0567

0.2541

0.0842

1996

0.1140

0.0698

−0.1443

0.0519

1997

0.1010

−0.0352

0.4022

0.1204

1998

0.0740

0.0414

−0.5454

0.0538

1999

0.0455

0.0568

−0.2591

0.0001

2000

0.0630

0.0486

0.4468

0.0000

2001

0.0626

0.0717

−0.1586

−0.0008

2002

0.0601

0.0708

−0.1476

−0.0028

2003

0.0730

0.1062

0.1690

−0.0355

2004

0.0719

0.1536

0.0487

−0.0779

2005

0.0784

0.0088

−0.0309

0.0710

2006

0.0500

0.0188

−0.0690

0.0343

2007

0.0228

0.0929

−0.1083

−0.0628

2008

0.0675

0.0574

0.0154

0.0116

2009

0.0580

−0.0265

−0.0193

0.0842

Different from that of planting industry, the progress rate of science and technology in animal husbandry is characterized by large fluctuations and irregularity. Generally speaking, the progress rate of science and technology in animal husbandry had not been stable from 1992 to 2009. After the year 2000, the frequency of fluctuation is still high. Thus it can be seen that the technological innovation of animal husbandry on a large scale has not been formed, as a result of which there is no stable technological progress in this industry. In order to strengthen the technological innovation of animal husbandry, it is urgent to establish a relatively perfect development system that can continuously promote technological progress. iii. Comparison of the progress rate of science and technology between planting and animal husbandry By combining the progress rate of science and technology in planting industry with that in animal husbandry in one graph, a line chart is got, as shown in Fig. 7.2. As can be seen from Fig. 7.2, compared with that in animal husbandry, the progress rate of science and technology in planting industry fluctuates slightly and the numerical value is between 0 and 0.1. The progress rate of science and technology in animal husbandry is characterized by strong fluctuation and weak regularity.

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7 Scientific and Technological Progress …

Fig. 7.2 Comparison of the progress rate of science and technology between planting industry and animal husbandry

• progress rate of science and technology in animal husbandry • progress rate of science and technology in planting industry.

7.3 Analysis of the Factors Influencing the Progress Rate of Science and Technology in China’s Agriculture By means of Granger Causality Test, it has been proved that agricultural technological progress can indeed promote the adjustment of agricultural structure and thus affect the transformation of agricultural development mode. Therefore, agricultural technology should be vigorously developed to further optimize the agricultural structure and upgrade the agricultural development mode. However, what are the factors that influence the progress of agricultural technology? And what are the factors that influence the technological progress of farming, forestry, animal husbandry and fishery respectively? These problems still need further study.

7.3.1 Selection of Factors Influencing Agricultural Technological Progress Agricultural technological progress is a systematic project, resulting from an interaction of multiple factors. In order to measure the effective factors affecting agricultural technological progress, the method of principal component analysis (PCA) is adopted

7.3 Analysis of the Factors Influencing the Progress Rate of Science …

199

Table 7.8 Indicators influencing the progress rate of S&T in agriculture Category of indicator

Indicator

Name

Agricultural development

X1

Agricultural intensification

X2

Agricultural mechanization

Education of rural residents

X3

Educational level of rural residents

Government support

X4

Financial support

Features of agricultural industry

X5

Rural ecology and environment

X6

Planting structure of crops

X7

Industrial development

X8

Migrant farmers

X9

Farmers’ living standard

X 10

Urban-rural income gap

Urban−rural gap and living standard of farmers

in this book to reduce the dimensionality of multiple factors, which can still evaluate the comprehensive index of agricultural technological progress to study its progress rate. A total of ten indicators from five aspects are selected for analysis, which are closely related to agricultural technological progress. The indicators selected are shown in Table 7.8. The following is a detailed description of the indicators in Table 7.8.

7.3.1.1

Agricultural Development

(1) Indicator X 1: agricultural intensification It is hard to measure the level of agricultural intensification through the direct indicator, but agricultural production on a large scale can attain intensification. Large and medium-sized tractors are needed for large scale agricultural production, which will have the opposite effect for small-sized agriculture or a single farmland. Therefore, the number of large and medium-sized tractors per thousand hectares of land will be selected to indirectly reflect the level of agricultural intensification in this section. The data comes from China Rural Statistical Yearbook. (2) Indicator X 2 : agricultural mechanization Agricultural mechanization can also partially reflect the level of agricultural intensification. The higher the level of agricultural mechanization, the higher the level of agricultural intensification and the higher the level of agricultural development. Therefore, the level of agricultural mechanization is selected to indirectly measure the level of agricultural development. The total power of agricultural machinery is adopted as the indicator to measure the level of agricultural mechanization in this section. The data comes from China Statistical Yearbook.

200

7.3.1.2

7 Scientific and Technological Progress …

Education of Rural Residents

(1) Indicator X 3 : educational level of rural residents The higher the quality of agricultural employees, the more promoting the development of agricultural technological progress. The majority of agricultural laborers in China are rural residents, whose educational level can affect the technological progress of agriculture to a large extent. Therefore, the educational level of rural residents is selected to measure the education degree of farmers, specifically, the proportion of the number of rural residents with the educational level of junior high school and above in the total number of rural residents is selected to represent the education degree of rural residents, which is calculated according to the relevant data in China Rural Statistical Yearbook.

7.3.1.3

Government Support

(1) Indicator X 4 : financial support The investment of capital can promote technological progress, thus improving productivity, and the government’s support for technological progress largely depends on financial investment. In terms of agricultural technological progress, financial investment is not only an important factor influencing agricultural technological progress but also an important source of capital investment. Therefore, financial support is selected to measure government’s support for agricultural technological progress in this book, which is specifically reflected by the proportion of agricultural expenditure in the fiscal expenditure in data processing and the data comes from China Rural Statistical Yearbook.

7.3.1.4

Features of Agricultural Industry

(1) Indicator X 5 : rural ecology and environment The ecological environment in rural areas has a direct impact on agricultural technological progress. If the agricultural ecological environment is good, it will be conducive to promoting the agricultural technological progress. However, it is difficult to directly reflect the evaluation of agricultural ecology and environment. Therefore, the indicator of rural ecology and environment is indirectly represented by the proportion of the affected area of agricultural arable land in the total arable land in this book, which is calculated according to the relevant data in China Statistical Yearbook.

7.3 Analysis of the Factors Influencing the Progress Rate of Science …

201

(2) Indicator X 6 : planting structure of crops To some extent, the planting structure of crops can reflect the quantity of agricultural products, thus indirectly reflecting the current structure of agricultural production, which is an important indicator to observe the bias of technological progress. Therefore, the selection of the planting structure of crops can reveal the bias of agricultural technological progress from one respect. The proportion of grain crops in the total sown area of crops is selected to measure the planting structure of crops in this book, which is calculated according to the relevant data from China Statistical Yearbook. (3) Indicator X 7 : level of industrial development The level of industrial development is represented by the proportion of the GDP of primary industry in GDP, which is calculated according to the relevant data from China Statistical Yearbook. The level of industrial development reflects the change of China’s industrial structure and the position of primary industry in China’s economic development.

7.3.1.5

The Urban-Rural Gap and the Living Standard of Farmers

(1) Indicator X 8 : migrant farmers The proportion of migrant farmers is represented by that of non-primary-industry employees in the total rural employees and the data comes from China Agricultural Statistical Yearbook. The lower the proportion of employment personnel in the primary industry, the more migrant farmers. In recent years, the increase of the proportion of migrant farmers will also have an impact on the progress rate of S&T in agriculture. (2) Indicator X 9 : the living standard of farmers The living standard of farmers is denoted by Engel’s Coefficient of rural residents and the data comes from China Rural Statistical Yearbook. The lower the Engel’s Coefficient, the higher living standard of rural residents. Theoretically, the level of the living standard of rural residents will have an impact on the progress rate of S&T in agriculture. (3) indicator X 10 : urban-rural income gap The urban-rural income gap is denoted by the ratio of the per capita net income of urban residents to that of rural residents. The data comes from China Rural Statistical Yearbook. The larger the ratio between the per capita net income of urban residents and that of rural residents, the greater the urban-rural income gap. A total of ten variables from five aspects selected above, covering all aspects of agricultural production and life, can be said to be the main factor influencing the progress rate of S&T in agriculture.

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7 Scientific and Technological Progress …

7.3.2 Factors Influencing the Progress Rate of S&T in Agriculture The ten factors above are of great importance for agricultural technological progress, but too many of them is bad for metrological analysis and it will result in the distortion of data. So we first reduced the dimensionality of the 10 factors, so as to obtain the comprehensive factors affecting technological progress. According to the principle of PCA, the 10 factors selected above are analyzed, as is shown in Table 7.9. As can be seen from Table 7.9, the impact of the first three factors on the progress of agricultural technology has reached 92.28%, which fully shows that the first three principal components basically contain the basic information of all the indicators selected in this book. By taking the eigenvalues of the first three ones, three principal components are got based on the corresponding eigenvectors: P1 = 0.2826X 1 + 0.3705X 2 + 0.3690X 3 − 0.1290X 4 − 0.1941X 5 − 0.3336X 6 − 0.3646X 7 + 0.3242X 8 − 0.3526X 9 + 0.3446X 10 P2 = 0.4681X 1 + 0.1227X 2 − 0.0566X 3 + 0.7103X 4 − 0.3375X 5 + 0.3159X 6 + 0.0966X 2 + 0.1618X 8 − +0.0351X 9 − 0.0876X 10 P3 = 0.0009X 1 + 0.0145X 2 + 0.1184X 3 + 0.3623X 4 + 0.8461X 5 + 0.0752X 6 − 0.1859X 2 + 0.2487X 8 + 0.0665X 9 − 0.0876X 10 In the first principal component, the coefficient of variables except X 1 , X 4 and X 5 is larger, indicating that these indicators play a major role in P1 . Therefore, P1 can be regarded as a variable irrelevant to financial support, which is jointly affected by other factors. In the second principal component, the coefficient of X 4 is larger, which can be considered as an indicator of financial support. In the third principal component, the coefficient of X 5 is larger, which can be considered as a variable representing ecological environment. Table 7.9 Result of PCA Principal component Eigenvalue Variance contribution Aaccumulative variance contribution 1

7.057,807

0.7058

0.7058

2

1.42129

0.1421

0.8479

3

0.748435

0.0748

0.9228

4

0.322595

0.0323

0.9550

5

0.241075

0.0241

0.9791

6

0.148371

0.0148

0.9940

7

0.032192

0.0032

0.9972

8

0.023317

0.0023

0.9995

9

0.003884

0.0004

0.9999

10

0.001027

0.0001

1.0000

7.3 Analysis of the Factors Influencing the Progress Rate of Science …

203

Taking the progress rate of S&T in agriculture as the explained variable, denoted as Tech, and P1, P2 and P3 as the explained variables, the linear regression equation was established. Since the time series was adopted, the stability test of the variables involved was carried out first. The variables Tech, P1 , P2 and P3 all passed Unit Root Test and were stationary series, which could be further analyzed. Linear-regression analysis was carried out according to the rule of least squares (LS) and AR(1) was added due to multicollinearity. The results are as follows: Tech = 0.0423 − 0.003631P1 − 0.005612 P2 − 0.001232 P3 + 0.66 A R . . . (5.12) (5.82) (−1.31) (−2.03) (−0.49) R 2 = 0.6743 F = 7.76

(7.9)

As can be seen from Eq. 7.9, P1 , P2 and P3 all have an impact on the progress rate of S&T in agriculture. P1 represents those factors besides financial support and the elasticity coefficient is −0.003631. When it is considered together with the coefficient of various variables in Equation P1 comprehensively, it is found that X 2 , X 3 , X 8 and X 10 have a negative impact on Tech while X 6 , X 7 and X 9 have a positive impact on it. P2 mainly represents the impact of financial support on the progress rate of S&T in agriculture, and the elasticity coefficient is −0.005621. When it is considered together with the coefficient of X 4 in Equation P2 being 0.7103, it can be seen that financial support has a negative impact on the progress rate of S&T in agriculture. P3 represents the ecological environment and the elasticity coefficient is −0.001232. When it is considered together with the coefficient of X 5 in Equation P3 being 0.8461, it is found that the improvement of ecological environment will improve the progress rate of S&T in agriculture. From the results of linear regression analysis, it can be seen that variables from different aspects have different impacts on the progress rate of S&T in agriculture. The following is a detailed analysis and explanation of the impact of the ten variables from five aspects on Tech. The two variables in the first category of indicator, agricultural intensification and agricultural mechanization, have a negative impact on the progress rate of S&T in agriculture, which is not significant. Normally speaking, agricultural intensification and agricultural mechanization should promote China’s agricultural technological progress, but the empirical study shows that both of these two key factors have a negative impact on it because they are both in the primary stage and have not been deeply developed. China’s agricultural intensification is simply the accumulation of rural households instead of a large scale accumulation. It has not played the role of promoting agriculture. On the contrary, simple accumulation has reduced the service efficiency of labor force, inhibiting agricultural development. Therefore, in the future, China’s agricultural intensification should be encouraged and guided and the level and depth of intensification need to be further strengthened, so that it will be a deep integration of technology exchange and knowledge sharing instead of a simple combination. Agricultural mechanization does not have a positive impact on agricultural technological progress, for the level of agricultural mechanization is still relatively low, and the machinery used is relatively simple, which only shortens

204

7 Scientific and Technological Progress …

the time of agricultural work, but it is not very advanced agricultural technology, and the scientific and technological content of agricultural production is very low. Moreover, the educational level of agricultural employees is low, making it difficult to popularize agricultural technology, which also hinders the progress of agricultural technology to a certain extent. In other words, low-skilled agricultural employees operate low-skilled agricultural machinery, which leads to the abuse of mechanization and damages the natural law of agricultural development, resulting in negative results. As can be seen from the first category of variable, neither agricultural intensification nor agricultural mechanization has a positive impact on the progress rate of S&T in agriculture, which is the manifestation of imperfect agricultural development in China, and this phenomenon deserves our reflection. X 3, the educational level of rural residents, is the only variable of the second category. In terms of the above analysis, the education level of rural residents should play a significant role in promoting agricultural technological progress, because rural residents are the main force of agricultural labor, whose comprehensive quality directly determines the level of agricultural technological progress. The educational level of rural residents can also affect the promotion of agricultural technology, which is not evident in China. On one hand, China’s rural education system is still not perfect, and there is no perfect agricultural technological education system.On the other hand, due to China’s current national conditions, most of the young and middle-aged laborers who can accept higher education go out to work, only the elderly and children whose educational level is low stay in the countryside, engaging in agricultural labor. So the impact of rural education on technological progress is positive but not significant. This phenomenon also deserves our reflecting on China’s current rural policy, that is, how to solve the problem that the massive outflow of rural laborers makes it difficult to realize or spread agricultural technological progress. The third category of explanatory variable measures government’s support for agriculture, including indicator X 4 , that is, the proportion of financial expenditure for agriculture in the total fiscal expenditure, and the direction of agricultural expenditure is not clearly denoted in this variable. It can be seen from the analysis results that capital input plays a very important role in technological progress, which is in line with the characteristics of technological progress, and financial support plays a very important role in agricultural capital input. However, the impact of China’s financial input on technological progress is not as significant as expected. The main reason is that the purpose of our government expenditure or financial input is to retain rural residents, or to improve the living standard of farmers, including food subsidies, production subsidies, and living subsidies, etc. The capital really applied to R&D or promotion of agricultural science and technology are relatively small, which makes the government’s financial support increase year by year, but the progress of agricultural technology is treading water, failing to keep pace with the increasing capital. This requires the government to truly understand the needs of rural residents and the need of agricultural technological progress, mobilize the enthusiasm of farmers in production through market regulation, and ensure the funds directly applied in scientific and technological progress. It should be market-oriented, and

7.3 Analysis of the Factors Influencing the Progress Rate of Science …

205

government should motivate the subjective initiative of farmers instead of replacing them to become the main body of technological progress. The fourth category of variables measure the features of agricultural industry, including agricultural ecological environment, the planting structure of crops and the position of primary industry in national economy. The results of empirical analysis show that the improvement of ecological environment is conducive to the improvement of the progress rate of S&T in agriculture. Ecological environment is the basic environment where crops are located, which can be said to be the biggest background for the transformation of agricultural development mode and the objective environment that agricultural technological progress needs to face directly. Therefore, the improvement of ecological environment provides a good environment for both agricultural development and agricultural technological progress, and it is conducive to agricultural technological progress. Meanwhile, the diversification of the planting structure of crops is helpful for agricultural technological progress. To introduce new types of crops based on intuitive judgment is an important form of technological progress. According to the diversity of China’s geographical and climatic conditions, the cultivation of diversified crops suitable for China’s environment can improve their economic value so as to promote the growth of agricultural economy. The same as the planting structure of crops, the diversification of industrial structure can also promote the growth of the progress rate of S&T in agriculture. The three industries are closely related and influence each other. Among them, the technical content of primary industry is the lowest. Therefore, the development of the secondary and tertiary industries will improve the overall progress rate of China’s science and technology and surely promote the progress rate of S&T in agriculture. The fifth variable mainly measures the living standard of rural residents and the gap between urban and rural incomes, including indexes X 8 , X 9 and X 10 , namely, the export of farmers’ labor, the living standard of farmers and the gap between urban and rural incomes. According to the research the export of farmers’ labor and the urban-rural income gap have a negative impact on the progress rate of S&T in agriculture, while the improvement of farmers’ living standards has a positive impact on the progress rate of S&T in agriculture. Technological progress needs the input of human capital, especially that of high-tech talents, which is of great significance to agricultural technological progress. With the development of China’s urban economy, the export of farmers’ labor has become a prominent feature of rural areas in China, which has to some extent increased the income of rural families, but it has also led to the shortage of human capital of agriculture. Moreover, the elderly and children are left behind in rural areas, which is not conducive to promoting agricultural technological progress. The income gap between urban and rural areas is a major obstacle not only to ensuring people’s livelihood, but also to technological progress. The expansion of the income gap may reduce the enthusiasm of farmers to work, who will then flood into cities, thus resulting in the shortage of rural labor force. In particular, there is a shortage of labor force that can promote technological progress. Therefore, the government should pay attention to this problem and narrow the income gap between urban and rural areas. The improvement of farmers’ living standard has a positive impact on agricultural technological progress, but it is not

206

7 Scientific and Technological Progress …

significant, because the improvement of farmers’ living standard mainly comes from migrant workers, rather than from the rural labor.

7.3.3 Factors Influencing the Progress Rate of S&T in Planting and Animal Husbandry The factors influencing the progress rate of S&T in agriculture is analyzed in the above part and the factors influencing the progress rate of S&T in planting and animal husbandry will be specifically analyzed in this part. The mode of the production and development of planting is quite different from that of animal husbandry, so is the factors that influence farming and animal husbandry. In this part, adopting the same method to study the factors influencing the progress rate of S&T in agriculture, a total of 10 explanatory variables from 5 aspects are selected, and PCA is carried out. The progress rate of S&T in planting and breeding are taken as explanatory variables respectively, and linear regression analysis is carried out with Software Eviews 6.0.

7.3.3.1

Factors Influencing the Progress Rate of S&T in Planting Industry

Referring to the method to analyze the factors influencing the progress rate of S&T in agriculture, the factors influencing the progress rate of S&T in planting were analyzed, and the explanatory variable was denoted as Tech Z. Since both P1 and P2 could not pass the test significantly, only P3 was retained as the explanatory variable, and the results are shown in Eq. (7.10). Tech Z = 0.0318 − 0.0171 SSP3 R 2 = 0.4878 F = 16.19

(7.10)

From the above results, it can be directly observed that the main factor influencing the progress rate of S&T in planting industry is ecological environment, while the influence of other factors is not significant. In fact, it is easy to understand this result. Ecological environment plays a decisive role in planting industry, because the worsening of ecological environment is bound to result in the failure of planting industry development. Therefore, the technological progress of planting industry must be based on ecological environment and it should first conform to the objective law of ecological environment change. Meanwhile, technological progress and ecological environment improvement should complement each other. The technological progress can improve the ecological environment and the latter can promote the efficiency of the former to a large extent, thus jointly promoting the transformation of planting development mode. Currently, Chinese

7.3 Analysis of the Factors Influencing the Progress Rate of Science …

207

government has paid enough attention to the protection of ecological environment yet the implementation of specific policies still needs to be further strengthened.

7.3.3.2

Factors Influencing the Progress Rate of S&T in Animal Husbandry

The same method is used to analyze the factors influencing the progress rate of S&T in animal husbandry. It is found that the 10 variables from 5 aspects have no significant influence on the progress rate of S&T in animal husbandry. Therefore, we did not list the results of linear regression analysis here. It is easy to understand, because there is a world of difference between animal husbandry and planting although both of them belong to agriculture. The ecological environment can play a decisive role in the technological progress of planting but its impact on animal husbandry is relatively limited. To some extent, animal husbandry is an industry with high technological content. Especially among all agricultural industries, the technological progress of animal husbandry is quite different from that of traditional agricultural industry. Therefore, it is difficult for the factors selected above to have a significant impact on the progress rate of S&T in animal husbandry. However, this does not mean that the above factors have no impact on animal husbandry. Industrial structure, ecological environment, laborers’ quality and so on are still important factors affecting the progress rate of S&T in animal husbandry.

7.4 Policy Implications of Technological Progress’s Promoting Agricultural Intensification 7.4.1 Developing Appropriate Scale Operation in Agriculture On the basis of the resolution of the third plenary session of the 18th CPC central committee, the central government issued a policy entitled the Opinions on Guiding the Orderly Circulation of Rural Land Management Rights to Develop Appropriate Scale Operation in Agriculture, aiming at developing appropriate scale operation in agriculture to promote grain production and increase farmers’ income. Firstly, new types of agricultural operators will be vigorously cultivated by focusing on advancing agricultural marketization and improving the competitiveness of agricultural development. Market economy is actually competitive economy. Under market economy, according to the requirements of modern agricultural market, various new types of large-scale agricultural operators such as family farm (large farmer household), farmers’ professional and comprehensive cooperatives, modern agricultural enterprises featuring corporate system and so on should be vigorously fostered so that the agricultural operators who understand operation, know management, have strength and advantages become the leading role in developing modern

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agriculture to improve their competition ability as soon as possible through planning and guidance, policy support, optimization of service, etc., thus injecting new vitality for the development of modern agriculture. We should adapt to market demand, actively promote the adjustment of agricultural structure, vigorously develop highquality and featured products, build green and organic ecological brands, and actively construct an integrated and industrialized development pattern of “trade, industry, agriculture, science, education and service”. Secondly, large-scale agriculture should be promoted to improve the comprehensive economic efficiency of agriculture and promote the circulation of the rights to use agricultural land. Under the condition that farmers’ contracted land does not circulate, we can develop appropriate scale operation in agriculture by means of a double-layered (collective + peasant householdl) management mode. Rural collectives, in the form of cooperatives, provide farmers with comprehensive and processbased services such as planning, fine seed, purchase of raw materials, technical guidance, marketing, supervision and management, etc. Farmers should do a good job in production management according to the requirements of collective cooperative organizations, so that both collectives and farmers can benefit from appropriate scale agriculture. Meanwhile, policies should be adopted to encourage farmers to transfer the right to use contracted agricultural land into the hands of large agricultural operators, agricultural cooperatives and modern agricultural enterprises by means of equity participation, sublease and trusteeship, so as to create conditions for the development of appropriate scale operation in agriculture. It needs to be noted that in this process, we must abide by the national policy strictly. We must pay close attention to the confirmation, registration and certification of the right to manage the contracted rural land, which might be either the confirmation of rights and land or the confirmation of rights and shares but not land. On the basis of ensuring the collective ownership of rural land, we must continue to maintain the long-term stability of the contracted rural land, stabilize farmers’ right to the contracted land, free their right to use land and allow contracted land to be mortgaged and financed by financial institutions. We should adhere to the principle of “farmers’ voluntarism, policy guidance, standardization in accordance with the law and favorable development”and prevent from the pattern “one size fits all”. Thirdly, advancing agricultural intensification and raising the level of agricultural technological management will be focused on to enhance the comprehensive productivity of agriculture. For all kinds of new agricultural operators, the key to achieve good economic benefits lies in transforming the agricultural development mode and improving the level of agricultural intensification management in accordance with the requirements of the scientific outlook on development. Guiding the development of agricultural modernization by informatization, developing high-yielding, finequality, high-efficiency, ecological and safe agriculture as the goal, being marketoriented, centering on economic efficiency, based on enlarging investment, promoting management and technological progress as a means, build a brand of famous and excellent agricultural products as the focus, we will organically integrate human,

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material and financial resources and organically integrate agricultural land, agricultural economy, agricultural resources, agronomy, agricultural machinery, agricultural credit and service to increase the capacity and efficiency of agricultural output. In particular, through the organic combination of agriculture, science and education, science, education and services, production, education and research, we should actively explore and promote various forms of modern agricultural development mode and create a new type of agricultural modernization development mode which is fit for the local conditions and of local characteristics. Fourthly, we will do everything possible to optimize the ecological environment for agricultural development, with the focus on promoting ecological agriculture and improving the capacity for sustainable agricultural development. With the acceleration of China’s industrialization and urbanization, agricultural ecological problems have become our daily concern and agricultural ecologicalization is becoming more and more urgent. Its significance mainly lies in three aspects. Firstly, the ecological environment for agricultural development in some places has been damaged. The deteriorating water resources, land resources and atmospheric environmental conditions have damaged the quality and safety of agricultural products. Secondly, the production mode of agricultural products in some places does not meet the requirements of ecological agricultural development. There is a lack of effective control over the use of agricultural inputs such as seeds, pesticides, fertilizers and agricultural film, which directly affects the quality of agricultural products. Thirdly, there is a lack of effective supervision for the production, circulation and consumption of agricultural products, which may also affect the quality and safety of agricultural products. It is safe to say that the competition of agricultural market will mainly be that of ecological safety and quality in the future. Therefore, all kinds of agricultural production operators should improve the efficiency of scale management on one hand and on the other optimize agricultural ecological environment and promote eco-agricultural technology and development mode. With emphasis on the improvement of the agricultural ecological environment, the popularization of the assembling ecological agricultural production techniques, the whole-processed chemical control and standardization of agricultural production, concrete and effective measures should be taken to improve the ability of sustainable agricultural development. In a word, developing appropriate scale operation in agriculture is not simply a matter of integrating land resource and enlarging planting acreage, it is a development mode of modern agricultural intensification, which is a hard systematic project. As long as we have a clear mind and effective measures, appropriate scale operation in agriculture can be promoted steadily, the agricultural productivity can be further liberated, and the transformation from traditional agriculture to modern agriculture can be quickened.

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7.4.2 Developing “Resource-saving” Agriculture Firstly, the concept of agricultural development must be renewed. Various ideas of agricultural development should be effectively publicized through various forms and channels. Governments at various levels should effectively publicize the development of intensified agriculture from different layers and cultivate rural households’ awareness of protecting environment and saving resources in the course of production so as to realize the transformation of agricultural development mode from extensification to intensification. Especially in rural areas, the notion of saving must be publicized, urging farmers to make effective use of production resources such as land and water, etc. and protect these resources as possible as they can. On such a basis, governments at various levels should abandon the previous development mode emphasizing only output rather than quality. It should be made clear at first that economic development at the cost of wasting resources and polluting environment is shortsighted. While focusing on economic development, the government must have the consciousness of sustainable development and try to fulfill the integration of social, economic and ecological benefits in agricultural production. In the course of transforming the agricultural development mode, special institutions should be set up to focus on solving the problem of resource-saving to realize the sustainable agricultural development. Secondly, the mechanism of agricultural development need to be innovated. Our primary task is to reform the existing rural land system, improve the rural land contract management system and deepen the rural collective land acquisition system. By clarifying land property rights and improving the mechanism of the rural property rights, we will strengthen the revitalization and consolidation of land to fulfill land transfer. We will establish a policy system to strengthen agriculture and benefit farmers, accelerate the formation of a long-term mechanism of rural economic and social development and further optimize the policy environment for agricultural and rural economic development. Furthermore, we should improve rural social security system, reduce the cost of rural development, stabilize farmers’ developing prediction and enhance their confidence in production investment. Meanwhile, we should push the rural financial reform steadily and create agreeable and favorable financing environment for conservation-oriented agricultural development. We also need improve the rural agricultural education and technology training system. Thirdly, we need establish effective technological support system, as technological progress is the fundamental element for the transformation of agricultural development. We should promote the agricultural technology from three aspects. First of all, we ought to innovate the current productive technology, enabling the transformation of agricultural development from the current factor-investment-oriented mode to technology-dominated mode. We should also develop water-saving, productive technology or agricultural productive system and apply them in production to construct effectively conservation-oriented agricultural production mode. Next, we should speed up the transformation of agricultural technology, enabling it applied in

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the production rather than staying in the laboratory. As to those highly applied technologies like arable land protection, planting and breeding as well as water-saving and irrigation, we should accelerate their application in the productive session to improve the circulation and mechanization of agricultural production. Apart from the above two aspects, we should establish a permanent mechanism to push the transformation of agricultural development. Agricultural production is a systematic project, so the driving force of technological progress cannot not be temporary but needs a permanently effective mechanism to ensure the full effect of technological progress on the transformation of agricultural production mode, enabling the agricultural production transformed from extensive to intensified mode. Fourthly, we should create safe and green eco-agriculture. As the arable land of our country decreases gradually and the long-lasting extensive agricultural development has deteriorated the ecological environment, the current development should be green-economy oriented and create highly effective, safe and energy-saving as well as environment-friendly eco-agriculture. First of all, we should enhance the transformation of technological achievements. Great concern should be put in the research and development of effective, non-polluted fertilizers and its application and meanwhile we should enhance publicity and promotion in order to adapt the agricultural production to the current local eco-environment. What’s more, we should speed up the circulation of land and raise the land usage efficiency by means of land bidding. Next, we should accelerate the formulation of related agricultural standards. The current agricultural production is in a messy state. Many farmers achieve high yielding by raising the density and frequency of fertilizers, which not only does great harm to the environment but to the consumers’ health. There ought to be high standard for agricultural production and its formulation is to standardize the current production. Our aim is to promote green production and marketing and thus to create the industrial chain of agricultural production. Finally, we should enhance agricultural industrialization. It not only relies on technological progress to promote the industrial structure but also urges the former to be submerged into the development of the latter so as to create a differentiated industry and increase the competitiveness of China’s agricultural development. Meanwhile, we should spread and strengthen our brand to enable our agricultural products export overseas and possess international competitiveness. Fifthly, we should direct the supporting policy towards agriculture, rural area and farmers. Preferential policy is very important to promote the current agricultural development. Therefore, in the course of promoting technological progress, we should emphasize on the formulation of relevant policies and regulations to guide the transformation of agricultural development through positive policies. First of all, we should expand the investment in agricultural infrastructure and improve its basic conditions. Whether we are engaged in agricultural development or rural construction, large amount of investment should be distributed in infrastructure. Governments of various levels should expand investment in agricultural development and proceed with eco-construction and agricultural environment protection projects so as to enhance the intensification of agricultural development and further beautify rural construction. Next, we should establish highly efficient and convenient agricultural

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service system and enact corresponding measures to improve the current service system by borrowing the experience of developed countries. For example, improve the integrated service of circulation, marketing and storage of agricultural products and reduce the transaction fees of farmers so as to shorten the gap of urban-rural integration. Finally, we need to revise the laws and regulations to cope with such problems as environmental pollution, ecological destruction and resources wasting with the purpose of promoting the transformation of agricultural development and constructing the intensified agriculture.

7.4.3 Developing “Environment-friendly” Agriculture First, we should strengthen ideological publicity and realize the importance of environment-friendly agriculture fundamentally. Different from traditional agriculture, environment-friendly agriculture objects to the agricultural production at the cost of environment pollution, which proposes the orderly and interdependent relationship between human and nature and opposes exploitation of natural resources in production. Nature should not be human’s conquering target but the environment where human beings live and work harmoniously with it. We should reject the original mode of production and improve agricultural intensification by means of technological progress so as to combine agricultural production with environment protection and resources sharing. In this process, publicity and education should be placed in the primary position, because China’s agricultural production has not formed scale economy in its real sense at present stage. The individual working mode of farmers is still the main form of agricultural production, so governments of various levels should emphasize on publicity work, especially the basic-level government, enabling the farmers to foster the awareness of protecting environment and save resources so as to lay a solid ideological foundation for the development of environment-friendly agriculture. Meanwhile, local governments should organize appropriate training classes for those engaged in agricultural production and conduct subsequent surveys in a long period, enabling the farmers to protect environment without any boundaries and the gradual transformation from extensive production to intensified mode. In all, the ideological publicity of developing environment-friendly agriculture is not a temporary or single task, but a long-lasting and systematic task which requires governments’ implementation and farmers’ cooperation. The fulfillment of this task is not only shown by farmers’ protection of environment temporarily but also by their consciousness of environment protection in the agricultural production in a long period. These farmers know to change their production mode consciously and even help others change the production mode so as to reach the goal of integrating agricultural production and environment protection. Secondly, developing environment-friendly agriculture requires powerful policy basis. In this process, the primary task is to unify ideological concept and improve the relevant policy basis so as to provide this project with security. First of all, we

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should formulate a powerful legal system to determine the concrete punishment for those cases of polluting environment and wasting resources. Only by the formulation of laws can the actions of deteriorating environment be punished and the goal of law-based governance can be actually implemented. Meanwhile, in the course of penalty, we should offer appropriate allowance or reward to those concerned about environment protection in agricultural production so as to promote farmers’ incentive in developing environment-friendly agriculture. What must be pointed out is that the formulation of laws needs implementing. In some remote areas, the publicity and implementation of laws may not be that effective, which needs further work in law popularization. Next, we must establish effective leading organizations and construct a reasonable evaluating system. Those governments with achievements at the cost of environment must be punished seriously. In the appraisal of governments’ performance, we should change the traditional economy-growth-centered appraising system and introduce green indicators, i.e. the implementation of environment protection and the achievements made in this aspect. Only in this way can the local government be urged to enhance the work of environment protection. As to the concrete agricultural production, it is not enough to establish the appraising system for the local governments but necessary to construct the corresponding system for the relevant agricultural organizations so as to enable the environment protecting work to be evaluated by their performances and achievements. Next, we should establish the corresponding compensating mechanisms. Those individuals or enterprises who have made outstanding contributions in ecological environment protection can get compensating allowance, the source of which comes from those individuals or enterprises destroying ecological environment. The goal is to make clear of reward and punishment in the aspect of environment protection in the course of agricultural production. Finally, we should perfect the supervising system and establish citizen-participation system to enable citizens to participate in the supervising work of environment protection through various channels. As the subjects of developing environment-friendly agriculture are farmers, we should respect the farmers’ opinions and realize the full participation of farmers in the transformation of agricultural development mode. Thirdly, we should accelerate the application of environment protection technology so as to make technological progress promote the development of environment-friendly agriculture indeed. Technological progress is the fundamental force to push the transformation of agricultural development mode. Therefore, in the course of developing environment-friendly agriculture, we should regard technological progress as dominance and promote a greener agricultural production with the force of technological progress. On one hand, technological progress aims at a more harmonious existence of agricultural production with the environment and minimize environment pollution; on the other hand, we should try to get the polluted environment under control or provide effective management by means of technological progress. However, it is undeniable that a large proportion of technology is still at the laboratory stage, which means that its application in agricultural production is not wide and the technological transfer rate is not ideal. Therefore, in the future development of environment-friendly agriculture, with technology as the basis, we should

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aim at promoting the transfer rate of technological achievements and make technological progress exert great influence on the transformation of agricultural development mode. First of all, we should fulfill the effective connection between technological progress and agricultural development. I.e., the technological R&D units know what environmental problems need overcoming in the agricultural production of the present stage. As most agricultural laborers are those farmers whose educational level is not high, R&D workers must conduct an in-depth survey to collect information. The environment-protection technologies can only be implemented after arguments from many aspects. Next, we should promote the transfer rate of technological achievements rather than making them only in the experimental stage. In the process, we should attract those agricultural laborers working in the frontline in the promotion work and enable them to communicate with R&D workers effectively so as to make use of technological progress to solve the corresponding problems. Furthermore, the final users of technological achievements are the average farmers, so it is necessary to raise their cultural quality to make them use advanced scientific technology to solve environment-protection problems. Governments need expand the investment of manpower, material resources and capital to provide training for farmers in order to raise their quality step by step. Fourthly, we should create green agricultural development mode. Agricultural development should adapt to the environment. Green agricultural development mode does not only refer to the green output in the course of agricultural development. The more important aspect is to enable agricultural development to coordinate with environment protection and resources saving. Currently, China’s agricultural development is still lagging behind with its extensive developing mode. Not only is there a wide gap compared with such developed nations as Europe, American and Japan, but also there is a far distance from green agricultural developing mode. At present, we should advocate and develop green agriculture. However, the development of green agriculture cannot damage the fundamental interest of farmers. That is to say, the green agricultural development should be conducted on the basis of guaranteeing economic growth. First, it is undeniable that green agricultural developing mode should be closely connected with environment protection. Whether we are engaged in technological progress or systematic construction, the focus should be on environment protection all the time. The development of green agriculture should reflect the features of the local resources and agricultural development. It is not feasible for agricultural development to follow the old way of high pollution and high consumption purely depending on the factor investment. The transformation of agricultural development from extensive to intensified mode can only be fulfilled by means of technological progress and the promotion of green agriculture. Meanwhile, we need develop recycling economy and try to enable this mode to be applied in agricultural production. The promotion of recycling concept can not only promote the recycling use of resources and reduce resource investment and pollution discharge, but also reduce farmers’ productive cost and increase their profit. Therefore, recycling economy is of important practical significance for the green agricultural development. To be specific, as for China’s green agricultural development, we must advocate the concept of recycling economy and sustainable development, urging the reduction

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of emission load and the increase of recycling amount as well as recycling of wastes. Reduction of emission load refers to minimizing the use of chemical substances that may do harm to environment so as to reduce the content of harmful substances in products; meanwhile, it can also reduce the deterioration of environment and ecology to keep a balance between agricultural production and environment protection. Increase of recycling amount refers to maximizing the recycling use of wastes. The recycling use of resources not only reduces the consumption of resources but also the emission of pollution in the course of resources production. For example, the wastes in the rural areas are mostly organic substances. If they are emitted directly, it will not only result in resources waste but also pollute the environment. If we can reclaim these organic substances and conduct fermentation to turn them into biogas, it will not only be good to relieve energy crisis but also protect environment, which meets with the requirements of recycling economy and green agricultural development.

Chapter 8

Scientific and Technological Progress and the Transformation of Industrial Development Mode: New-Type Industrialization

8.1 Theoretical Model of Scientific Technological Progress Promoting New-Type Industrialization The transformation of industrial development cannot be separated from the push of technological progress The push of technology can promote the interior structural adjustment of industry and finally the transformation of industrial development mode.1 Generally speaking, we can understand its logic relationship, yet it is not easy to dig out the relationship between technological progress and transformation of industrial development from a theoretical perspective. We attempt to reveal this relationship by means of a pure theoretical model. Technological progress is the concrete embodiment of innovation and a good many empirical studies conducted by economists as Solow (1957) have already shown that technological progress is an important source of economic growth

8.1.1 Introduction of Basic Environment There are three productive sectors in economic field: final goods sector, intermediate goods sector and R&D sector. Supposing the final goods sector is completely competitive, the producers’ profit will be zero. As for the consuming channel of final goods, we suppose the selling direction of final goods to be either the consumption channel or the investment of other sectors in order to simplify the model. Different from the market environment of final goods, we suppose that differences exist in intermediate goods so that they can be considered as monopoly. As for different types of goods, there must be a would-be monopoly that can get profit from it. However, the prerequisite to be the 1 This

part has been published as an academic article in the first issue of Economic Theory and Economic Management in 2011. © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_8

217

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would-be monopoly of an intermediate goods sector is to have your own R&D sector. By means of research and development, they achieve the technological progress so as to improve the productivity or the quality of intermediate goods with productive differences to ensure the position of monopoly in their industry. In order to make the model more practical, we suppose that the R&D sector is completely competitive, i.e., the technology developed by R&D sector can be purchased and sold freely in the market so as to promote the completeness of the whole technological market. However, what should be emphasized is that the technology developed by R&D sector can enjoy permanent patent protection, which is an important condition that R&D sector can get profit. But when R&D sector can be free in or out and of complete competitiveness, its profit tends to be zero. Suppose the technology of final goods sector is as follows: Yt = AL 1−α

N1 

(X t, j)α

(8.1)

j=1

In this equation, 0 < α < 1, N 1 represents the number of intermediate goods varieties obtained in the period t; Y t refers to the output; L is the quantity of laborers employed in final goods sector and it is supposed to be fixed here; X t, j refers to the quantity of the j kind of specialized intermediate goods within the period t. From the form of production function, we can see that the marginal output of factor investment is diminishing, but the scale reward of all factors investment is in uniform within a certain α  period. X t, j takes the form of footing sum, which means the use of the j kind of intermediate goods within the period of t and the marginal output is diminishing without being influenced by other factors. Therefore, the research and development of new products are completely independent of old ones, neither replacing old products nor complementary with them. So far as the groundbreaking innovation (the intended model-constructing technological progress) is concerned, this formulation is generally reasonable. Under special conditions, a new product j will replace an existential product j (i.e. reducing the marginal output of X j ) or complement this product (i.e. increasing the marginal output of X j ). In Eq. 8.1, when X t, j = 0, the marginal output of each intermediate product ђY t /ђX t, j is infinitely great and then will be diminishing with the increase of X t, j . In this way, the manufacturer will have the impetus to use all N kinds of products if they can be obtained with the limited price at present. In terms of production, the immediate embodiment of technological progress lies in its choice of more intermediate goods for manufacture while the intermediate goods are of great differences. In order to observe the influence of quantity increase of intermediate goods (N) on production, we suppose that the measurement of intermediate goods is based on the same substance unit and the quantity of intermediate goods used in manufacturing a piece of final goods is also the same, i.e., X t, j = X. We can get the output quantity from 8.1:

8.1 Theoretical Model of Scientific Technological Progress …

Yt = AL 1−α Nt X α = AL 1−α (Nt X α )Nt1−α

219

(8.2)

If we regard the intermediate input goods as the capital goods in the economy, the total capital in economy will be the sum of all intermediate input goods. K t = Nt X t, j = Nt X

(8.3)

Putting (8.3) into (8.2), we can get the subsequent equation: Yt = A(Nt L)1−a (K t )α

(8.4)

Or we can express this equation in the following dense form: yt = A Nt1−α ktα

(8.5)

Therefore, when economy evolves into such a stage as the quantities of intermediate invested goods of all kinds are the same, the productive technology will take on an invariable scale reward for N t and the total quantity of intermediate invested goods K t . In this way, if N t and K t increase at a fixed speed rate (we will prove it true in equilibrium in the following part), the economy will have the features of endogenous growth. We also suppose that the final goods Y t is used with all kinds of purposes in a completely substitute style. To be specific, the final goods can be used for direct consumption, or in the manufacturing of invested intermediate goods X t, j as well as in the R&D required by the invention of new intermediate goods (i.e. to expand N t ). Meanwhile, we can measure all the prices with final goods as the numeraire.

8.1.2 Analysis of Sector Behaviors 8.1.2.1

Behavior Analysis of Final Goods Sector

The profit of a final goods manufacturer is Yt − wt L−

Nt 

Pt, j X t, j

(8.6)

j=1

In this equation, wt refers to wage rate; Pt, j refers to the price of the j kind of intermediate goods. The final goods sector is completely competitive, so the manufacturer makes its own optimal decision under the condition of fixed price. The basic condition of manufacturer’s maximal profit is that factor’s price equals its marginal output.

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The production function in Eq. 8.1 means that the marginal output of the j kind of intermediate goods is based on the subsequent equation: ∂Yt = α A L 1−a X tα −1 j ∂ X t, j

(8.7)

The equality of this marginal output and factor price Pt, j means: 1/(1−α)  X t, j = L α A/Pt, j

(8.8)

On the condition that the marginal output of labor factor equals the price wt , we can get the subsequent equation: Yt ∂Yt = (1 − α) ∂L L

8.1.2.2

(8.9)

Behavior Analysis of Intermediate Goods Sector

The intermediate goods sector is monopolistic. The manufacturers know that they are facing a downward tilting demand curve for their products, so the manufacturer of the intermediate goods j is actually solving the below optimal problem:   max πt, j = Pt, j X t, j − k X t, j − D

(8.10)

Limited by the demand curve, we get the subsequent equation:  X t, j = L

αA Pt, j

1/(1−α) (8.11)

In this equation, D represents the paid fixed cost for the “blueprint” of a piece of intermediate goods from R&D sector by the manufacturer. κ (X t, j ) represents the cost of manufacturing intermediate goods (X t, j ) measured by final goods. In order to simplify the model, we suppose that the production cost function of intermediate goods is linear as shown below:   κ X t, j = X t, j

(8.12)

The implied supposition of linear production cost function means that the manufacturing technology of intermediate goods is the same as that of final goods. In this way, we can imagine the manufacturer of intermediate goods as someone who purchases the final goods and turn it into intermediate invested goods. The technology ensuring such transfer by the intermediate goods manufacturers is the “blueprint” possessed by them.

8.1 Theoretical Model of Scientific Technological Progress …

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Putting Eqs. (8.11) and (8.12) into target function Eq. (8.10) and taking the derivative of the price Pt, j , we can get the first order condition correspondent with the optimal price: Pt, j = p ≡

1 >1 α

(8.13)

Therefore, the price Pt, j remains steady and the same to all intermediate goods j. We can notice that the price of intermediate goods is much higher than the marginal . The balance between these cost of manufacturing these goods two prices represents the extra price mark-up charged by intermediate goods manufacturers for their consumers (the final goods manufacturers), because the monopolistic price is the addition of 1/α on the marginal manufacturing cost 1. The same to all kinds of intermediate goods, the manufacturing cost enables any intermediate goods to enter symmetrically the production function reflected in Eq. (8.1). Plug Eq. (8.12) in the demand function (8.8), we can make sure of the manufacturing quantity of each kind of intermediate goods: 1

1

X t, j = X t = L A 1−α α 1−α

(8.14)

We can see from Eq. (8.14) that the manufacturing quantities of all intermediate goods are equal in any period. Finally, we can work out the maximal profit earned by the monopolistic manufacturer in manufacturing the j kind of intermediate goods: πt, j = ( p − 1)X t − D =

8.1.2.3

1−α 1 1 L A 1−α α 1−α − D α

(8.15)

Behavior Analysis of R&D Sector

Technology of manufacturing the N t kind of intermediate goods exists in the period t. The increase of N t demands technological progress, i.e., the invention of new intermediate goods or the improvement of it. To make the definition of technological progress clearer, we suppose that technological progress is realized by means of clearly purposeful R&D and innovation. The real description of it should also include the relevant resource quantity required by manufacture and invention and the uncertainties about the successful possibilities of invention. However, for the sake of simplified analysis, we suppose that a successful new product can be manufactured only if a certain amount of efforts is made. We also suppose that the cost of inventing a new product is fixed on the final goods Y in unit η, so the cost does not depend on quantity N t of the invented goods. The declining tendency of new ideas suggests that the cost increase with the growth of N t . However, if the established concept can facilitate the emergence of new idea,

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this cost will diminish with the growth of N t . Here we suppose that these effects can counteract with each other, so the cost of inventing a new product will remain invariable. In order to encourage R&D, we should establish motivating mechanism to offer reward to technological innovation or invention or some compensation, because the emergence of new ideas or new design does not have clear boundaries and there is strong technological spillover effect. As a result, not only the developers can make use of this technology but also other enterprises or personnel engaged in this research can improve it for their own use, so we should reward the original inventor so as to encourage the continuity of R&D. For example, in terms of intermediate goods j, the differentiated manufacture has a certain invention cost; but when the intermediate goods makes a certain breakthrough in technology, the other R&D personnel or manufacturers can take advantage of the positive effect of technological spillover and use this technology free of charge. This shows that there exists great risks in the activities of R&D, i.e., some manufacturers can proceed with production by means of imitation or improvement of the technology, while the original manufacturer needs spend a large amount of manpower and capital factors in the process of R&D. As for this problem, there must be some measures to solve or to interfere with. The immediate method is to turn from punishing those free users after the event to rewarding the R&D personnel before the event.2 As the analysis of general patent, there emerges an “either-or” alternative between the restriction in ideas and the reward for inventors. In order to encourage R&D, innovation and technological progress, we formulate the corresponding incentives to make the R&D personnel more motivated to be involved with technological innovative activities. Suppose the inventor of the product j has designed goods X j and possesses absolute monopoly of it in its selling or marketing process. This can ensure the R&D personnel with the monopolistic profits and the monopoly can be realized through patent protection or confidentiality. The inventor of product j knows that his “blueprint” can bring the manufacturers of intermediate goods the unit profit (p − 1) X t in each period. Therefore, the total present value of profit made from the “blueprint” of the j kind of intermediate goods by the manufacturers is: Vt, j =

∞  ( p − 1)X t+i i i=1 (1 + r t+i ) i=1

(8.16)

According to Eq. (8.13), we can see that the used quantities of every kind of intermediate goods are fixed and equal. Plug Eq. (8.12) into Eq. (8.15) and cancel p then move the parameter out of the sum formula, we can get the subsequent equation: Vt, j =

2 This

∞  1 1−α 1 1 L A 1−α α 1−α i α i=1 (1 + r t+i ) i=1

point of view was published in the first issue of World Economy in 2011.

(8.17)

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As we suppose that the researchers sell their “blueprint” to numerous intermediate goods manufacturers by means of auction, limited by competition, the auction price of the j kind of intermediate goods’ “blueprint” is surely equal to the present value sum of the profits earned from the “blueprint” of the j kind of intermediate goods by the manufacturers. That is to say, the R&D sector can transfer all the profits earned by intermediate goods sectors to its own sector. In addition, we suppose that the R&D sector is free to purchase and sell, so according to Eq. (8.17), anyone willing to pay unit η cost of R&D can get the profit of unit value V t,j . Therefore, if V t,j > η, there will be infinite amount of resources invested in R&D sector within the period t, and so it is impossible for the formulation of V t,j > η in equilibrium. If V t,j < η, there will be no resource invested in R&D sector, so the products quantity N will not change as time goes. As our discussion focuses on the positive R&D equilibrium, N is increasing in all periods. In this case, the formula V t,j = η must be workable in terms of all periods t. I.e., η=

∞  1 1−α 1 2 L A 1−α α 1−α i α + rt+i ) (1 i=1 i=1

(8.18)

We can see that all remains the same but the sum formula in (8.18), so the above formula can be workable in all periods t only if part of the sum formula remains invariable. In this case, it requires that interest rate r cannot change with time and it equal to the fixed constant r, based on which we can work out the fixed interest rate r;    1−α L 1 2 A 1−α α 1−α (8.19) r= η α

8.1.3 Model Equilibrium Analysis 8.1.3.1

The Optimal Behavior of Consumers

The problems that consumers face are the same as those faced in economic growth model introduced above. On the condition that consumers regard the price (salary and interest rate) as exogenous given, they can solve the below optimal problem to realize the maximization of their own utility: max

∞ {ct, ki+1 } i=0

∞ 

β t u(ct )

(8.20)

t=0

s.t. ct + kt+1 = wt + (1 + rt )kt

(8.21)

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kt =

Kt X = Nt = x Nt L L

(8.22)

In this equation, x represents the per capita intermediate goods. The above optimal problem can be represented in the language of Bellman Equation as follows:  v(K t ) = max u(ct ) + βv(kt+1 ) ct, kt+1

(8.23)

s.t. ct + kt+1 = wt + (1 + rt )kt In solving this equation, we get the subsequent Euler Equation: −u (ct ) + β(1 + rt+1 )u  (ct+1 ) = 0

(8.24)

If we suppose the utility function is the constantly relative risk-aversion type, i.e., u(c) =

c1−θ − 1 1−θ

(8.25)

The above Euler Equation can be adapted into:  1 ct+1 = β(1 + rt+1 ) θ ct

(8.26)

If we record the growth rate of consumption as γc, we plug Eq. (8.18) into Eq. (8.21) and get: 

1θ

    1−α ct+1 L 1 2 1−α 1−α A α = β 1+ 1 + γc = ct η α

(8.27)

Of course, if we want to keep the consumption in positive growth, the right part of Eq. (8.27) must be more than 1. Here we suppose that the given parameter can satisfy this demand.

8.1.3.2

Constraints of Social Resources

The final goods will be either put into consumption or into the manufacturing of intermediate goods or the “blueprint” of R&D sector, so the constraining conditions of economic resources are: Ct + K t + ηNt = Yt

(8.28)

8.1 Theoretical Model of Scientific Technological Progress …

225

In this equation, C t = ct L, Y t = yt L, N t = N t+1 − N t , K t = N t X. Both sides of equation are divided by N t L and it can be adapted as follows: η X ct + + Nt L L



 Nt+1 y1 −1 = Nt Nt

(8.29)

Besides, plug (8.13) into (8.12), and we can make sure of the subsequent total output: Yt = A L 1−α Nt X α = A 1−α α 1−α L Nt 1

2α

(8.30)

As L is fixed, the ratio of Y t /L N t is also fixed. This means that yt and N t will increase with the same fixed speed rate. As for (8.29), the value of the right part is fixed; N t of the left part also increases with the fixed speed rate. Therefore, except ct /N t , the rest part of the equation is also fixed, which means that ct and N t must increase with the same fixed speed rate, too. In short, ct , yt and N t will also increase in the same fixed speed rate. That is to say:

1θ 

    1−α L 1 2 A 1−α α 1−α 1 + γc = 1 + γy = 1 + γN = β 1 + η α

8.1.3.3

(8.31)

Determinants of Growth Rate

Let’s consider the determinants of economic growth rate: the perpetrator’s discount factor β (or the perpetrator’s time preference parameter), as β = 1/(1 + ρ) and the risk-aversion coefficient θ and the manufacturing technological level A will both influence the balanced growth rate. The stronger tendency to save money (the lower ρ and θ ) and the more advanced technology (the higher A) will both improve the growth rate.

8.1.4 Meaning of Model Policy It’s easy to talk about and understand the importance of technological progress in industrial growth mode generally. However, once concerning what concrete approaches technological progress needs to depend on to promote the transformation of industrial development mode, the theoretical field cannot provide satisfactory conclusion. Although the above model is not perfect, it provides a concrete approach of how technological progress promotes the transformation of industrial development mode. I.e., the technological progress is entailed in the intermediate goods and embodied with the help of the expansion of the quantity of intermediate goods.

226

8 Scientific and Technological Progress and the Transformation …

Meanwhile, the growth of its quantity can push the industrial economy to realize the sustainable growth and vice versa this can show the importance of technological progress in promoting economic growth.3 Although there are various ways of describing technological progress, here we have only given one description. However, the important point is that we can observe how technological progress promotes the transformation of economic development mode with the help of this model. The model embodies technological progress by means of the expansion of intermediate goods or the differentiated manufacturing of these goods. Fundamentally speaking, this is the continual extension of intermediate manufacturing session, with which it actually refers to the incessant deepening of industrial capital and the unceasing change of internal industrial structure. Since the Reform and Opening up, especially after China entered WTO, the rapid growth of industrial economy benefits a lot from the increasingly expansion of labor division network and the growing process of intermediate goods. Therefore, this model is a vivid depiction of China’s industrial economic development mode to some extent. It tells us from the other side that we need further optimize this developing mode in order to realize the promotion of China’s industrial economic development mode by technological progress.

8.2 Overall Measurement of China’s Industrial Technological Progress Rate Since the Reform and Opening up, China’s industry has developed rapidly and so far it has entered the critical period of industrialized transformation development. In order to promote the harmony between economic development and ecological environment, China’s government has put forward such sustainable development concepts as “scientific development outlook” and “harmonious society” with environment protection and resources saving as fundamental national policy to implement, which proves our determination of realizing both economic development and environment protection. In the sustainable economic development, energy is not only an endogenous variable, but also the constraining condition of the transformation of development mode. Therefore, we should measure the relationship among resources consumption, environmental pollution and industrial growth scientifically and evaluate properly the characteristics of industrial growth mode, which is of great significance to choose the right way of development fit for China’s conditions. We also need to know the current industrial technological progress in China and its influence on the industrial growth mode. The production rate is an important concept to measure the level of productivity, which includes single-factor and total-factor production rate (TFP). The former refers to the ratio between single manufacturing factors investment and their output, which measures the productivity by the relationship between input and output. The 3 This

point of view was published in the second issue of World Economy in 2012.

8.2 Overall Measurement of China’s Industrial Technological Progress Rate

227

frequently used single-factor production rate consists of labor production rate and capital production rate. It can only reflect the degree of saving a certain factor instead of that of all factors, so it cannot depict genuinely how technological progress influences the promotion of productivity. The total-factor production rate is the indicator measuring the productivity of all manufacturing factors. Since Solow (1957) used TFP to measure the effect of technological progress on economic growth, it has been applied widely in measuring the contribution of technological progress to economic development.

8.2.1 Measuring Methods In order to analyze the quality of output, Färe and other researchers (2001, 2007) incorporate emissions of environmental pollution into the analytical framework and construct a manufacturing possibility set including both “good” output and “harmful” N output. Suppose every decision making unit (DMU) uses N investment factors x ∈ R+ N 1 and manufactures M “good” output γ ∈ R+ as well as I “harmful” output b ∈ R+ , the manufacturing possibility set will be as follows: N P(x) = {(γ , b) : x can produce (γ , b)}, x ∈ R+

(8.32)

Suppose the production possibility set can meet with the following conditions: (1) bounded closed set; (2) The input and “good” output is freely disposable: if (γ , b) ∈ P (x) and x ≤ x or γ ≥ γ  , then P (x) ⊆ P (x ) or (γ  , b) ∈ P (x); (3) The output is of weak disposability: if (γ , b) ∈ P (x) and 0 ≤ θ ≤ 1 or (γ  , b ) ≤ (γ , b), then (θ γ , θ b) ∈ P (x) or (γ  , b ) ∈ P (x); (4) Null-jointness: if (γ , b) ∈ P (x) and b = 0, then γ = 0. The weak disposability of output shows that it needs cost to reduce the “harmful” output and the reduction will transfer the resources from the expected output manufacturing process and accordingly lead to the reduction of “good” output under the condition of given investment. Null-jointness means the necessity of “harmful” output. As the by-product of manufacturing process, the occurrence of “harmful” output is inevitable only if the production exists. We regard each industry as a decision unit. In every period t = 1, …, T, the output of industry K, k = 1, …, is (xkt  , γkt bkt  ). The production possibility set in t period can be represented by means of DEA as follows: P t (xt) =

k k  t t   t t λtk γkm ≥ γmt , m = 1, . . . , M; λtk bki = bit , i = 1, . . . , I ; γ ,b : k=1 k=1

k  t t t t λk xkn ≤ xn , n = 1, . . . , N ; λk ≥ 0, k = 1, . . . K k=1

(8.33)

228

8 Scientific and Technological Progress and the Transformation …

8.2.1.1

SBM Directional Distance Function

According to the study of Färe & Grosskopf (2010), we can define the SBM directional distance function of industry k in the period t constrained by energy and environment. Under the condition of variable returns to scale (VRS), it is as follows: Svt



   xkt , γkt , bkt



  N M I    1 t t t = max α + β + γ N + M + I n=1 n m=1 m i=1 i

s.t. k 

  t λtk xkn ≤ 1 − αnt xkt  n , n = 1, . . . , N ;

k=1 k 

  t λtk γkm ≥ 1 + βmt γkt m , m = 1, . . . , M;

k=1 k 

  t λtk bki = 1 − γit bkt  i , i = 1, . . . , I ;

k=1 k 

λtk = 1; αnt ≥ 0, n = 1, . . . , N ;

k=1

βmt ≥ 0, m = 1, . . . , M; γit ≥ 0, i = 1, . . . , I ; λtk ≥ 0, k = 1, . . . , K 



(8.34)



Among the above equations, (xkt , γkt , bkt ) represents the input and output vector    quantity of industry k’ within the period t; the vector quantity (αkt , βkt , γkt ) represents the slack variable of input and output, used in measuring the overuse of investment, the insufficient manufacturing of “good” output and the excessive emission of pollu tants. kk=1 λtk = 1 represents the variable returns to scale, without this constraining condition, it becomes constant returns to scale (CRS). Other constraining conditions remaining invariable, objective function is the SBM directional distance function   the   under CRS: SCt xkt , γkt , bkt . 8.2.1.2

Luenberger Production Rate Index

The Luenberger production rate index put forward by Chambers et al. (1996) needs no measuring angel and can coordinate output increase and input reduction. In addition, as a general form of Malmquist production rate index (Boussemart et al. 2003), Luenberger production rate index can measure the increase of TEP more accurately. Based on the study of Chambers et al. (1996), the Luenberger production rate index from period t to period t + 1 is:

8.2 Overall Measurement of China’s Industrial Technological Progress Rate

  1  t  t t t  SC x , γ , b − SCt x t+1 , γ t+1 , bt+1 2      + SCt+1 x t , γ t , bt − SCt+1 x t+1 , γ t+1 , bt+1

229

Lt f ptt+1 =

(8.35)

Lt f ptt+1 > 0 represents the increase of production rate; while if Lt f ptt+1 < 0, it means the reduction of production rate.

8.2.1.3

Decomposition of Luenberger production rate index

Based on the current literature review, the decomposition of production rate is originated from Färe et al. (1994) They made a subdivision of Malmquist production rate index and studied the technological progress at various levels from perspectives of efficiency change, technological progress and scale efficiency, making the original static index transformed to dynamic index. However, logic errors exist in the decomposing method of Färe’s et al. Although the measurement of TFP is accurate under the condition of CRS, the measurement of technological progress is still based on the supposition of CRS, resulting in the explaining power reduction of the model. Ray and Desli (1997) made some revision to this problem and Lovell (2003) affirms the TEP decomposition by Ray and Desli from a theoretical perspective. This book will decompose Luenberger production rate along the clue of Ray and Desli’s. According to their clue (1997), Luenberger production rate index can be decomposed into: efficiency change:     Lectt+1 = SVt x t , γ t , bt − SVt+1 x t+1 , γ t+1 , bt+1

(8.36)

technological change:     1  t+1  t t t  SV x , γ , b − SVt x t , γ t , bt + SVt+1 x t+1 , γ t+1 , bt+1 2   −SVt x t+1 , γ t+1 , bt+1 (8.37)

Ltctt+1 =

scale efficiency change:   1  t  t+1 t+1 t+1  S x ,γ ,b − SCt x t+1 , γ t+1 , bt+1 2  V    − SVt x t , γ t , bt − SCt x t , γ t , bt      + SVt+1 x t+1 , γ t+1 , bt+1 − SCt+1 x t+1 , γ t+1 , bt+1       − SVt+1 x t , γ t , bt − SCt+1 x t , γ t , bt

Lsctt+1 =

(8.38)

230

8 Scientific and Technological Progress and the Transformation …

Efficiency change represents the catch-up of decision unit with the manufacturing frontier; technological progress represents the changing tendency of frontier manufacturing technology or the advancing direction of technological progress; scale efficiency change points out more clearly the influence of enterprise manufacturing scale on the change of production rate, which absorbs the considerations of scale economy theory into the system of indicators measurement. The same as Lt f ptt+1 , Lectt+1 , Ltctt+1 and Lsctt+1 are more than zero, showing the improvement of efficiency and the increase of technological progress and scale efficiency; if the above sub-indexes are below zero, it shows the worsening of efficiency, the retrogression of technology and the reduction of scale efficiency.

8.2.2 Data Selection 8.2.2.1

Data Selection

Based on the above method, the variables that need selecting include input, “good” output and “harmful” output.

Input Factors As the traditional input variables, labor and capital are still categorized in input factors in this book. As this book discusses the industrial technological progress based on the constraint of energy and environment, energy is also absorbed in input system. (1) Labor input refers to the actual quantity of labor input in manufacturing process, i.e., the employees hired actually in a certain enterprise manufacturing. Working time can be a better variable compared with the number of workers. However, due to the unavailability of the data, this book selects “the yearly average employees” from each industry as labor input. The data from 2000 to 2002 is “the number of employees in every section of industry”. (2) Capital input refers to the actual sum of capital invested in the manufacturing process. However, it is very difficult to assess the invested capital throughout the time. Most studies at present adopt “perpetual inventory method” to assess the capital storage. This book selects Zheng Wang and Jinchuan Shi’s method (2007) and assesses the capital storage on each industry’s net value of fixed assets. The specific method is as follows: The capital storage is calculated on “perpetual inventory method” and the fundamental formula is as follows: K t = K t−1 + It − δt

(8.39)

8.2 Overall Measurement of China’s Industrial Technological Progress Rate

231

In this formula, K t represents the actual capital storage in the period t; I t represents the actual investment in the period t and δt represents the actual depreciation in the period t. China Statistical Yearbook reports “the net value of fixed assets” in every industrial sector: the net value of fixed assets = the original price of fixed assets— accumulated depreciations, so from the net value difference of fixed assets we can get the nominal net investment throughout the years I t . The relationship between I t and I t is I t /Pt = I t − δt ; Pt is the price index and this book adopts each industrial sector’s “producer price index of industrial goods”. Therefore, we can get the yearly actual capital storage of each sector with 2000 as the base period: K it = K i,2000 +

t 

Ii j /Pi j , i = 1, . . . , 36

(8.40)

j=1

(3) Energy input. This book adopts the total energy consumption of each sector as energy input. As we cannot get the total energy consumption data of each sector of the year 2010, we estimate it based on the total energy consumption increase rate of 2008 over 2009. “Good” Output Variable Generally speaking, “total industrial output value” or “industrial increase value” can be regarded as the “good” output variable. But as Shiyi Chen (2010) points out, the economic growth equation contains intermediate goods and the investment of the intermediate goods can reflect the energy factor input to some extent, so it’s suitable for the “good” output to use “total industrial output value” as its indicator, for it covers every investment factor. Likely, we use each sector’s “producer price index of industrial goods” as deflator, deflating “industrial increase value” as the actual value with 2000 as its base period. The statistical data of 2004 does not offer “total industrial output value” of each sector, but it includes the increase rate of total output value in light and heavy industries over the previous year. Based on “total industrial output value” of each sector of 2003, we can estimate that of 2004.

“Harmful” Output Variable “Harmful” output refers to the environmental pollutants emitted in the manufacturing process of industrial enterprises. As for the selection of “harmful” output variables, there has not been a uniform standard in the researches home and abroad. Shiyi Chen (2010) selects CO2 while Bing Wang et al. (2010) selects SO2 and COD. However, as the environmental pollutants not only include such gases as SO2 and CO2 , but also pollutants like waste water and solid waste, this book selects waste water, waste gas and solid waste as “harmful” output, among which the waste gas includes industrial SO2 , industrial soot and dust.

232

8 Scientific and Technological Progress and the Transformation …

Table 8.1 Industrial input and output factors (2000–2010) Year

Total output value (hundred million yuan)

Capital (hundred million yuan)

Labor (ten Energy (ten thousand thousand persons) tons of standard coal)

Waste water (ten thousand tons)

Waste gas (ten thousand tons)

Solid waste (ten thousand tons)

2000

84,365.14

51,093.52 3914

88,247.46 1,893,553 3467

81,605

2001

95,707.48

55,932.50 3669

90,946.71 1,815,366 2747

148,722

2002 112,367.24

58,899.76 3581

100,736.84 1,804,546 2752

87,453

2003 139,217.69

65,733.91 5642.23

118,109.45 1,615,371 2278

74,270

2004 177,647.17

73,154.88 5987.18

141,944.59 1,940,445 3313

107,200

2005 240,203.62

88,269.83 6765.99

156,642.56 2,038,180 3617

123,846

2006 306,089.32 104,788.18 7216.85

173,660.45 2,036,808 3479

140,132

2007 388,838.25 122,282.17 7731.36

188,705.90 2,150,502 3288

163,337

2008 471,094.99 148,933.99 8679.79

207,658.79 2,151,294 2958

177,077

2009 573,871.45 181,051.53 8680.46

217,469.16 2,067,642 2740

190,401

2010 658,576.13 209,091.94 9389.93

230,441.63 2,104,117 2656

224,638

Data source From China Statistical Yearbook

The data of “Three Wastes” in the year 2000 only differentiates among main industries instead of providing those of subdivisions. Based on the proportion of enterprises quantity in each sector, we estimate the “Three Wastes” data of subdivisions.

8.2.2.2

Data Description

Table 8.1 offers the quantity of industrial input and output factor from 2000 to 2010 in China and the data come from China Statistical Yearbook over the years. In order to see more clearly the influence of different energy consumptions and pollutants emission on economic development, this book consults the degree of energy consumption and pollutants emission of its average unit output value from 2000 to 2010 and divides the 36 industrial sectors into two groups with 18 sectors in each group: high energy consumption and emission sectors group and low energy consumption and emission sectors group.4 4 The

specific dividing standard is according to the ascending ranking order of unit output value energy consumption and pollutants emission of each sector; and then offers the energy consumption weight and emission weight respectively ranging from 1 form 36 to each sector. The sum of energy consumption weight and emission weight is the ranking index of each sector. The front ranking with small numbers means low energy consumption and emission while the back ranking with big numbers means high energy consumption and emission. (unit output value energy consumption = energy consumption/total industrial output value; unit output value pollutants emission = total sum of “Three Wastes” emission/total industrial output value.

2.45

unit emission

191.11

Labor (ten-thousand-person)

0.15

1771.19

CAPITAL (hundred million yuan)

Unit energy consumption

8376.58

0.60

0.05

21.32

319.98

1604.23

8.63

0.39

426.29

5112.65

28,892.34

2.40

0.09

126

1499

7841

16.60

0.78

168.78

4083.52

8027.35

1.90

0.22

16.88

388.27

632.89

Minimum

75.61

1.59

515.94

24,351.38

22,929.14

Maximum

17.65

0.38

156

5568

7065

Standard deviation

Average value

Standard deviation

High energy consumption and emission sectors group

Maximum

Average value

Minimum

Low energy consumption and emission sectors group

Total output value (hundred million yuan)

Variables

Table 8.2 Statistical description of group division based on energy consumption and emission

8.2 Overall Measurement of China’s Industrial Technological Progress Rate 233

234

8 Scientific and Technological Progress and the Transformation …

Table 8.2 reports the difference of various variables between low energy consumption low emission sectors group and high energy consumption high emission sectors group. The average level of high group’s capital storage, unit energy consumption and unit emission is much higher than that of low group; however, as for the average value of total output value and labor quantity, the high group is only 0.96 and 0.88 time of low group. This shows that the high energy consumption high emission sectors group has not brought high output as expected, nor attracted enough laborers in production or solved the employment problem.

8.2.2.3

Measurement Results

Table 8.3 reports the “green” TEP and its decomposition of China’s industrial sectors from 2000 to 2010 under the constraints of energy and environment, among which the last line of the table offers the regular TEP annual change without the consideration of energy and environment.5 We can see that the annual increase rate of regular TEP is 8.8%, 7.61% higher than “green” TEP. Apart from that, the regular efficiency improvement (Lec), technological improvement (Ltc) and scale effect (Lsc) are all higher than that without the consideration of energy and environment. This shows that these factors are near TEP of overestimated industry without consideration of energy and environment. This conclusion is basically the same as that of Shiyi Chen (2010), Keting Shen and Jianjian Gong (2011), et al.

8.2.2.4

Result Analysis

According to the measurement results, under the constraint of energy consumption and environmental pollution, China’s global average industrial TEP has an annual average increase of 7.61% within the inspection period and the annual average increase of technological efficiency is 1.7%, that of technological progress being 3.74% and scale effect being 2.18%. The above data show that the TEP increase of China’s industrial sector from 2000 to 2010 mainly relies on technological progress and then on the increase of scale effect while technological efficiency contributes less. As efficiency improvement is related to such elements as “learning by doing” in the process of production and improvement of managing efficiency, the above mentioned result shows that there still exists space for the promotion of productivity of China’s industrial sector.

5 The

measurement of “green” TEP with constraint of energy and environment is based on the programming and calculation of Matlab 7.0 Software and the measurement of regular TEP is done by calculating Malmquist index based on DEAP 2.1 Software.

8.2 Overall Measurement of China’s Industrial Technological Progress Rate

235

Table 8.3 Annual change and decomposition of “green” TEP in China’s industrial sectors (2000– 2010) Industry

Lec

Ltc

Lsc

Ltfp

Electric machinery and equipment manufacturing (L1)

0.0368

0.0354

0.0135

0.0856

Electronic and telecommunications equipment manufacturing (L2)

0

0.0133

0.0036

0.0168

Tobacco industry (L3)

0

0.0322

0.0558

0.088

Furniture manufacturing (L4)

0

0

0.1066

0.1066

Transportation equipment industry (L5)

0.0461

0.0495

−0.0063

0.0893

Instruments, apparatus and cultural office machinery (L6)

0

0.0157

0.0958

0.1114

0.0919

0.0338

0.0872

Plastic products manufacturing (L7)

−0.0385

Reproduction of printing and recording media (L8)

0

0.0264

0.0063

0.0372

Ordinary machinery manufacturing (L9)

0.0192

0.033

0.0096

0.0618

Cultural educational and sports goods manufacturing (L10)

0

0

0.1611

0.1611

Special equipment manufacturing (L11)

0.0151

0.0214

0.0096

0.0461

Clothing and other fiber products manufacturing (L12)

0.0244

0.0502

−0.0143

0.0603

Leather, fur, down and related products manufacturing (L13)

0

0.0392

0.0817

0.1208

Wood processing and bamboo rattan brown grass products industry (L14)

−0.0096

0.0308

0.0277

0.0489

Metal products industry (L15)

−0.006

0.0147

0.0126

0.0213

Pharmaceutical manufacturing industry (L16)

−0.003

0.0354

0.0181

0.0203

0.0593

0.0062

−0.0389

0.0266

Rubber products manufacturing (L18)

−0.0184

0.0097

0.0437

0.0349

Petroleum and natural gas extraction (H1)

−0.0661

0.0925

−0.0572

−0.0308

Food manufacturing industry (H2)

−0.0009

0.027

0.0063

0.0324

Drinks manufacturing industry (H3)

−0.0032

0.0186

0.0052

0.0206

Non-ferrous metal smelting and rolling processing industry (H4)

0.029

0.0542

−0.0238

0.0594

Gas production and supply industry (H5)

0

0.0615

0.0557

0.1172

Textile industry (H6)

0.0004

0.0097

0.0318

0.0419

Petroleum refining and coking industry (H7)

0

0.0979

0.0793

0.1771

0.0208

0.0355

0.0723

−0.1039

0.2136

0.0413

Food processing industry (L17)

Non-metal mineral products industry (H8) Ferrous metal mining and processing industry (H9)

0.016 −0.0684

(continued)

236

8 Scientific and Technological Progress and the Transformation …

Table 8.3 (continued) Industry

Lec

Ltc

Non-ferrous metal mining and processing industry (H10)

−0.0218

−0.1156

0.167

0.0811

0.0958

−0.129

Electric steam hot water production and supply industry (H11) Chemical fiber manufacturing (H12)

−0.0071

Lsc

Ltfp 0.0296 0.048

0.023

0.0032

0.019

Coal mining and processing industry (H13)

0.0597

0.0394

0.0065

0.1055

Non-metal mining and processing industry (H14)

0.0705

−0.1013

0.0874

0.0566

Ferrous metal smelting and rolling processing industry (H15)

0.078

−0.0476

0.1935

0.2239

Paper making and paper products industry (H16)

0.0016

0.0151

0.008

0.0247

Chemical materials and products industry (H17)

−0.0607

0.1182

0.0314

0.0889

Tap water production and supply industry (H18)

0.1426

0.0347

Low energy consumption and low emission industry

0.0174

0.0289

0.0111

0.0574

High energy consumption and high emission industry

0.0180

0.0408

0.0336

0.0924

Whole industry (green TEP)

0.017

0.0374

0.0218

0.0761

Whole industry (regular TEP)

1.023

1.063

1.023

1.088

−0.062

0.1153

The sectors’ data of the Table are got from the overall periods’ arithmetic mean. The subdivisions and whole data are obtained first through weighted average of each sector and then the arithmetic mean of the correspondent period (the weight is the share of total industrial output value of each sector)

By comparing the low energy consumption and low emission industry with high energy consumption and high emission industry, we find that the annual average TEP growth rate of high energy consumption and high emission industry is 9.24%, much higher than that of low energy consumption and low emission industry, which is only 5.74%. This shows that the high energy consumption and high emission industry enjoys a quicker productivity improvement.6 As for the decomposition of TEP, there is no evident difference between high energy consumption and high emission industry and low energy consumption and low emission industry in terms of technological efficiency improvement and their TEP difference is mainly embodied in technological progress and scale efficiency. High energy consumption and high emission industry achieves higher technological progress rate and scale efficiency, which is a new finding in this book. A possible explanation for this phenomenon is “Porter Hypothesis” which advocates that the environmental regulations can promote 6 This conclusion is exactly contrary to that of Chen Shiyi (2009) and Shen Keting & Gong Jianjian

(2011). They think that the TEP growth rate of high energy consumption industry is lower than that of low energy consumption industry. Such disagreement arises probably from their difference in study method, study period and variables selection.

8.2 Overall Measurement of China’s Industrial Technological Progress Rate

237

Fig. 8.1 Contribution of TFP growth in China’s industrial sectors

the technological innovation and introduction in high energy consumption and high emission industry and result in its productivity advancement. Surely this needs further research for the argumentation. Despite its higher TEP annual average growth rate, the difference within its internal sectors tends to be bigger than that of low energy consumption and low emission industry. The highest TEP annual average growth rate in low energy consumption industry is 16.11%, achieved by cultural educational and sports goods manufacturing industry, and the lowest one is only 1.68%, belonging to electronic and communication device manufacturing industry. However, in high energy consumption and high emission industry, the highest TEP growth rate is 22.39%, achieved by ferrous metal smelting and rolling processing industry while the TEP in petroleum and natural gas mining industry moves backward to −3.08%. Figure 8.1 reflects the great gap in contribution share by various sectors to the whole industrial TEP growth, revealing that the biggest contributors are low energy consumption and low emission industry sectors such as electric machinery and equipment manufacturers (L1), instruments, apparatus and cultural office machinery (L6) and high energy consumption and high emission industry sectors such as petroleum refining and coking industry (H7) and ferrous metal smelting and rolling processing industry (H15). These four sectors account for 51.22% of contribution to the whole industrial TEP growth rate. In addition, electronic and telecommunications equipment manufacturing industry (L2) needs our great attention in that its contribution to the whole industrial TEP growth reaches 2.21%, ranking No. 11 among 36 industries, despite its own sector’s TEP growth rate being 1.68%, merely higher than petroleum and natural gas mining industry. The reason for its high contribution lies in its total production value. As a matter of fact, its annual average total production value is RMB 2889.234 billion yuan, ranking the top of all. From Table 8.1, we can observe that some traditional high polluting and high energy consumption heavy chemical industries contributes the least to the promotion of industrial productivity, such as petroleum and natural gas extraction (H1), ferrous metal mining and

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processing industry (H9), non-ferrous metal mining and processing industry (H10) and tap water production and supply industry (H18). Therefore, we should pay attention to the improvement of productive technology and try to promote the industrial development mode by means of technological progress. Meanwhile we should introduce energy-saving and emission-reducing technology and develop green economy and clean energy. By changing the accumulative malpractice of the traditional high energy consuming, high-polluting and low-benefiting industries, we should aim to create the Chinese-characteristic new industrialization path.

8.3 An Analysis of Scientific and Technological Progress Promoting the Transformation of New Industralization The key to explain the economic growth model lies in differentiating whether the output growth relies on the increase of factor investment or the promotion of productivity. After putting energy and environment factors into analytical framework, we will construct the environment production function based on SBM directional distance function in order to explore China’s industrial growth mode.

8.3.1 Analytical Method We put environmental constraint in production function and examine the developing path of various sectors in China’s industry. Does it depend on the green growth mode or environment-destructing growth mode? The former is energy-saving and environment-friendly type relying on technological progress and efficiency improvement to promote economic growth and transformation in developing model while the latter is energy-consuming type relying mainly on the increase of investing factors with high pollution and emission. SBM directional distance function measures the distance between production and its frontier which reflects the productive efficiency. By referring to potential outputs defined by Kumar and Russell (2002), the environment production function7 of environmental technology Pt (x t ) under conditions of mere yielding may be as follows:      F t x t , y t , bt = 1 + SCt x t , y t , bt y t

7 Tu

(8.41)

Zhengge and Xiao Geng (2009) defines directional environment production function by referring to directional distance function and studies the growing mode of China’s industry from the regional perspective. The author of this book decomposes the growing mode by referring to their method.

8.3 An Analysis of Scientific and Technological Progress Promoting …

239

Environment production function reflects the maximum yielding quantity under the condition of environment technology Pt (x t ) and with x t as its investment, i.e., the production frontier. Concerned with various environmental technologies, various factors investment and various yielding constituents, the trans-periods environment production function can be defined similarly. The environment production function has the following features:     (1) If the technological progress is achieved, F t+1 x t , y t , bt ≥F t x t , y t , bt . That is to say, technological progress will promote the mobility of production frontier; ≥ x1t , then (2) If  the investing are increased, x2t   t factors  t t t t t t t F x2 , y , b ≥F x1 , y , b . That is to say, the increase of investment cannot make the output reduced; ≥ b1t , then (3) If  the pollution is increased, b2t   t andt temission  t t t t t F x , y , b2 ≥F x , y , b1 . That is to say, there will be increase of extra yielding when the pollution is not brought under control, for it has certain costs in reducing “harmful” output; ≥ y1t , then (4) If  the environmental is improved, y2t   t t structure  t t t t t t F x , y2 , b ≥F x , y1 , b . That is to say, if the pollution and emission remains unchanged, “beneficial” output will be increased and the production frontier will be promoted. According to the actual output, environment production function and SBM directional distance function, we can decompose the economic growth. The “beneficial” output within t + 1 period compared with that of t period is:     F t+1 x t+1 , γ t+1 , bt+1 1 + SCt x t , γ t , bt γ t+1   = γt F t (x t , γ t , bt ) 1 + SCt+1 x t+1 , γ t+1 , bt+1

(8.42)

The first item on the right side of Eq. (8.42) shows the change of environmental technological efficiency and is marked as EC; the second item on the right side represents the change of production frontier and it can be further decomposed as follows8 :    t+1  t+1 t+1 t+1  t+1  t t t   21 F F t+1 x t+1 , γ t+1 , bt+1 F x ,γ ,b x ,γ ,b   = t t t t t t t+1 t+1 t+1 F (x , γ , b ) F (x t , γ t , bt ) F x ,γ ,b     1 F t+1 x t+1 , γ t+1 , bt+1 F t x t+1 , γ t+1 , bt+1 2     × F t+1 x t , γ t+1 , bt+1 F t x t , γ t+1 , bt+1     1 F t+1 x t , γ t+1 , bt+1 F t+1 x t , γ t , bt 2     × F t+1 x t , γ t+1 , bt F t x t , γ t+1 , bt 8 Since

the defined index based on t period and t + 1 period is in symmetry, in order to avoid the influence of different base lines on the index, the author of this book adopts the geometric average of the index within t period and t + 1 period to define index according to Fisher’s index construction thought.

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 ×

    F t+1 x t , γ t+1 , bt F t+1 x t , γ t , bt F t+1 (x t , γ t , bt ) F t (x t , γ t , bt )

= T C × I C × PC × SC

(8.43)

Equation (8.43) decomposes the change of production frontier into environmental technological progress (TC), investing factors change (IC), environmental constraints factor (PC) and environmental structure change (SC). Combined with Eq. (8.42), growth can be decomposed into the effect of such five factors as environmental technological efficiency change (EC), environmental technological progress (TC), investing factors change (IC), environmental constraints factor (PC) and environmental structure change (SC). (1) Environmental technological efficiency change (EC): it measures the chase of production unit to production frontier. EC > 1 represents the improvement of environmental technological efficiency and the acceleration of chasing production frontier. On the contrary, EC < 1 represents the deterioration of environmental technological efficiency and the deceleration of chasing the production frontier. (2) Environmental technological progress (TC): it reflects the mobility of environmental production frontier. TC > 1 shows the existence of technological progress and outward mobility of production frontier. On the contrary, TC < 1 represents the technological retrogression and the inward mobility of production frontier. (3) Investing factors change (IC): it measures the influence of investment change on production frontier when technological condition remains unchanged. (4) Environmental constraints factor (PC): The weak treatability of output means that the reduction of pollution emission requires handling cost and thus it reduces the effective output. Therefore, environmental constraints factor reflects the constraints of environmental control on economic growth. (5) Environmental structure change (SC): the effect of environmental structure change on output is embodied in the change of “beneficial” output on the condition of invariability of the given technological condition, investment and pollution emission. According to the decomposition of industrial growth, the growth mode depending on the improvement of EC, TC and SC can be called energy-saving and environmentfriendly growth mode while the one mainly depending on the increase of investing factors or high polluting emission is called energy-consuming and environmentdestructing growth mode.

8.3.2 Growth Mode Table 8.4 reports the growth decomposition of China’s industry, low energy consumption and low emission industry, high energy consumption and high emission industry

8.3 An Analysis of Scientific and Technological Progress Promoting …

241

Table 8.4 Growth change and its decomposition of China’s industry and sub-divisions (2000–2010) Industry

EC

TC

IC

PC

SC

Total output value

Electric machinery and equipment manufacturing (L1)

1.0349

1.0150

1.0220

0.9931

1.1371

1.2414

Electronic and telecommunications equipment manufacturing (L2)

1.0000

1.0152

1.0000

1.0000

1.2033

1.2217

Tobacco industry (L3)

1.0268

1.0309

0.9859

1.0014

1.0785

1.1490

Furniture manufacturing (L4)

1.0283

1.0072

1.0616

1.0053

1.1005

1.2795

Transportation equipment industry (L5)

1.0195

1.0289

1.0435

0.9995

1.1297

1.2627

Instruments, apparatus and cultural office machinery (L6)

1.0245

1.0506

1.1391

0.9998

0.9812

1.2222

Plastic products manufacturing (L7)

0.9961

1.0523

1.0424

1.0446

1.0442

1.2172

Reproduction of printing and recording media (L8)

1.0060

0.9904

1.0076

1.0224

1.1308

1.1909

Ordinary machinery manufacturing (L9)

1.0161

1.0136

1.0429

0.9977

1.1741

1.2768

Cultural educational and 1.0481 sports goods manufacturing (L10)

1.0519

0.9980

0.9586

1.0728

1.1735

Special equipment manufacturing (L11)

1.0152

0.9886

1.0110

1.0078

1.1951

1.2553

Clothing and other fiber products manufacturing (L12)

1.0239

0.9993

1.2458

1.0153

0.8927

1.1813

Leather, fur, down and related products manufacturing (L13)

1.0000

1.0646

1.0066

0.9998

1.0725

1.1917

Wood processing and bamboo rattan brown grass products industry (L14)

1.0109

1.0087

1.0267

0.9943

1.2062

1.2720

Metal products industry (L15)

1.0020

0.9816

1.0991

1.0036

1.0984

1.2280

Pharmaceutical manufacturing industry (L16)

1.0025

1.0098

1.0116

1.0007

1.1590

1.2037

Food processing industry (L17)

1.0054

0.9640

1.2226

0.9998

1.0007

1.2442 (continued)

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Table 8.4 (continued) Industry

EC

TC

IC

PC

SC

Total output value

Rubber products manufacturing (L18)

1.0051

1.0087

1.0084

1.0025

1.1744

1.2149

Petroleum and natural gas extraction (H1)

0.9502

1.0004

1.0086

1.0407

1.0645

1.0868

Food manufacturing industry (H2)

1.0033

1.0078

1.0135

0.9984

1.1851

1.2251

Drinks manufacturing industry (H3)

1.0010

1.0059

1.0065

1.0006

1.1538

1.1764

Non-ferrous metal smelting 1.0040 and rolling processing industry (H4)

1.0302

1.0579

0.9999

1.1526

1.2710

Gas production and supply industry (H5)

1.0365

1.0072

1.0025

0.9930

1.2228

1.2957

Textile industry (H6)

1.0002

1.0007

1.0120

1.0039

1.1236

1.1770

Petroleum refining and coking industry (H7)

0.9548

1.2176

1.1148

1.0046

0.9221

1.1881

Non-metal mineral products industry (H8)

1.0089

1.0292

1.0138

0.9995

1.1654

1.2387

Ferrous metal mining and processing industry (H9)

1.0114

1.0001

1.0528

1.0005

1.3076

1.4096

Non-ferrous metal mining and processing industry (H10)

1.0058

1.0009

1.0128

0.9998

1.1938

1.2292

Electric steam hot water production and supply industry (H11)

1.0068

1.0426

1.0612

0.9741

1.1688

1.2404

Chemical fiber manufacturing (H12)

1.0000

1.0034

1.0048

0.9998

1.1151

1.1332

Coal mining and processing 1.0310 industry (H13)

0.9991

1.0293

1.0023

1.2142

1.3174

Non-metal mining and processing industry (H14)

1.0186

0.9983

1.0071

0.9982

1.1898

1.2234

Ferrous metal smelting and 1.0617 rolling processing industry (H15)

1.0790

0.9149

1.0192

1.1446

1.2614

Paper making and paper products industry (H16)

0.9983

1.0076

1.0162

1.0015

1.1655

1.2029

Chemical materials and products industry (H17)

1.0588

1.0283

0.9542

1.0588

1.1422

1.2267

Tap water production and supply industry (H18)

1.0308

1.0161

0.9980

0.9718

1.0963

1.1272 (continued)

8.3 An Analysis of Scientific and Technological Progress Promoting …

243

Table 8.4 (continued) Industry

EC

TC

IC

PC

SC

Total output value

Low energy consumption and low emission industry

1.0190

1.0173

1.0639

1.0075

1.1287

1.2381

High energy consumption and high emission industry

1.0323

1.0561

1.0126

1.0207

1.1292

1.2264

Whole industry

1.0259

1.0365

1.0388

1.0143

1.1317

1.2339

and their sub-divisions. Based on the calculating results of Table 8.4, the growth mode of China’s industry will be analyzed from the following five aspects: the promotion of environmental technological efficiency, environmental technology improvement, investing factors change, environmental constraining factors and industrial environmental structure change. So far as the whole industry of China is concerned, the annual average growth rate of its total output value is 23.39%, which is constituted by the following five factors: the annual average growth of environmental technological efficiency 2.59%, that of environmental technological progress 3.65%, that of investment 3.88%, that of environmental constraints 1.43% and that of industrial environmental structure improvement 13.17%. Their contributions to growth rate are 11.07%, 15.6%, 16.59%, 6.11% and 56.31% respectively.9 This shows that the industrial environmental structure has been improved considerably from 2000 to 2010 and its contribution to industrial growth is more prominent; however, its optimization has taken on a declining tendency since 2003; the optimizing rate of industrial environmental structure during 2009 and 2010 is 5.55% and its contribution to industrial growth rate has declined to 35.7%; such worsening industrial environmental structure has also occurred in high energy consumption and high emission industry. As the reflector of technological progress, the sum of annual average growth rate of environmental technological efficiency and environmental technological progress is 6.24% and its contribution to industrial growth rate is 26.67%, 16.59% higher than investing factors’ contribution. This shows that China’s industrial growth relies more on technological progress instead of on the increase of factors investment. In addition, the environmental constraining factors do not exert remarkable influence on China’s industrial growth generally, which is consistent with the conclusion made by Zhengge Tu and Geng Xiao (2009). Comparing low energy consumption and low emission industry with high energy consumption and high emission industry, we find that their growth modes are quite different. The annual average growth rate of the former’s total output value is 23.81%, slightly higher than the latter, which is 22.64%. There is also slight difference in the annual average optimizing rates of their industrial environmental structure, which are 12.87% and 12.92% respectively. Their contributions to growth rate are 54.05% 9 As the individual growth rate is calculated through proportional index, the sum of EC, TC, IC, PC

and SC is not equal to the growth rate of total output value and the sum of their contributing rate is not equal to 100%, yet the error is very small.

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and 57.07% respectively. However, the low energy consumption and low emission industry is comparatively more dependent on the increase of investing factors. Its annual average investment growth is 6.39% and its contribution to growth rate is 26.84%, while the annual average investment growth of high energy consumption and high emission industry is 1.26% and its contribution to growth rate is 5.57%. The high energy consumption and high emission industry is more dependent on the improvement of environmental technological efficiency and environmental technology, whose annual average growth rate is 8.84% and contribution to industrial growth rate is 39.05%, much higher than that of low energy consumption and low emission industry, which are 3.63% and 15.25% respectively. The influence of environmental constraining factors on these two industries is also considerably different with no influence on low energy consumption and low emission industry fundamentally and certain facilitating effect on high energy consumption and high emission industry, whose annual average growth is 2.07% and contribution to growth rate is 9.14%. As for the sub-divisions, the improvement of environmental technological efficiency and environmental technology of some sub low energy consumption and low emission industries contribute a lot to industrial growth rate, such as cultural educational and sports goods manufacturing industry (L10), instruments, apparatus and cultural office machinery (L6) and electric machinery and equipment manufacturing industry (L1). These sub-divisions depend slightly on investing factors, so they belong to typical energy-saving and environment-friendly growth mode; while some sub-divisions of high energy consumption and high emission industry belong to typical energy-consuming and environment-destructing growth mode, such as petroleum refining and coking industry (H7), petroleum and natural gas extraction (H1), non-ferrous metal smelting and rolling processing industry (H4) and ferrous metal mining and processing industry (H9). The growth of these sectors depend on the increase of investment and even the industrial environmental structure of petroleum refining and coking industry (H7) has been worsened.

8.4 Policy Implications of Scientific and Technological Progress Promoting New-Type Industrialization According to the above study, we can put forward some suggestions from the following aspects to enable technological progress to exert more effective influences on the transformation of industrial development mode.

8.4 Policy Implications of Scientific and Technological Progress …

245

8.4.1 Adjusting the Basic Strategies to Promote Scientific and Technological Progress 8.4.1.1

Innovation as a Driving Force

The report of the 18th CPC national congress points out clearly that technological innovation is the strategic support to promote society’s productivity and comprehensive national strength.10 This emphasizes on the importance of innovation as a driving force to promote national industrial development. China’s development of new industrialization must center on independent innovation and promote the transformation of industrial development mode through the driving of innovation. To guarantee the innovation-driven strategy, we must hold firmly the key strategy of innovation, promote the development of critical mainframe, parts and universal skills of key industry guided by the actual requirements of key industry, focus on solving the key universal skill related problems constraining the development of this industry and promote the innovative development of the whole industry from point to area with the purpose of promoting the overall technological level, innovative ability and reliability of the industry. Meanwhile, we must insist on the strategy of digestion, absorption and re-innovation and promote the critical technological level of the industry by means of “combining development” of localization and automization.

8.4.1.2

Fusion of Industrialization and Informatization

The fifth plenary session of the 17th CPC Central Committee has clarified the policy guidance of fusing industrialization with informatization. As for the construction of new industrialization, informatization is indispensable. Only by promoting the development of informatization and connecting the development of informatization with that of industrialization can we realize the transformation of industrial development mode in its real sense. Firstly, informatization development should be concerned with the technological breakthrough of internet of Things, especially with industrial instrumentation, so as to promote the intellective level of industrial development to enable a more procedural production. Secondly, depending on big data, we should place emphasis on the development of cloud technology platform and enable industrial production to have a global layout based on cloud platform so as to promote the technological added value of industrial production as well as the intellective level of products. Thirdly, we should step up efforts to promote the informatized level of products so as to broaden the selling channel of products and enhance the international competitiveness of products. Meanwhile, we should be concerned with the development of information technology to enable its progress to facilitate the service outsourcing of enterprise information so as to promote the 10 Report

of the 18th National Congress of the Communist Party of China on Unswervingly Following the Path of Socialism with Chinese Characteristics and Striving to Complete the Building of a Moderately Prosperous Society in All Respects, People’s Publishing House, 2012.

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8 Scientific and Technological Progress and the Transformation …

extensive linkage of modern service industry and advanced manufacturing industry. Finally, we should speed up the development of modern service industry, especially the top service industry like finance, so as to promote the linkage of modern service industry and advanced manufacturing industry. In particular, we should be concerned with the development of information industry. With the acceleration of economic globalization, China’s manufacturing industry must go globally and strive at a global layout, which should depend on the global distribution of product information and the development of information technology.

8.4.1.3

Green Development

Green development refers to complementary relationship of industrial growth with environmental protection and resource saving. The transformation of industrial development should aim at green development instead of the cost of environment and resources waste for industrial growth and meanwhile reject the concept of environmental protection that stops the industrial development. Reviewing the experience of developed countries diachronically, we find that their economic development has turned to a greener development mode from a high polluting and high energyconsuming mode when it arrives at a certain extent with increasing attention to environmental protection and resources saving. So far as China is concerned, it is difficult to maintain the traditional economic development mode and it must depend on technological progress to realize the transformation of industrial development mode. The core of green development is to enable the productive system towards a low-pollution even non-pollution trend and aims at a harmonious co-existence of stable economic growth with ecological environment. Firstly, we should firmly establish a green-development concept ideologically and reject the high-polluting and high-energy-consuming development mode thoroughly. Secondly, we should enhance the support of technological research and development and pay special attention to the research and development of new material and new energy with the purpose of reducing the degree of environmental pollution through technology and thus creating the green productive system. Meanwhile, we should establish a specific rewarding and punishing system for the case of environmental pollution so as to truly practice the concept of law-based governance with laws and evidence to abide by. Secondly, we should adjust the present industrial structure as soon as possible to fulfill a shift from heavy-industry dominated to service-industry dominated structure. According to the historical experience of developed countries’ economic transformation, the proportion of service industry will overpass that of manufacturing industry when economic development arrives at a certain degree. At present, the proportion of China’s service industry takes on a rising tendency; however, it still remains in a low state compared with developed countries. The transformation of economic development mode should be regarded as a precious opportunity and we should boost the development of service industry and reduce the destruction of industrial development on environment.

8.4 Policy Implications of Scientific and Technological Progress …

247

8.4.2 Optimizing the Market Allocation of Scientific and Technological Resources Report of the third plenary session of the 18th CPC central committee points out that the economic system reform is the key for comprehensive deepening reform and its core problem lies in a proper relationship between government and market to ensure the decisive role of market in resources distribution and a better function of government. Apart from that, the report points out the main objective and task of technological system reform in that market should play a guiding role in technological R&D, route selection, factor price and distribution of various innovative factors.11 At present stage, our investment in scientific technology has reached the highest level historically and the great financial investment promotes China’s technological progress to some extent. However, we should notice the deficiencies of this kind of financial support in that the distribution of technological resources is over administrative and issue of dispersed repetition and closed low-efficiency becomes increasingly prominent. We must ponder on how to implement the requirements for technological system reform put forward in the third plenary session of the 18th CPC central committee, how to perfect the technological managing system and the intermediary market of technological resources to enable the technological market to exert dominant role in technological progress, meanwhile to motivate the initiatives of enterprises and research institutes like universities as well as the research enthusiasms and innovative potentials of the whole society with the purpose of arousing more innovative activisms of the whole society. Firstly, market should estimate technological innovative project and construct technological innovation policy system beneficial to exerting its positive role. In the field of technological innovation and applied research, we have implemented such research programs as 863 Program (National High-tech R&D Program), National Science and Technology Support Program and National Science and Technology Major Program. In addition, we have established S&T-oriented and Small & medium Enterprises Technology-innovative Fund, S&T-oriented and Small & medium Enterprises Venture Investment Guidance Fund as well as such preferential policies as Enterprise R&D Costs Deduction and Tax Concessions for High-tech Enterprises. All these measures push the combination of technology and economy and reinforce the dominant role of enterprises in technological innovation. However, it is still an undisputable fact that up to now many industries of China are not competitive enough and the core technology is still dependent on foreign countries, which is closely related to the over-administration of technological resources collocation method. For example, due to the improper coordination of government and market, in the specific process of organization and implementation, there often exist unclear boundaries of government investment in technology. Many technological R&D directions, developing projects and products and technological routes that should be decided by market are under the government’s decision directly. The corresponding results 11 The

CPC Central Committee’s Decision on Several Major Issues Concerning Comprehensively Deepening Reform, People’s Publishing House, 2013.

248

8 Scientific and Technological Progress and the Transformation …

are often contrary to expectations. In reality, it is not rare to see the failures of technological R&D projects. Many R&D projects cost a lot and accordingly make a lot of samples and achievements. However, they are separate from market and actual condition and are hard to be transformed, not even to say marketization and industrialization, which results in the great waste of technological resources. To form a striking contrast, those privately operated technological enterprises that carry out technological innovation following the law of market and make market exert the role of resource allocation take on flourishing innovative activism. Judging from the surveys and researches done in recent years, we find that some privately operated small and micro businesses that are active in Zhongguancun of Beijing (China’s first state-level high-tech industrial development zone) and some other high-tech zones as well as various innovative entities stand out from market competitions, such as innovative workshop, 3W coffee (a network of entrepreneurs and investors in China’s Internet industry) and maker spaces, which are technology-oriented small and micro businesses hatched by innovative incubators. Many technology-oriented small and micro businesses possess worldly advanced technology and are increasingly thriving under the government’s policy leading and guidance. This urges us to think deeply. If we pay more attention to the role of market in technological innovation and allocate more technological innovative resources to these thriving privately operated businesses by means of market, better and greater achievements will be surely made. Therefore, it is a must to construct technological innovative policy system that facilitates the role of market. We should control properly the investment in applied technology of the industry by government and reduce the funding in enterprise technological R&D projects so as to spend the saved expenditures in deducing and exempting the tax revenue of technological enterprises and motivate the innovative enthusiasm of enterprises and society by means of preferential policies. We should provide the market with the role of evaluating and screening technological achievements and carry out more “post-allowance” policies with government supporting focus on those technological achievements of applied value and market prospects, in particular enabling those enterprises with more achievements and especially those small and micro enterprises in their growing periods to benefit from governments’ support. In addition, we should abandon the reimbursable funding practices for technological innovation and adopt more supporting methods like guiding fund, purchase service and “project loan system”, etc. In this way, it not only solves the problem of innovation capital badly needed by enterprises but also raises the efficiency of financial investment, besides that it can also preserve the market environment with fair competition. In fact, many countries have adopted similar funding methods, such as Canada’s Technological Partners Project, Israel’s National Industrial Development Fund and Germany’s Small-size Technological Enterprise Participation Fund. We should learn and borrow these useful foreign experience and practices. Secondly, improve the chain of technological innovation and develop technological service industry with great efforts. For a long time, we merely regards technological innovation as the promoting process of technological R&D and results transformation carried out by research units and production enterprises. In fact, from product R&D to its marketization, it needs a great many technology-oriented

8.4 Policy Implications of Scientific and Technological Progress …

249

enterprises and institutions engaging in the intermediate link of development. These enterprises participating in various innovative links are continuously in the process of retreating and entering, promoting the “primary” innovative products to the final mature commodities like a relay race. The transformation of technological achievements cannot be separated from the participation of various technological service enterprises and institutions. Currently, the advanced technological service system is an important safeguard of technological progress. Only if the corresponding auxiliary service system keeps up with the development of technological progress can the technology-innovative enterprises be engaged in the technological R&D activities without scruple or pressure so as to realize technological innovation and transform its achievements. The underdeveloped technological service industry is an apparent weakness in China’s technological innovation on one hand and on the other it is an important reason for China’s poor technological innovation ability and low achievements transformation rate. Therefore, we must take concrete measures to support the development of technological service industry, especially the development of small and micro technology-oriented service enterprises and new types of R&D organizations. We should try to exert the role of market in the process of cultivating and supporting technological service industry. The activism of technological service enterprises comes from market competition, so we should allocate resources properly by means of market mechanism so as to promote the formation, development and perfection of technological service industry. We should push many technological service businesses (such as inspection, detection, evaluation and identification, etc.) carried on by governments to market. The focus of government work should be placed on such aspects as standardizing system, providing service and reinforce supervision, etc. Nowadays, many technological service public institutions originally subordinate to government are disconnected from their supervisors nominally but actually they are not truly separated. The cases of lacking distinction between government administration and public institution are still very severe. Many public institutions or enterprises depend on government to monopolize the market and even deal with administrative examination and approval in disguised form. Therefore, we must be determined to solve this problem. We should expand access to technological service enterprises. Technological service industry has already created various kinds of new businesses and brandnew enterprise organizing forms. As they are unlike the traditional service industry, if we follow strictly the established industrial and commercial registration system and market managing regulations to deal with the enrollment, registration and management, such cases as difficult enrollment, difficult registration and difficult conducting business will surely occur. From the survey, we find that a local inspecting and detecting company has obtained access qualifications from many European and American countries but failed in getting the domestic access qualification. In order to change this situation, we must learn the advanced managing methods of technological service industry from developed countries, revise and perfect the enrolling and registering methods as well as the corresponding industrial and commercial managing policies of technological service enterprises and broaden the market access so as to

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provide favorable policy environment for the development of technological service industry. We need to provide preferential policies for the development of technological service industry. The policies are as follows: the preferential policy of tax revenue shared by technological service enterprises and high-tech enterprises; tax revenue privilege and risks compensation as well as guiding venture capital for the technology-oriented small and micro enterprises, especially for those in its initial venture period; giving more supports to the entrepreneurs of newly emerging business technological service institutions and encouraging them to enlarge their enterprises; supporting such entities as talent training institutions, industry associations, institutions of higher learning and research institutes to construct the cultivating base for technological service talents, pushing the concept of technological service industry and the related teaching content into diploma education system and cultivating a large group of technological service talents; loosening appropriately the access limits of foreign capital in the field of technological service and introducing some well-known technological service enterprises to promote the overall level of China’s technological service industry by means of demonstration and guidance. Thirdly, reinforce the coordination and transparency of technological resources allocation and make good use of government’s “visible hand”. Serious problems exist in China’s currently established technological managing system, such as multiple management, departments separation and insufficient coordination. At present, the allocating management of central financial technological investment is handled by many departments and units. Each department creates various technological plans and projects, but it is difficult for these departments to coordinate, which results in the repetitive approval of research projects and the dispersion and waste of technological resources allocation. In order to solve the problem of dispersion and unfair allocation of technological resources, it is indispensable for the relative technological managing departments to be liberated from the routine work of directly allocating resources and focus on formulating macro technological policies, supervising the implementation of technological plan and evaluating the achievements and performance of technological investment as well as transferring such rights as project identification, fund appropriation and operation and management to a third independent institution. Therefore, we should make overall plans of technological resources and further clarify the positioning and supporting emphasis of various national technological programs, special projects and funds as well as establish evaluating, adjusting and terminating mechanisms. On the basis of the above measures, we should make use of the development of internet technology to supervise the technological achievements and construct the corresponding database, enabling the technological achievements to be shared by the whole society. On one hand, this can promote the whole society in their participation of research so as to enable the technological achievements shared within the whole society and make the technological research more meaningful; on the other hand, the shared technological achievements can facilitate effective supervision by various social sectors and enable scientific research more standardized as well as enhance the transparency of scientific research projects.

8.4 Policy Implications of Scientific and Technological Progress …

251

Currently, there exists entity vacancy of generic technology and key technological innovation in China’s industry. Some research institutes originally engaged in generic technology R&D are transformed into enterprises and thus lose the motivation for further research. However, the government’s support for these enterprises’ generic and key technological R&D is not stable, resulting in the lagging behind of generic and critical technology of these industries and restricting the technological progress of basic industry. The generic technology and critical technology of the industry belong to the frontier field of competition and cannot be pushed by market completely, so government must play a dominant role in this aspect. Therefore, we should intensify the government’s coordination and support for the R&D of industrial generic and key technology, including coordinating various industries and departments, determining the R&D direction and route of industrial generic and key technology, reforming the established funding methods, intensifying its support and perfecting the supervising and managing systems, etc. As for the allocation of basic resources, we should try to avoid the improper interference by government although it cannot be determined totally by government. The government’s duty is to reinforce its investment in basic research and lay down scientific and reasonable managing policy. We should perfect the peer appraisement mechanism and establish fair, public, scientific and reasonable research appraising system in order to allocate more resources to research team with excellent achievements.

8.4.3 Establishing an Enterprise System for Scientific and Technological Innovation 8.4.3.1

Accelerating the Establishment of an Enterprise Technology Innovative System

Enterprise should be the entity of technological innovation, because it is the main force of production and the fundamental force to push the development of social economy. The most important embodiment of technological progress lies in its promotion of enterprise’s productivity. From the above analysis, we can say that enterprise is the most direct beneficiary of technological progress and also the first user of advanced technology. However, at present, China’s social innovative entity is not enterprise and enterprises account for a small proportion of technological R&D team. Colleges and universities play a pushing role in technological innovation, which results in a serious consequence that the technologies researched and developed by research institutions like universities are not always in line with the technological demands by enterprises and therefore technologies made out of great amount of research fund investment can only remain in the laboratory. Accordingly, we should construct an enterprise-dominated system of technological innovation. To construct such a system, we must solve two difficulties: firstly, we should try to integrate enterprises with research institutions sufficiently or increase the funding

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8 Scientific and Technological Progress and the Transformation …

for enterprises so as to enable enterprises to be engaged in technological R&D activities; secondly, we should promote the work of talents introduction and especially encourage enterprises to accelerate the introduction of top international talents. Only in this way can we push the construction of enterprise innovative system fundamentally. We should reinforce the link of universities, enterprises and governments with enterprises as main force building R&D centers and engaged in production-oriented research activities and universities as service providers for enterprise technological innovation depending on their own research advantage, and the government should raise its R&D investment, lay down innovative strategy, introduce top talents actively and promote the acceleration of technological innovation.

8.4.3.2

Accelerating the Establishment of a Service System for Scientific and Technological Innovation

Technological innovation is a systemic project and it is difficult to promote technological progress simply depending on the R&D of manufacturing enterprises, therefore we should try to develop production-oriented service industry and promote the linkage of manufacturing industry and service industry so as to serve directly the service sector of technology innovative system. Firstly, we should accelerate the development of service enterprises and especially provide technological achievements transformation and achievements promotion for manufacturing industry. With the development of information technology, service enterprises should make use of technological platform to enjoy the convenience of big data so as to promote service industry’s support for manufacturing industry. Secondly, we should be concerned with the development of small and medium enterprises. Currently, small and medium enterprises are the main force of social production, but they suffer from great difficulty in their development and their innovative ability is rather low. This requires the establishment of small and medium enterprises service center which can provide such relative services as financing alleviation and technological instruction so as to guarantee the development of small and medium enterprises. Thirdly, we should coordinate various service enterprises and establish the corresponding mechanisms for resources sharing so as to realize the coordinative innovation within service industry system. The technological progress of manufacturing industry not only demands single service but also systemic service. With the development of economy, the specialized division of labor becomes more clarified. Therefore, the support of service system for the innovation of manufacturing enterprises should clarify the labor division on one hand and on the other it can facilitate the collaborative innovation so that the service system can not only get used to technological innovation of manufacturing industry but also serve the technological progress of industry in its real sense.

8.4 Policy Implications of Scientific and Technological Progress …

8.4.3.3

253

Accelerating the Establishment of a Mechanism That Combines Industry, Education and Research

Technological innovation requires the coordination and cooperation of government, university and enterprise. Enterprise should serve as the main force of technological R&D and promote the application of achievements transformation in production; university should become the main battlefield of basic research and promote the exploration of basic disciplines from surface level to deep level so as to enable China’s technological progress ranked in advanced world level; government should create favorable R&D environment and provide sufficient funds as well as capable human resources for the research activities of universities and enterprises. Only if the three parts integrate with each other can the mechanism of industry-university-research be constructed. To be specific, firstly, government should introduce corresponding plans and outlines to clarify the government’s strategic demand of developing emerging industries. The developed countries in Europe and America have laid down definite planning for the development of emerging industries and even uplift the strategies of technological progress and innovation driving to the level of national laws for effective constraints. China should also laid down definite guiding documents for industrial demand and standardize the promoting role of technological progress in emerging industries. Secondly, we must clarify the dominant role of enterprises in innovation. Currently, the innovative dominant role of enterprises has not been clarified in its real sense and a large part of technological R&D work has been taken up by universities and research institutions. However, in its future development, we should establish the dominant role of enterprises in innovation and motivate the potentials of enterprises in technological R&D. It is enterprise that can grasp the real technological demand and thus proceed with its development. Realizing this point, we can push the transformation of technological achievements and promote technological progress. Thirdly, we must pay attention to the realistic benefits of industry-university-research combination that should be guided by market. Whether their combination is successful or not can be evaluated and judged from the perspective of market dominance and government guidance. The realistic benefit not only refers to the growth of economic aggregate or that of economic increase rate, but includes such green indexes as environmental protection and resources saving to enable industrial development to enter the era of recyclable economy and green development instead of repeating the old route of remedies after pollution. Fourthly, we should further open the combination of industry-university-research. In other words, this combination can not only cooperate with domestic institutions but also implement the strategy of “going globally”, connecting actively with the important technological areas and well-known universities in America and Europe and promoting our own technological progress through the collaborative innovation with them. However, we must pay attention to the moderate degree of technological openness, otherwise we will depend on the foreign technology to such a degree that it will produce negative effect on China’s technological innovative development and economic stability. Fifthly, we should pay special attention to the pilot work, which should be done in a point-to-area way. We should be deliberate on the planning of pilot work and hold an unyielding spirit.

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Whether the pilot work is successful or not, we should draw a conclusion carefully and continue to perfect the industry-university-research mechanism.

8.4.3.4

Accelerating the Development of Science and Technology Intermediaries

The development of technological agency is the most important embodiment of technological innovative service system. However, at present, the technological agency system or agencies have not well adjusted to the development of technological innovation, which results in the lower level of China’s technological development. The most important function of technological agency is its technology diffusion, achievements propaganda and resources appraisement to the whole society. These measures can effectively reduce the imbalance of information between technology suppliers and demanders and thus play a very important role in perfecting China’s technological market. The acceleration of technological agency development and the perfection of technological agency market can demonstrate concretely the Strategy of Revitalizing China through Science and Education on one hand, and on the other it can promote China’s international innovative ability comprehensively and is of great importance for the better and faster development of national economy and the increasing optimization and upgrade of industrial structure. To be specific, we should improve the work from the following four aspects. Firstly, we should organize specialized personnel to construct the technological agency structure. At present, there is only a small number of technological agencies in China and the proper scale for technological innovative system development has not been formed. In addition, the level of the present technological agencies is too low and it requires the specialized agency to enter technological market so as to promote market competition and motivate market activism. Secondly, we should improve technological managing system and accelerate educational reform to transform some of the original research institutions into research agencies. The technological agency market should establish the access and exit mechanism. For the specialized resources, we should offer sufficient conditions to permit them to enter; but for those research agencies with poor prospect, we should eliminate them. Thirdly, we should motivate the whole society to promote the development of technological agency market. The important task of technological agencies is to accelerate the transformation of technological achievements and their appraisements and attract the whole society to participate so as to accelerate the diffusion of technological achievements and facilitate the technological achievements’ contribution to the society. Finally, we should enhance the cultivation of talents, aiming at cultivating specialized technological agency talents with international perspectives. Furthermore, we should reinforce the integrative linkage of universities, training institutions and practice units and implement qualification identification for talents cultivation so as to motivate the enthusiasms of technological agency market personnel.

Chapter 9

Scientific and Technological Progress and the Transformation of Service Industry Development Mode: The Modernization of Service Industry

9.1 Construction of the Overall Evaluation System of China’s Service Industry Modernization The level of service industry modernization is of great significance to China’s economic growth and adjustment of industrial structure. To some extent, modernization of service industry is an important embodiment of industrial upgrading, but it is involved with the adjustment from demanding structure to supplying structure respectively. We can learn from the general characteristics of modern service industry that modern service industry is knowledge-intensive and technology-intensive, which indicates that massive investment of capital is a must for the promotion of modern service industry development. Therefore, capitalization, intellectualization and high technology are three indexes that can well measure the modernization of service industry. This measurement is conducted from the demanding level. At the supplying level, a prominent feature of modern service industry is its good interaction with manufacturing industry. In addition, the increase of service industry’s added value, its positional promotion in national economy and the considerable adjustment in its internal structure are the demands of service industry modernization. Therefore, we select production, structure softening and optimization as the evaluative indexes of service industry modernization. Based on the above analysis, this book will establish the evaluating system of modern service industry development from the following six aspects.

9.1.1 Level of Capitalization To some extent, modern service industry is capital and technology intensive service industry, requiring a large amount of advanced apparatus and equipment as well as capital investment. In other words, the realization of modernization development must depend on the realization of capitalization of service industry. To simplify the © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_9

255

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9 Scientific and Technological Progress and the Transformation …

defining of capitalization of service industry modernization, we suppose that the development of service industry only needs factors of labor and capital, so whether service industry belongs to capital-intensive industry or not can be judged from the proportion of these two factors over the output. With 50% as the boundary, if the proportion of labor remuneration over output added value is more than 50%, the industry should be defined as labor-intensive, otherwise it is capital-intensive. By measuring the degree of capital intensity of service industry, we can judge whether service industry has reached the level of modernization or not.

9.1.2 Level of Knowledgization Modern service industry is technology-intensive industry with high knowledge added value or technological content, so there is increasing demand for top talents, and such eagerness for highly qualified talents promotes the modernization of service industry accordingly. As for the measurement of intellectualization of service industry, this book selects a direct measuring standard, i.e., the intensity of professional and technical personnel, which is measured by the proportion of professional and technical personnel over the total employees. The measuring standard of knowledge-intensive service industry is as follows: if the intensity index of professional and technical personnel is lower than the average level, the service industry can be regarded as non knowledge-intensive; otherwise, if its index is more than twice of the average level, the service industry should be categorized as knowledge-intensive. If the index is between these two boundaries, we can resort to two auxiliary measuring indexes designed in this book: the first method is by observing whether the per capita salary of the employees is more than 50% of the average salary; the second method is by judging whether the per capita share of fixed assets is over the overall average level. For the convenience of statistics, we suppose that if either of these two indexes meets with the standard, the service industry should be categorized as knowledge-intensive, otherwise, it belongs to non knowledge-intensive service industry.

9.1.3 Level of High Technicalization The high tech level of modern service industry is usually embodied in the application of advanced technological equipment or the investment in technological development and introduction. This book selects the investment intensity of high tech industry to measure the high tech level of service industry and the concrete index is the proportion of high tech industry investment in service industry over the investment of service industry. The concrete standard is the average value. If the proportion is higher than the average value, it can be defined as high tech service industry; if the proportion is lower than the average value, it will be defined as non high tech service industry. As for the selection of high tech industry, this book defines it

9.1 Construction of the Overall Evaluation System of China’s …

257

according to the statistical categories of high tech industries laid down by National Bureau of Statistics.1 Meanwhile, as for the categorization of national economic industries, this book selects seven industries like petroleum processing as the objects of measurement.2

9.1.4 Level of Production The linkage of advanced manufacturing industry and modern service industry is an important part of service industry modernization, so to some extent it can be understood that the emergence and development of productive service industry is the important content of the modern service industry development. As productive service industry is the linking product of manufacturing and service industry, it can be understood as a series of intermediate services provided in the process of manufacturing production. These intermediate services should be involved in each section of manufacturing production, including production, circulation and distribution, etc. At the initial stage of economic development, the development of manufacturing industry is the most prominent feature of economic development. However, when economic development arrives at a certain period, such sectors as accounting, audit and finance will be gradually separated from manufacturing producers and become the corresponding service industry enterprises or sectors to provide intermediate service for manufacturing producers. In this way, the manufacturing enterprises may become “thinner” and thus they can concentrate on production and promote the production of service industry, therefore, the production of service industry is the most important label of the development of modern service industry. When industrialization achieves maturity, manufacturing industry will become the main serving object of productive service industry. Accordingly, this book measures the rate of intermediate demand of each service sector in manufacturing industry, i.e., the proportion of service investment of manufacturing industry over the total output of this service sector. The measurement of production still follows the average value method: if the measured index is higher than the average value, this service industry can be categorized in productive service industry; otherwise, it belongs to consuming service industry.

1 According

to the statistical categorizing standard of high tech industries laid down by National Bureau of Statistics, high tech industries mainly include: nuclear fuel processing, photographic equipment manufacturing, pharmaceutical manufacturing, aerospace manufacturing, electronic and communication device manufacturing, computer and office equipment manufacturing, medical equipment and instrument and apparatus manufacturing, public software service. 2 According to the categorization of national economic industries, high tech industry includes petroleum processing, coking and nuclear fuel processing, chemical industry, general and special equipment manufacturing, transportation equipment manufacturing, electronic machinery and equipment manufacturing, communication equipment, computer and other electronic equipment manufacturing, instrument and apparatus and cultural office machinery manufacturing industry.

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9.1.5 Level of Structure Softening Industrial structure softening refers to the gradual transformation of hardware-linked industrial structure into the one linked by such soft power as technology in the process of industrial development. The modernization of service industry is an important character of industrial structure softening. With the development of economy, some sectors of manufacturing industry are separate from manufacturing industry and become independent service sectors, but they still maintain close relationship with manufacturing industry. This relationship is not based on such hardware as equipment but through such soft power as providing technological service. The modernization of service industry is a self-adjusting process of industrial structure. The proportion of the tertiary industry continues to increase in economic development and thus the tendency of “economic servicizing” appears. In order to measure the level of industrial structure softening, this book adopts the proportion of tertiary industry as the index and the method of combining statistic index and dynamic index. The static index refers to the proportion of service industry over GDP, from which we can see the position of service industry in national economy. The dynamic index refers to the growth rate of service industry’s added value, which shows the speed of service industry development. To be specific, the adopted indexes are the proportion of the added value of tertiary industry over GDP and the growth rate of tertiary industry.

9.1.6 Level of Optimization Optimization refers to industrial internal structure increasingly rising to top level. The modernization of service industry requires the service industry’s internal structure to transform from traditional service to top service industry and especially the growth of its technological content can satisfy the top service industry with diversified demands. In economic development, the growth of national revenue can not only accelerate industrialization and urbanization but also stimulate the citizens’ favor for consumer goods to become diversified, i.e., the diversity of service demand. This promotes the increasing development of emerging service industry and the emergence of top service industry directly, which is the most important and visualized embodiment of the optimization of service industry. This book selects the proportion of culture, sports and entertainment over service industry as the index measuring the optimizing level of service industry.

9.2 Measurement of the Overall Level of China’s …

259

9.2 Measurement of the Overall Level of China’s Service Industry Modernization In 2003, China adjusted the statistical caliber of tertiary industry. In order to unify the statistical caliber, this book investigates the development of China’s service industry from 2003 to 2010 and measures its modernization level.

9.2.1 Measurement of the Level of Capitalization 9.2.1.1

Definition of Capital-Intensive Service Industry

The proportion of labor remuneration over the added value of output estimates whether the service industry is labor-intensive or capital-intensive, the data coming from Table of China’s Investment and Output in 2007 and DRCNET Macro Economic Database. If we make 50% as the boundary to judge the capital density of various industries, from Table 9.1, we can see that the proportion of labor remuneration over output added value of industries No. 1, 3, 4, 6, 7, 8, 12, and 15 is lower than 50%, so these eight industries are capital-intensive service industries; while industry No. 2, 9, 10, 13, 14 and 16 are labor-intensive service industries. The proportion of real estate industry is the lowest, which is only 11%, so its capitalization is the highest among the service industry and it can be regarded as highly capital-intensive service industry. Meanwhile, the proportion of industry No. 3, 6 and 1 is about 25% and thus their capitalization is also very high.

9.2.1.2

Proportion of Capital-Intensive Service Industry in Service Industries

The proportion of added value of capital-intensive service industries over service industry is measured according to the data from DRCNET Macro Economic Database. According to Table 9.2, capital-intensive service industry accounts for about 70% of service industry and it shows that the capital intensity of China’s service industry is generally very high and invests massive capital. Judged among various industries, the absolute quantity of wholesale and retail industry added value is the highest. However, so far as the growth rate is concerned, financial industry, real estate together with leasing and business services have the highest speed and these industries have comparatively concentrated capital with close relevance among each other. For example, as a capital-intensive industry, real estate industry needs the support of financial industry and other business services in the link of production, circulation and consumption, requiring great capability of fund raising and capital management.

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Table 9.1 Proportion of labor remuneration over added value of output No.

Industry

Proportion of labor remuneration over added value of output (%)

1

Transportation and storage

26

2

Post industry

77

3

Information transfer, computer service and software

19

4

Wholesale and retail trade

24

5

Hotels and catering services

28

6

Financial industry

26

7

Real estate

11

8

Leasing and business service

35

9

Research and experimental development 60

10

Polytechnical services

52

11

Management of water conservancy, environment and public facilities

50

12

Residents and other services

28

13

Education

78

14

Health, social security and social welfare

67

15

Culture, sports and entertainment

46

16

Public management and social organization

87

As the capital-intensive modern service industry, real estate industry will become the pillar industry of China’s national economic development within a long period.

9.2.2 Measurement of Knowledgization 9.2.2.1

Definition of Knowledge-Intensive Service Industry

The measurement of knowledge-intensive industry is based on the proportion of professional and technical personnel over the total number of employees. The data are coming from DRCNET Macro Economic Database (Table 9.3). From the proportion of professional and technical personnel over the total number of employees, we can find that the average level of tertiary industry is 31.5%. Those below this level are not knowledge-intensive industries, such as wholesale and retail trade, transportation, storage and post service, management of water conservancy, environment and public facilities, leasing and business services as well as public management and social organizations. Twice of average level is 62.5% and those

9.2 Measurement of the Overall Level of China’s …

261

Table 9.2 Added value of capital-intensive service industry and its proportion over service industry 2004

2005

Transportation, storage and post service

9304.40

10,666.16 12,182.98 14,601.04 16,362.50 16,727.11

Information transfer, computer service and software

4236.30

4904.07

Wholesale and retail

12,453.80 13,966.18 16,530.72 20,937.84 26,182.34 28,984.47

Financial industry

5393.00

6086.83

8099.08

Real estate

7174.10

8516.43

10,370.46 13,809.75 14,738.70 18,654.88

Leasing and business services

2627.50

3129.14

3790.77

4694.85

5608.22

6191.36

Residents service and other service industries

2481.50

3127.99

3541.70

3996.48

4628.05

5271.48

Culture, sports and entertainments

1043.20

1204.55

1362.67

1631.29

1922.40

2231.01

68.88

69.52

70.69

70.17

70.25

Proportion of added 69.26 value of capital-intensive service industry in service industries

2006

5683.45

2007

6705.58

2008

7859.67

2009

8163.79

12,377.55 14,863.25 17,767.53

Table 9.3 Proportion of professional and technical personnel over the total number of employees Industry

Proportion of professional and technical personnel over the total number of employees (%)

Average level of tertiary industry

31.5

Transportation, storage and post service

13.5

Information transfer, computer service and software industry

36.8

Wholesale and retail trade

15.4

Hotels and catering services

10.1

Financial industry

42.9

Real estate

22.1

Leasing and business services

16.7

Scientific research, technical service and geological exploration

50.3

Management of water conservancy, environment and public facilities

15.1

Residents service and other services

10.4

Education

81.2

Health, social security and social welfare

71.6

Culture, sports and entertainments

43.9

Public management and social organizations

11.3

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higher than this level are knowledge-intensive industries, such as education, health, social security and social welfare. As for those between average level and twice of average level, we should consider two auxiliary indexes. The average salary of employees is RMB 24,918 Yuan and 1.5 times of that value is 37,376 Yuan. Those higher than the latter level are technology-intensive, such as financial industry, scientific research, information transfer, computer service and software as well as technological service and geological exploration. The per capita fixed assets of culture, sports and entertaining industry is lower than the average level and thus belongs to non knowledge-intensive industry.

9.2.2.2

Proportion of Knowledge-Intensive Service Industry in Service Industry

The proportion of added value of knowledge-intensive service industry over service industry is measured on the data from DRCNET Macro Economic Database. From Table 9.4, we can see that the added value of knowledge-intensive service industry is increasing year by year and its proportion over service industry appears to be on the rise yearly. This proportion has been over 30% since 2007 while the fluctuation within these six years is very slight. Judging among different industries, we find that financial industry possesses the largest increase, rising from RMB 539.4 billion yuan in 2004 to RMB 1776.753 billion yuan in 2009. Its increase has been over double of the original. In addition, education industry has undergone great development. The increase of knowledge investment in service industry shows the effective promotion of its modernization. Table 9.4 Added value of knowledge-intensive service industry (RMB 100 million yuan) and its proportion over service industry (%) Year

Information transfer, computer service, software

Financial industry

Scientific research, technological service, geological exploration

Education

Health, social security, social welfare

Proportion of knowledge-intensive service industry over service industry

2004

4236.30

5393.00

1759.50

4892.60

2620.70

29.3

2005

4904.07

6086.83

2163.99

5759.72

2987.30

29.2

2006

5683.45

8099.08

2684.79

6406.98

3326.24

29.6

2007

6705.58

12,337.55

3441.34

7693.21

4013.77

30.7

2008

7859.67

14,863.25

3993.35

8887.47

4628.75

30.6

2009

8163.79

17,767.53

4721.73

10,481.79

5082.56

31.2

9.2 Measurement of the Overall Level of China’s …

263

9.2.3 Measurement of High Technology Level 9.2.3.1

Definition of High Technology Industry Input-Intensive Service Industry

The proportion of intermediate investment of service industry in high tech industry over its service industry total output is measured by its average value; the high tech investment-intensive service industry is higher than the average value, the data coming from Table of China’s Investment and Output in 2007. According to the analysis of Table 9.5, the average proportion of intermediate investment of service industry in high tech industry over its service industry total output is 12.0%. The industries with its proportion over this average value include leasing and business services, transportation, storage and post service, research and testing development, polytechnical services, financial industry as well as wholesale and retail trade. The above industries are considered as high tech service industries with comparatively high technology intensity. The intensity of research and experimental development industry is ranked on the top, as high as 57.5%. The second highest intensity belongs to leasing and business services as well as polytechnical services. Meanwhile, some transportation and logistics industries like transportation, storage and post service as well as wholesale and retail trade also have very high intensity, for the modernization of these traditional service industries has been promoted to a large extent after the transformation and upgrading in information and technology.

9.2.3.2

The Proportion of High-Tech Industry Input-Intensive Service Industry in Service Industry

The proportion of investment-intensive service industry’s added value in high tech industry over service industry is measured according to the data from DRCNET Macro Economic Database. According to Table 9.6, the proportion of investment-intensive service industry’s added value in high tech industry over service industry appears to be on the rise and it has been over 50% since 2007, which shows that the position of technologyintensive service industry has been raised in service industry. Judged among various industries, the wholesale and retail trade has the largest absolute quantity of its added value and it remains high speed of growth for many years. The financial industry enjoys the most rapid development, rising from RMB 539.3 billion yuan in 2004 to RMB 1776.75 billion yuan in 2009. Its increase is as high as 229.5% and it caught up with transportation, storage and post service in 2009. Meanwhile, there are some industries whose added value may be behind other industries in its absolute quantity but they enjoy very rapid development, such as scientific research, technological service and geological exploration as well as leasing and business services. They

264

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Table 9.5 Proportion of intermediate investment of service industry in high tech industry over its service industry total output Industry

Intermediate investment of service industry in high tech industry (RMB ten thousand yuan)

Total output (RMB ten thousand yuan)

Proportion of intermediate investment of service industry in high tech industry over its service industry total output (%)

Transportation and storage industry

46,379,750

317,001,113

14.6

Post service

1,108,450

7,307,574

15.2

Information transfer, computer service and software industry

8,548,654

100,304,221

8.5

Wholesale and retail trade

50,945,635

288,325,411

17.7

Hotels and catering services

10,455,325

148,154,357

7.1

Financial industry

26,880,959

194,810,240

13.8

4,395,400

147,746,232

3.0

Leasing and business services

22,095,459

117,845,810

18.7

Research and testing development

7,932,610

13,790,171

57.5

Polytechnical services

7,943,068

43,970,864

18.1

Management of water conservancy, environment and public facilities

668,168

21,582,482

3.1

Residents service and other services

3,178,356

87,543,772

3.6

Real estate

Education

883,151

130,658,479

0.7

Health, social security and social welfare

3,612,311

111,225,631

3.2

Culture, sports and entertainments

2,236,875

35,409,067

6.3

223,453

158,175,717

0.1

Public management and social organizations

9.2 Measurement of the Overall Level of China’s …

265

Table 9.6 Added value of investment-intensive service industry in high tech industry and its proportion over service industry Added value of industry (RMB100 million yuan) or proportion (%)

2004

Transportation, storage, post 9304.4 service

2005

2006

2007

2008

2009

10,835.7 12,183.0 14,601.0 16,362.5 16,727.1

Wholesale and retail trade

12,453.8 13,534.5 16,530.7 20,937.8 26,182.3 28,984.5

Financial industry

5393.0

6307.2

8099.1

12,337.5 14,863.3 17,767.5

Leasing and business services

2627.5

2912.4

3790.8

4694.9

5608.2

6191.4

Scientific research, technological service and geological exploration

1759.5

2050.6

2684.8

3441.3

3993.4

4721.7

48.5

48.9

50.3

51.0

50.3

Proportion of 48.8 investment-intensive service industry’s added value over service industry

are emerging technology-intensive service industries and their rapid development reflects the adjustment of China’s industrial structure and the prospects of future industries.

9.2.4 Measurement of Production Level 9.2.4.1

Definition of Producer Services

The proportion of intermediate investment of service sectors in manufacturing industry over this service sector is measured and then compared with the average value. Those with their proportion higher than average value can be defined as productive service industry. The data come from Table of China’s Investment and Output in 2007. According to Table 9.7, the average proportion of service sectors’ intermediate investment is 22.2%, so those with their proportion higher than average value are considered as productive service industry, such as transportation, storage, post service, wholesale and retail trade, financial industry, leasing and business services, research and experimental development, polytechnical service industry, etc. Among them, the intermediate investment of research and experimental development in manufacturing industry has the highest proportion over the total output of this industry, as high as 72.1%, and the second highest one is financial industry and polytechnical services, accounting for 34.1%, while transportation and storage together with wholesale and retail trade are typical representatives of transformation

266

9 Scientific and Technological Progress and the Transformation …

Table 9.7 Proportion of intermediate investment of service sectors in manufacturing industry over this service sector’s total output Industry

Intermediate investment of service sectors in manufacturing industry (RMB ten thousand yuan)

Transportation and storage industry

102,784,366

Post service

Total output (RMB ten thousand yuan)

Proportion of intermediate investment of service sectors in manufacturing industry over this service sector’s total output (%)

317,001,113

32.4

2,091,102

7,307,574

28.6

Information transfer, computer service and software industry

19,542,127

1,003,044,221

19.5

Wholesale and retail trade

94,405,807

288,325,411

32.7

Hotels and catering services

22,436,521

148,154,357

15.1

Financial industry

66,479,019

194,810,240

34.1

Real estate

10,221,765

147,746,232

6.9

Leasing and business services

37,204,327

117,845,810

31.6

Research and testing development

9,940,440

13,790,171

72.1

Polytechnical services

14,990,000

43,970,864

34.1

Management of water conservancy, environment and public facilities

2,754,674

21,582,482

12.8

Residents service and other services

10,596,465

87,543,772

12.1

Education

1,667,244

130,658,479

1.3

Health, social security and social welfare

6,822,792

111,225,631

6.1

Culture, sports and entertainments

5,297,615

35,409,067

15.0

513,631

158,175,717

0.3

Public management and social organizations

9.2 Measurement of the Overall Level of China’s …

267

and upgrading in traditional service industries. These two industries account for a considerable high proportion of intermediate investment in manufacturing industry.

9.2.4.2

Proportion of Producer Service in Service Industry

As productive service industry is the core of service industry, the measurement of productive service industry can also serve as the tool to evaluate the modernization of service industry. This book selects the proportion of productive service industry’s added value over service industry as the index for measurement. Due to the limitation of data’s accessibility, the measuring periods range from 2004 to 2009 with data coming from China’s Statistical Yearbook of 2006–2011. From Table 9.8, we find that the proportion of productive service’s added value over service industry appears to be on the rise and has been over 50% since 2007. From the current data, we can find that the proportion of productive service industry continues to increase and this means it has become the main constituent of service industry and thus can be considered as the core of modern service industry. Judged among various industries, the wholesale and retail trade possesses the highest added value in its absolute quantity and it remains considerably high increasing rate for many years. It is the financial industry that develops most rapidly, its added value rising from RMB 539.3 billion yuan in 2004 to RMB 1776.75 billion yuan in 2009 and its increasing rate being 229.5%. In 2009, the added value of financial industry caught up with that of transportation, storage and post service. Although the development of some industries lag behind other industries currently, they enjoy high speed of development, such as scientific research, technological service and geological exploration, leasing and business services. They are emerging knowledge and technology intensive industries and their rapid development shows the adjustment of China’s industrial structure and its future industrial developing trend. Table 9.8 Added value of productive service industry and its proportion over service industry Industries

2004

Transportation, storage and post 9304.4 service Wholesale and retail trade

2005

2006

2007

2008

2009

10,835.7 12,183.0 14,601.0 16,362.5 16,727.1

12,453.8 13,534.5 16,530.7 20,937.8 26,182.3 28,984.5

Financial industry

5393.0

6307.2

8099.1

12,337.5 14,863.3 17,767.5

Leasing and business services

2627.5

2912.4

3790.8

4694.9

5608.2

6191.4

Scientific research, technological service and geological exploration

1759.5

2050.6

2684.8

3441.3

3993.4

4721.7

48.5

48.9

50.3

51.0

50.3

Proportion of productive service 48.8 industry’s added value over service industry

268

9 Scientific and Technological Progress and the Transformation …

9.2.5 Measurement of Structure Softening Level The measurements include the proportion of tertiary industry’s added value over GDP, the growth rate of tertiary industry and the regional proportion of tertiary industry’s added value over total production value. The data for measurement come from China’s Statistical Yearbook and China’s Statistical Yearbook of Tertiary Industry of respective year as well as DRCNET Macro Economic Database (Tables 9.9 and 9.10). From the above measurement from 2003 to 2010, tertiary industry has undergone rapid development and we can use “transition” to describe the massive progress made by tertiary industry. Its added value rises from 5600.470 billion yuan in 2003 to 17,308.701 billion yuan in 2010, 2.1 times of the original. Meanwhile, the proportion of tertiary industry’s added value over GDP rises from 41.23 to 43.14%, with only a slight growth. Its proportion has not passed 50% and there is still a great gap compared with developed countries. Judging from the growth rate of tertiary industry, we find that it nearly keeps the same pace with that of GDP. From 2005 to 2009, the growth rate of tertiary industry even overpasses that of GDP. That is to say, tertiary industry Table 9.9 Added value of tertiary industry over GDP Year

Added value of tertiary industry (RMB 100 Total growth of tertiary industry over GDP million yuan) (%)

2003 56,004.70

41.23

2004 64,561.30

40.38

2005 74,919.28

40.51

2006 88,554.88

40.94

2007 111,351.95

41.89

2008 131,339.99

41.82

2009 148,038.04

43.43

2010 173,087.01

43.14

Table 9.10 Growth rate of tertiary industry

Year

Growth rate of GDP (%)

Growth rate of tertiary industry (%)

2003

10.0

9.5

2004

10.1

10.1

2005

11.3

12.2

2006

12.7

14.1

2007

14.2

16.0

2008

9.6

10.4

2009

9.2

9.6

2010

10.4

9.6

9.2 Measurement of the Overall Level of China’s …

269

has made great contribution to the growth of national economy. The growth rate of tertiary industry reaches its peak in 2007, as high as 16%, and it has been declined since then. This may be influenced by international financial crisis, resulting in the declining of market demand and thus restricting the growth of tertiary industry.

9.2.6 Measurement of Optimization Level The measurement is based on the proportion of added value of culture, sports and entertainments over service industry, data coming from DRCNET Macro Economic Database. According to Table 9.11, we find that from 2004 to 2009 the added value of culture, sports and entertainments has undergone yearly increase in its absolute quantity and increased by 113.86% within the six years. The proportion of industry added value over service industry is comparatively slight, fluctuating between 1.5 and 1.6%. This shows that the optimization of China’s service industry remains at a comparatively low level, which is not in correspondence with the tendency of economic development. With the increase of national revenue and the acceleration of industrialization, the structure of service industry should continue to be optimized, but the above measurement shows that China’s service industry has not reached the ideal optimization and needs further development. Therefore, we should promote the development of top service industry in the future. Table 9.11 Added value of culture, sports, entertainments and its proportion over service industry Year

Industry added value (RMB 100 million yuan)

Its proportion over service industry (%)

2004

1043.20

1.62

2005

1204.55

1.61

2006

1362.67

1.54

2007

1631.29

1.46

2008

1922.40

1.46

2009

2231.01

1.51

270

9 Scientific and Technological Progress and the Transformation …

9.3 Empirical Study of Scientific and Technological Progress on the Modernization of Service Industry 9.3.1 Modification of the Chenery’s Model Based on the Structural Adjustment of Supply and Demand Chenery’s standard industrial structure model is well known in the researching field of industrial structure and meanwhile it is the constructing basis for relative research on various industrial structures. As early as the 1970s, Chenery observed and processed the data on 101 countries ranging from 1950 to 1970 and concluded a universalized industrial structure changing rule to explain the industrial structure’s changing phenomena occurring in the economic growth of various countries. This industrial structure’s changing rule can be shown as follows. So far as a country or a region is concerned, if its economic development, scale, resource endowment and trade structure remain stable, with the increase of regional economic development, the changing of industrial structure will follow the subsequent route: the proportion of service industry over GNP will be on the increase and accordingly that of primary and secondary industry will be declining. This industrial structure’s consistency change controlling many economic variables is called “standard industrial structure”, which is simplified as “standard structure”. Its mathematical model can be shown in the following equations: In xi = α + β1 Inγ + β2 (Inγ)2 + γInN + δInK + ε1 Ine p + ε2 Inem In xi = α + β1 Inγ + β2 (Inγ)2 + γInN + δIn K

(9.1) (9.2)

In the above equations, x i , i = 1, 2, 3, representing the proportion of primary, secondary and tertiary industry over GNP respectively; γ is the per capita GNP calculated on 1960s dollar; N refers to population (million); K is the proportion of total fixed assets over GNP; e p is the proportion of primary commodity export over GNP; em is the proportion of manufacturing industry’s commodity export over GNP. In Chenery’s opinion, the above standard industrial structure model will be constructed when various countries are confronted with similar technologies, domestic demands and international market, etc. Borrowing Chenery’s researching idea of industrial structure change, this book adopts the same perspective and constructs regression model of service industrial structure and its influencing factors; however, this book analyzes the influencing factors of service industrial structure change from supplying and demanding perspectives and adds the influencing factor of technological progress, different from the controlling factors of Chenery’s “standard industrial structure” model like productive technology, demanding structure and factors endowment. Firstly, it selects the supplying and demanding structure changing factors of service industry modernization and constructs its influencing factors model; secondly, based on supplying and

9.3 Empirical Study of Scientific and Technological Progress …

271

demanding structure changing factors, it adds the factor of technological progress for exploration and measures the effect of technological progress on the supplying and demanding structure of service industry so as to promote the effective mechanism of service modernization. Based on the above analysis, this book constructs the model of how technological progress promotes service modernization as follows: γ =α+



βi xi +



γi z i +



δr wr + ε

(9.3)

In this equation, γ represents the modernization of service industry; x represents the supplying factor of service industry; z represents the demanding factor and w is the control variable, which mainly refers to the scale variable of Chenery’s standard industrial structure model including factor scale and demanding scale factors. Considering the factors input of service industry is divided into capital (K) and labor (L), factors structure of service industry includes the proportion of capital input in service industry over the service industry’s employment scale (K/L), the internal structure of service industry (K mo /K tr ) and the internal structure of service industry’s employment (L mo /L tr ), among which K mo represents the capital investment in modern service industry and K tr represents that in traditional service industry, while L mo refers to the superior labor used intensively in modern service industry (human resource capital) and L tr refers to the low-level labor (raw labor) used intensively in traditional service industry. Analyzing from the demanding level of service industry, we think that service industry should satisfy the following two demands: the intermediate service in the productive process of manufacturing industry (i.e., productive service) and the service satisfying people’s daily life (i.e., consuming service). Thus it can be seen that the social demands for service industry should be divided into productive demands (DP) and consuming demands (DC). For that reason, this book measures the demanding structure of service industry from three angles: the scale of productive demands over consuming demands (DP/DC), the internal structure of productive demands (DPmo /DPtr ) and that of consuming demands (CPmo /CPtr ). In the selection of control variable, we keep the consideration of economic scale and openness in Chenery’s original model and thus have control over economic scale and employment scale of service industry as well as internationalization and industrialization. In addition, we also control per capita income, capital market efficiency and overall labor scale so as to exclude the influence of such basic factors as residents’ demands scale, labor market and capital market on the modernization of service industry. Now, we can construct the modernized Chenery’s model of service industry based on the adjustment of supplying and demanding structure as follows: 

         K K mo L mo DP D Pmo + β3 + γ1 + β2 + γ2 γ =α β1 L K tr L tr DC D Ptr    DCmo + δr wr + ε + γ3 (9.4) DCtr

272

9 Scientific and Technological Progress and the Transformation …

9.3.2 Model of Service Industry Modernization Based on the Structural Adjustment of Supply and Demand 9.3.2.1

Index Selection and Data Sources

As the enlargement of samples can obtain better regression effect, this book adopts panel data regression analysis with China’s 31 provinces, autonomous regions and municipalities as observing individuals in terms of panel data. The relative data on China’s service industry can be obtained since 2003, thus this book adopts the provincial panel data of 2003–2010 as research data object. The following expounding is about index selection and data sources: The dependent variable (γ ) refers to the modernization of service industry, represented by the proportion of added value of service industry over the total added value of service industry. As the statistics of division added values of provincial service industries is only confined to six sub-industries,3 the other service industries can only be measured by residue output value of overall service industry deducting the above six industries, such as culture, entertainments and education, etc. Based on the analysis of Chapter Four, we adopt the added value sum of transportation, storage, post service, financial industry and other service industries to represent modernized service industry and the division of overall service industries added value sum by the above four industries’ added value sum representing the modernization of service industry. The ratio of labor force over capital (L/K) refers to the proportion of labor investment scale in service industry over that of capital. This book adopts the proportion of jobholders in service industry over its capital storage for the measurement. The number of jobholders in service industry is taken from China’s Statistical Yearbook which records the corresponding number of different regions. Based on the fixed investment in service industry of different regions in China’s Statistical Yearbook, the capital storage of service industry is calculated in perpetual inventory method K t = It +(1−δ)K t−1 , using fixed asset price investing index to exclude the influence of price factor in the process of calculation. At present, there are several values for fixed asset depreciation rate δ, and here we adopt the depreciation rate δ = 9.6% selected by Zhang et al. (2004). The structure of labor force (L mo /L tr ) refers to the proportion of human capital (superior labor) scale over raw labor (low-level labor) in labor investment of service industry, measured by the ratio of jobholders with bachelor’s degree over the total employed persons. The data of jobholders with bachelor’s degree comes from China’s Labor Statistical Yearbook and the data of overall jobholders are based on the number of jobholders in different regions and industries from China’s Statistical Yearbook. Industrial investment structure (K mo /K tr ) refers to the ratio between capital investment in modernized service industry and that in traditional service industry, represented by the proportion of capital storage in high tech service industry over that in 3 These six service industries

include transportation, storage and post services, wholesale and retail trade, hotels and catering services, financial industry and real estate.

9.3 Empirical Study of Scientific and Technological Progress …

273

overall service industry. The fixed asset investment is calculated in perpetual inventory method and the selected depreciation rate is still δ = 9.6%, with the fixed assets investment data coming from different regions’ fixed investment in service industry in China’s Statistical Yearbook. According to the study in Chapter Four, we select transportation, storage, post service, information transfer, computer service and software, technological service and geological exploration, leasing and business services as well as financial services as high tech service industries, and thus the capital storage of high tech service industry includes that of the above eight sub service industries. The ratio of productive demand over consuming demand (DP/DC) is approximately represented by that of secondary industry’s total production value over service industry’s consumption. The productive demand of service industry is mainly provided by manufacturing industry, but it is hard to observe provincial panel data on service industry’s investment attracted by manufacturing industry. Generally speaking, the more advanced the manufacturing industry is, the higher the productive demand will be for manufacturing industry. Therefore, we select the secondary industry’s total production value as the proxy variable of productive service demand. The data come from China’s Statistical Yearbook and the consuming data of service industry come from the relative content of China’s Statistical Yearbook, the total sum of the per capita yearly consuming expenditure of urban households and the per capita living consuming expenditure of rural households from different regions. As the statistical residents’ consuming expenditure includes the following eight aspects: food, clothing, living, household equipment with after sale service, transportation, culture, education, entertainments with service, health care and other commodities with service; the last four kinds of consuming expenditure are categorized as the consumption of service industry. The internal structure of productive demand (DPmo /DPtr ) refers to the ratio of high tech industry’s demand for service to common manufacturing industry’s demand for service and the index is represented by the ratio of high tech industry’s output value to the total output value of secondary industry. It is difficult to observe the demand of high tech industry for service industry, but the development of high tech industry can promote its demand for service industry. Therefore, we select the output value of high tech industry as proxy variable of high tech industry for service industry and accordingly select the total output value of secondary industry as proxy variable of productive service demand. The data on high tech industry’s output value come from China’s High Tech Industry Statistical Yearbook and that of secondary industry’s total output value come from China’s Statistical Yearbook. The internal structure of consuming demand (DC mo /DC tr ) refers to the ratio of consuming demand for superior service industry to that of overall service industry, represented by the ratio of expenditure on culture, entertainments and service to that of residents’ service consumption in their overall expenditure. Among them, we use the aggregate consuming expenditure on urban and rural culture, entertainments and service to represent the consuming demand for superior service industry with data coming from China’s Statistical Yearbook. The consuming demand for overall

274

9 Scientific and Technological Progress and the Transformation …

service industry is represented by the residents’ service consumption in their total consumption with data coming from China’s Statistical Yearbook. The technological progress of service industry (technology) is represented by Malmquist’s non-parametric index of technology change. As the factors investment in service industry consists mainly of capital and labor, we use technology change index calculated by Malmquist’s index to measure the technological progress of service industry. The number of jobholders in service industry comes from China’s Statistical Yearbook, and the capital storage of service industry selects the fixed asset and uses the perpetual inventory method to calculate, K t = It + (1 − δ)K t−1 ; the output data of service industry is measured by the output value of service industry in China’s Statistical Yearbook. The labor scale of service industry (labor) refers to the supplying scale of labors, represented by the jobholders in service industry. The data source is the same as the above variable. The economic scale of service industry (output) is represented by the regional output value of service industry and the data source is the same as the above variable. The ratio of labor to population (labor_ construction) is represented by the ratio of number of labors to the total population. The number of labors is represented by the population of the age between 15 and 64 in different regions from China’s Statistical Yearbook and the number of total population comes from China’s Statistical Yearbook. The capital market efficiency (efficiency) is represented by the index of credit marketization and the data come from China’s Marketization Index: Yearly Report of 2010 on Relative Marketization Process of Various Regions edited by Gang Fan, et al. GDP per capita (pgdp) is represented by per capita total regional production value from the column of three industries’ total regional production value in China’s Statistical Yearbook. Industrialization is represented by the ratio of secondary industry’s output value to GDP. The source of secondary industry is the same as the above variable and the GDP data come from the total regional production value from the column of regional total production value and indexes in China’s Statistical Yearbook. Internationalization is indicated by the proportion of FDI in GDP. The level of FDI is indicated by the total amount of investment in the column of the registration of foreign-invested enterprises at the end of the year in China’s Statistical Yearbook.

9.3.2.2

Model Estimation Method

i. Measurement method of technological progress: Malmquist index The technological progress of service industry is measured by the technology change index calculated by Malmquist’s non parameter. The traditional measurement of technological progress is based on the setup of concrete production function and it obtains the residual through meterage regression and thus represents technological progress

9.3 Empirical Study of Scientific and Technological Progress …

275

with residual. The traditional method can approximately express the technological level to some extent, but the setup of production function may result in various forms of functions, which may further lead to big difference in regressive residuals, so the technological progress variable estimated in this way is not stable. In order to overcome the weakness of traditional measurement in technological progress, Malmquist (1953) put forward its own index calculating method for the first time. Malmquist index also needs the investment factors and the output value, but as it is based on non-parametric linear planning, it does not need the concrete production function and can solve productivity based on the optimal geographical distance. The main idea of Malmquist index lies in two aspects: on one hand the change of TFP (total factor productivity) is originated from technology change and on the other from efficiency change, while the traditional method cannot decompose productivity into technology and efficiency. Here we suppose that there are only two factor investments (labor and capital) and one output. In reality, labor is represented by the jobholders of service industry and capital is represented by its storage in service industry, while output is represented by its value in service industry. The sources of labor and capital remain the same as the above relative variables, and the output data come from the relative values of service industry from the column of regional total production values on the division of three industries in China’s Statistical Yearbook. ii. Dynamic analysis setup of model The biggest deficiency of static model lies in the lacking consideration of dynamic problems. As inertia usually exists in economic activities, the current state of economy tends to be influenced by its previous state. As for the modernization of service industry, it must be under the influence of the previous level of modernization. Therefore, this book adds the lagging variable of service modernization for the dynamic analysis. The adopted model is as follows:         K Kmo Lmo + β3 In + β4 In In(γit ) = β0 + β1 In γit−1 + β2 In Lit Ktrit Ltrit         DP DCmo DPmo + β6 In + β7 In + β8 In technologyit + β5 In DCit DCtrit DPit     + β9 In(laborit ) + β10 In outputit + β11 In(labor_construction) + β12 In efficiencyit   + β13 In ggdpit + β14 In(industrializationit ) + β15 In(internationalizationit ) + it

(9.5)

In the above model, i represents region and t represents time. As the relativity between the lagging variable of the model’s dependent variable and that of residual results in endogenous problems, the regular OLS estimating method may expand the residual and further reduces the effect of regressive estimation, which will result in the first type of statistical supposition error, i.e., the higher possibility of refusing the original supposition. In order to avoid this statistical problem, we adopt Arellanp and Bover’s (1995) systemic GMM method to estimate the model with the lagging variable of endogenous variable as the instrumental variable for parametric estimation.

276

9 Scientific and Technological Progress and the Transformation …

As the “one-step” GMM is more effective than the “two-step” GMM (Bond 2002), here we select the “one-step” systemic GMM to estimate the regressive equation. The meterage regression results of different models’ “one-step” systemic GMM are shown in Table 9.12. The explanatory variables of Model No. 1 are all exogenous and exclusive of the variable of technological progress in service industry, while the explanatory variables of Model No. 2 are all exogenous but including the variable of technological progress in service industry; Model No. 3 supposes that the six variables representing supplying and demanding structures are endogenous but exclusive of the variable of technological progress in service industry while Model No. 4 supposes that the six variables representing supplying and demanding structures are endogenous but including the variable of technological progress in service industry. The subsequent part will give a further analysis based on regressive results.

9.3.3 An Analysis of Regression Results of the Service Industry Modernization Promoted by Scientific and Technological Progress 9.3.3.1

Result of Model Regression

After Model No. 2 introduces Malmquist technological progress variable of service industry, its Wald statistics is 266.02, higher than that of Model No. 1 (240.85) without control of technological progress. As Wald statistics is a prominent indicator to test and estimate the overall model, in economic sense, higher Wald statistics shows that technological progress can promote the increase of modern service industry’s added value and thus the modernization of service industry.

9.3.3.2

Analysis of Model Regression

The regressive coefficient of labor to capital is negative and significant between Model No. 1 and Model No. 2 as expected, which shows that there is negative correlation between higher labor intensity and the proportional increase of modern service industry’s added value; in other words, it does not facilitate the modernization of service industry. Economic development takes either labor-intensive or capital-intensive form, and the higher labor intensity usually leads to the extensive economic development, reducing the technological content, capability and product attached value of output. As a matter of fact, the modern service industry is usually of high added value and comparatively high capital proportion as well as negative labor-to-capital regressive coefficient. Thus it can be seen that to accelerate the transformation of service industry development mode or promote the modernization of service industry we must expand capital investment so as to develop capital intensive economy and realize modernization of service industry in its real sense.

Variable representation

1.262** (0.551)

1.117** (0.567)

labor

Labor in service industry

Number of jobholders in service industry

Lagging period 1 of explanatory variable

γ (t − 1 )

1.083* (0.247) −0.656* (0.159)

−0.70* (0.164)

0.013 (0.008) 1.253* (0.231)

Ratio of secondary 0.09 industry production value (0.089) to total expenditure in service industry

Ratio of urban and rural culture, entertainment consumption to total residents’ service consumption

Lagging period 1 of explanatory variable

Control variables

−0.011 (0.038)

Ratio of production value 0.004 of high tech industry to (0.039) that of secondary industry

0.107 (0.086)

−0.115 (0.083)

0.254* (0.068)

0.24* (0.071)

Ratio of investment in modern service industry

Malmquist technological progress

DPmo /DPtr

Ratio of productive to consuming demand

0.202* (0.037)

0.027* (0.010)

0.026** (0.011)

Ratio of jobholders with bachelor degree to the total employed persons

−0.038*** (0.023)

0.755* (0.117)

0.006 (0.038)

0.230** (0.092)

(continued)

0.054 (0.075)

0.686* (0.118)

0.007 (0.006)

1.989* (0.337)

0.002 (0.006)

0.052*** (0.031)

0.034* (0.010)

−0.056** (0.025)

Model 4

0.033** (0.014)

0.774* (0.292)

−0.054 (0.079)

−0.173* (0.048)

Model 3

Model 2

Model 1

Ratio of labor investment −0.173* to that of capital (0.044)

Variable measurement

Technology

DC mo /DC tr

Internal structure of consuming demand

Malmquist technological progress

DP/DC

K mo /K tr

Industrial investment structure

Internal structure of productive demand

L mo /L tr

Labor structure

Ratio of labor to capital L/P

Variable

Key variable: technological progress

Key variable | demanding structure

Key variable | supplying structure

Table 9.12 Results of model regression

9.3 Empirical Study of Scientific and Technological Progress … 277

pgdp Industralization

Internationalization Constant Observes

Per capita GDP

Industrialization

Internationalization

Constant

Observes

−0.942* (0.203) 0.708* (0.249) −0.002 (0.019) 8.70* (1.927)

−0.956* (0.212)

Ratio of production value 0.757* of secondary industry to (0.258) GDP −0.004 (0.02) 8.689* (2.016)

Ratio of FDI to GDP

Per capita GDP

183.33 0.0000

Sargan

0.0000

168.02

0.0000

192.1344

0.0000

165.88

121

−0.185 (0.751)

−0.106 (0.759) 121

0.020** (0.012)

0.185** (0.090)

−0.083 (0.082)

0.169* (0.034)

0.757* (0.282)

−0.097 (0.079)

Model 4

0.029 (0.073)

1.782* (0.362)

−0.006 (0.039)

0.006 (0.006)

0.088** (0.034)

0.030 (0.01)

Model 3

chi 2

0.0000

266.02

121

0.082 (0.055)

0.095*** (0.057)

Credit marketization index

121

2.658* (0.567)

2.562* (0.59)

Proportion of jobholders aged between 15 and 64 over total population

0.0000

efficiency

Efficiency of capital market

0.437** (0.182)

240.85

labor_ construction

Ratio of labor to population

Model 2

0.483** (0.187)

Production value of service industry

Model 1

Variable measurement

Prob > chi 2

output

Economic scale of service industry

Wald statistics

Variable representation

Variable

Note * represents p < 0.01, ** represents p < 0.05, *** represents p < 0.1, the content within brackets is standard deviation; the above variables adopt the form of logarithms in empirical study

Table 9.12 (continued)

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279

As for the proportion of jobholders with bachelor degree over the total employed people, its regressive coefficient is positive and significant as expected, which shows that there is positive correlation between highly qualified labor and the proportional increase of modern service industry’s added value; in other words, it facilitates the modernization of service industry. The quantity of working force is of great significance to economic activities and its quality structure also plays an important part in economic activities. The new economic growth theory shows that higher education may promote the accumulation of human capital so as to facilitate economic development. In fact, modern service industry is usually high technicalized and high informationized and thus requires the labor structure of higher level and depth to match its special feature, showing that higher human capital coincides with the requirement of modern service industry. As for the proportion of investment in modern service industry over the total capital investment in service industry, its regressive coefficient is positive and significant as expected, which shows that there is positive correlation between the more specified industrial investment structure and the higher proportional increase of modern service industry’s added value and it facilitates the modernization of service industry. Such a result is fundamentally the same as the negative regressive coefficient of labor to capital scale. As the above analysis mentions, modern service industry is highly capitalized, so the enhancement of capital scale of modern service industry is helpful to the reinforcement of capital intensity. China’s modern service industry is still in a comparatively low-level structure, which reminds us of the necessity to raise the capital intensity in order to promote the modernization of service industry. As for the proportion of high tech output value, the regressive coefficient in Model No.1 is positive while the one in Model No. 2 is negative and both are insignificant, showing that the high productive demand of internal structure cannot promote the modernization of China’s service industry, which is out of our expectation. Maybe it is because China’s high tech industry is still in a very low or comparatively laggingbehind developing stage, which may further result in the insignificant promoting effect on economy. This also tells us the urgency of developing high tech industry, which will not only promote its own development but also promote the adjustment of industrial structure and develop modern service industry. All these are missions of our times. As for the proportion of secondary industry production value over the total service industry expenditure, its regressive coefficient is positive but not significant, showing that there is no significant positive correlation between the proportion of productive demand over consuming demand and the modernization of service industry. This means that we need expand the level of productive demanding expenditure comparatively so as to stimulate economic activism. As for the proportion of urban and rural expenditure on culture and entertainments over the residents’ total service expenditure, its regressive coefficient is positive and significant, showing that in the internal structure of consuming demand the high expenditure on culture and entertainment can promote the modernization of service industry. As a matter of fact, the higher the consuming level is, the more advanced the economic development will be and the higher the service industry’s development

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will be. Besides that, many service sectors emerge with the demands of culture and entertainment. Therefore, there is positive correlation between high consuming structure and the modernization of service industry. The regressive coefficient of Malmquist technology progress is positive but not significant, showing that technological progress can promote modernization of service industry but the effect is not very significant. This also means that the development of service industry ought to depend on great technological progress. As for the lagging period 1 of explanatory variable, its regressive coefficient is positive and significant, showing that there is significant positive correlation between the modernization of service industry and its previous high modernization. Inertia often exists in economic activities, so the previous basis and development usually determines the future state, which is of basic logic. The regressive coefficient of jobholders in service industry is negative and significant, showing that there is negative correlation between the quantity of working force and modernization of service industry, which is the same as the regressive conclusion of labor to capital scale. It further shows that the high labor intensity cannot facilitate the modernization of service industry. With further expansion, the depth of working force is helpful to modernization of service industry, but the width of working force is not of positive correlation with its modernization as expected. The regressive coefficient of service industry’s output value is positive and can pass the significance test, sufficiently proving that there is positive correlation between the scale of service industry and its modernization, which is correspondent with PettyClarke Law. With the economic development going on, service industry will have development accordingly and the sectors with high technology and capital intensity will have more advanced development. As for the proportion of jobholders aged between 15 and 64 over total population, its regressive coefficient is positive and significant, showing that high proportion of jobholders in economy can promote the modernization of service industry as expected. If a large number of people are not engaged in economic activities, obviously this enjoyment-oriented economy cannot facilitate the promotion of economic development or of service modernization. Compared with the negative regressive coefficient of jobholders in service industry, we can also find that the absolute high labor investment in service industry is not conducive to the modernization of service industry. However, the comparatively high proportion of jobholders in overall economy is conducive to its modernization. The regressive coefficient of credit marketization index is positive and significant in Model No. 1 as expected to some extent, showing that the improvement of capital market is conducive to the modernization of service industry. Enterprises usually pursue higher property gain and the improvement of capital market can increase enterprises’ factor gaining rights, enjoyment rights and transferring rights so as to enhance enterprises’ ability to require capital surplus value claims. Therefore, enterprises are more willing to invest when capital market enjoys higher efficiency and the incentive mechanism to enhance its output will become stronger. As for the service industry, higher capital market efficiency can also promote the development of service industry.

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The regressive coefficient of per capita GDP is negative and significant, showing that there is negative correlation with the modernization of service industry, which corresponds with China’s actual conditions to some extent. Although China’s total GDP is ranked No. 2 in the world, its large population results in the per capita GDP at a low level. Especially in the process of reallocation, residents’ proportion is even lower and due to the imperfect security systems, residents tend to have high savings to overcome the mobility restrictions, which hinders the development of service industry. As for the proportion of secondary industry’s production value over GDP, its regressive coefficient is positive and significant. As expected, this shows that high industrialization can promote the modernization of service industry. On one hand, the modernization of service industry is due to the constant deepening of labor division and on the other it depends on the promotion of industry. The higher industrialization may expand its demand for the corresponding service sectors, meanwhile many service sectors are originated from industrial sectors. Therefore, there is positive correlation between high industrialization and modernization of service industry. As for the proportion of FDI over GDP, its regressive coefficient is negative but not significant, which is out of our expectation. Probably, the reason lies in the shorter span of sampling period and the above regressive mode is only based on the analysis of short-term relations, which leads to the insufficient effect of FDI. As for Model No. 3 and No. 4 with endogenous key explanatory variables, their regressive results and exogenous variables are in conformity as a whole, showing the steadiness of models. This book adds technological progress in Chenery’s industrial upgrading models and analyzes the modernization of service industry in terms of economic supplying and demanding structures. At the level of supplying structure, we focus on the effect of working force on three core factors including capital scale, labor structure and industrial investment structure; at the level of demanding structure, our analysis focus on the effects of three core factors including the internal structure of productive demand, the internal structure of consuming demand and productive demand for consuming demands. Based on the regressive results, the following part will conclude how supplying structure, demanding structure and technological progress influence the modernization of service industry. The labor-intensive supplying structure hinders the modernization of service industry. Labor-intensive and capital-intensive development are the two forms of economic development. The former emphasizes on the intensity of labor supplying while the latter on that capital supplying. The higher the labor intensity is, the weaker the capital intensity will influence economy and the less it will facilitate modernization of service industry. This also tells us that the promotion of service modernization must depend on the reduction of labor intensity and increase of capital intensity. The high level of labor supplying promotes modernization of service industry. The higher the labor supplying level is, the higher the human capital of working force will be. According to the neo-classical growth theory, human capital is the core factor of economic growth. Higher human capital facilitates economic growth. The development gap between developed countries and developing countries also proves

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the critical role of human capital. Modern service industry needs to be supported by high technology and high information and the development and upgrading of technology and information should be maintained by high human capital. This also shows that the promotion of service modernization must depend on the expansion of investment, training and development of labor capital and the improvement of labors’ comprehensive quality. The higher industrial investment structure can facilitate the modernization of service industry and the latter needs a higher capital intensity as its support. The more optimized the industrial investment structure is, the more favorable it will be for the development of capital-investment-dominated service industry. This can promote the output capital intensity and the modernization of service industry. For a long period of time, China lays emphasis on the adjustment of industrial structure. The conclusion drawn by this book also tells us to pay attention to the adjustment of investment structure in the future development. This will be conducive not only to the optimization and upgrading of industrial structure but also the promotion of service industry’s modernization in the long run. The internal structure of productive demand does not have significant promoting effect on the modernization of service industry. The development of modern service industry requires lots of advanced technologies, because the advanced technology can integrate the scattered resources and information and expand the development space of service industry; meanwhile, the more advanced the technology is, the more specialized the labor will be divided. This refers to the constant deepening of internal labor division in service industry on one hand, and on the other it extends to other industries, especially the sectors of manufacturing industry with more and more new service sectors deriving from it, thus to promote the modernization of service industry. The development of high tech industries starts very late in China and does not have a sufficient proportion in economy. That’s why it did not promote the modernization of China’s service industry within a short period. This shows us that it is of necessity to reinforce the support to develop high tech industries so as to improve the internal structure of productive demand. The upgrading of consuming demand structure promotes the modernization of service industry. According to Engel’s law, the promotion of economic development may reduce the proportion of residents’ materialistic consumption expenditure and meanwhile increase the proportion of spiritual and cultural consumption expenditure and stimulate the residents’ motivation to pursue diversified consumption. When China’s economic development reaches a high level, residents’ expenditure on spiritual and cultural products and service will constantly increase, which offers a good opportunity to promote the development of service industry as well as its modernization. The proportion of productive demand over consuming demand does not promote the modernization of service industry significantly for two reasons. On one hand, the above analysis proves that the internal structure of productive demand cannot promote the modernization of service industry significantly; on the other, the productive demand is not high enough to match the consuming demand scale and thus its promoting effect on modernization of service industry cannot be exerted sufficiently.

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Therefore, the proportion of productive demand over consuming demand does not promote the modernization of service industry significantly and it shows us the importance of promoting productive demand. Technological progress does not promote the modernization of service industry significantly. It serves as the driving force for the sustainable economic development. The higher the technological level is, the more favorable it will be for the promotion of economic efficiency and deepening of labor division. However, for a long period of time, China tends to pursue labor intensive development and the development of service industry starts very late, apart from that, the proportion of traditional service industry is much lower than that of modern service industry. The development of traditional service industry has a limited dependence on technological progress, especially on advanced technology, so the promoting effect of technological progress on the development, especially on the modernization of service industry cannot be exerted sufficiently. This shows that we must expand the role of technological progress in the promotion of the modernization of service industry.

9.4 Policy Implications of Service Industry Modernization Promoted by Scientific and Technological Progress The objective of promoting the transformation of service industrial structure is to cultivate new service forms and raise steadily the share of modern service industry or productive service industry in service industry so as to upgrade the transformation of service industry. The concrete routes are to give a detailed division of labor, focus on the application of information communications technology (ICT) in service industry, attract foreign capital to develop new service industry, accelerate the promotion of productive service industry, build a favorable platform and establish effective rule system as well as perfect talent-support system so as to lay a solid foundation for the modernization of service industry.

9.4.1 Strengthening the Application of ICT in Service Industry So far as the developed countries’ experience is concerned, ICT is a technological field that has the closest relationship with modernization of service industry. Its effects on the transformation of service industry development mode are embodied mainly in two aspects: on one hand, the application of ICT enables the production and consumption of more and more service industries to separate from each other so as to facilitate further detailed division of service industry; on the other hand, the application of ICT promotes the efficiency of service enterprises and improves the productivity. In the process of the modernization of China’s service industry, these

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two effects are embodied prominently, yet the first effect appears to be more important than the second one. Lots of empirical studies on the technological progress of China’s service industry show that technological progress is mainly embodied in manufacturing industry so far as the present development is concerned although it has played a major role in the upgrading of service industry since the reform and opening up policy. Its influence on the promotion of service industry has not reached an ideal level, and it can be seen that there is little influence on promotion of service industry and even in some provinces and cities its influence is negative. The occurrence of such phenomena is related to the long-term dominance of traditional service industry in China’s structure of service industry and the consequence of modern service industry’s lagging behind. The reason why the traditional service industry has not advanced into modern service industry lies in the failure of separating from service linkage temporally and spatially. Under such a condition, the technological progress of single service linkage is restricted by the overall technological level; unless all service linkages have unbiased technological progress, it will be impossible for the single service linkage to have great technological progress, which is also the main reason for the occurrence of Powell service cost disease.4 As the provision and consumption of traditional service restricts the personnel positioning of relative producers and consumers, the application of ICT can replace the personnel displacement by means of information technology and thus overpass this restriction (Feng 2007). In this way, we can realize the spatial separation of service linkage and detailed labor division of service industry. Currently, China’s service industry has a low level of labor division and the development of its emerging service form is lagging behind. In terms of this condition, we should enhance the application and spreading of ICT as the breakthrough of promoting service modernization.

9.4.1.1

Priority to the Development of ICT Technologies Closely Related to Service Industry

We suggest the preferential development of three kinds of ICT closely related to service industry. The first is to provide platform for the informationization of service industry and technology of software support. We should focus on the development of financial, logistics and tourist fields closely related to daily life. With the development of internet business, the development of software and improvement of basic facilities have become the main force to promote the rapid growth of service industry. The second is to provide the necessary hardware support for the informationization of service industry, especially to construct the core internet equipment and transmission equipment as well as enhance internet management system and develop the familyconnected internet equipment. In addition, we should pay attention to the internet 4 Powell

service cost disease refers to “progress sector” and “stagnation sector” of economic body. The comparative rapid growth of productivity of the former may result in the constant increase of cost in the latter. Here it refers to the restriction of service industry development by the technological progress of manufacturing industry.

9.4 Policy Implications of Service Industry Modernization …

285

security problems and constantly promote the hardware equipment and software support so as to provide safe, efficient and diversified new service form. The third is to emphasize on the internet security problems of service industry and develop the safety shield of the national basic internet so as to prevent such endangering network security behaviors as the malicious network attack.

9.4.1.2

Supporting the Application of Advanced ICT Technologies in Service Enterprises

We suggest implementing a series of demonstrating projects of service informationization led by Ministry of Science and Technology to promote the informationization of service industry the same as promoting that of manufacturing industry, aiming to realize the integration and development of informationization and servitization. As the current service industry has a low level of informationization and it is hard for overall promotion, we suggest the preferential promotion for those service areas closely dependent on ICT and with industrial chains of great ductility. Concretely speaking, it includes three sub-industries. The first is logistics industry. We should select a group of logistics enterprises of great size and promote the application of such technologies as logistics video identification, information perception, visualization and intelligent decision so as to form intelligent technological framework and comprehensive service project under the environment of things internet. The second is cultural industry. With the emergence of internet technology as basis and the resource digitalization as developing opportunity, we should accelerate the building of tourist platform and the spread of performing arts culture as well as the exchange platform of artwork so as to promote the transformation and upgrading of traditional cultural industry into modern cultural industry. In the process, we should pay attention to the protection of intellectual property, especially the protection of digital intellectual property in the era of internet. The third is life consumption service industry. With the rapid growth of information technology, we should center on the digital life service area like digital community (family) service and mobile life service and develop some digitalized life service operation platforms. Besides that, we should develop some applied aggregate and open service platform operating demonstrations and guide the emerging digital life consumption service industry to a rapid growth.

9.4.1.3

Fostering and Developing a Number of ICT Technology Service Enterprises

Identifying the requirements of reforming the traditional service industry towards informationization, we should cultivate ICT service enterprises and provide market service support for the informationization of service enterprises. According to the development basis of China’s service industry, we should focus on four types of ICT service enterprises. The first is information technology counseling enterprise, which can provide consultancy services for IT estimation of service enterprise, such

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as IT strategic planning and implementation, IT system design, IT management and IT project supervision. The second is the information technology operating and maintaining enterprise, which is able to provide technological operation and maintenance for IT operating environment and system according to the service level required by service enterprise. The third is design and development service enterprise, which is capable of customized software design and development. The fourth is integrated implementation service industry, which can provide structurized comprehensive cabling system and computer network technology service for the service enterprise and integrate individual separate equipment, function and information in the interconnected and coordinated overall system.

9.4.2 Cultivating New Types of Service by Means of International Force Taking advantage of international market, we can solve the problem of further labor division for service industry when it is hard to expand market size rapidly within a short period of time. Meanwhile, in the context of globalization, introducing advanced service enterprises and new service forms from developed countries can demonstrate effectively and guide the growth of China’s service industry so as to accelerate the structural transformation of service industry. Currently, China takes advantage of international power to cultivate new service forms from the following two aspects as breakthrough:

9.4.2.1

Expanding International Service Market Through Service Outsourcing

With the progress of ICT and transportation technology, the service industry’s labor division in developed countries is beginning to break through borders and make its layout globally and thus promote the emergence of global service outsourcing. As for China, the development of service outsourcing can not only enable its service enterprises to participate directly in the labor division of international top service industry and accelerate the growth of our own new service forms, but also satisfy the manufacturing industry’s demand for service outsourcing and speed the transformation and upgrading pace of manufacturing industry. Since 2007, China’s Commercial Ministry promotes the rapid growth of service outsourcing industry through the national layout of service outsourcing demonstrative cities and the cultivation of advanced-service enterprises. In the next phase, the service outsourcing development will make breakthroughs in the following aspects: the first is to cultivate large-size service outsourcing leading enterprises. The relevant departments will support some service outsourcing enterprises of certain size with priority and promote the linking abilities at the top international contract markets so as to enhance enterprises’ bargaining ability in

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287

international service outsourcing market. The second is the priority to the development of knowledge intensive service outsourcing. Among the service outsourcing forms of ITO, BPO and KPO,5 KPO has the largest growth space. With the development of service outsourcing industry, the original cost-reduction-oriented service outsourcing is gradually replaced by those relying on the professional capabilities of foreign enterprises. The strategic position of service outsourcing in industrial development is increasing constantly and the proportion of knowledge intensive service outsourcing will be bigger and bigger. The third is the building of several large-size service outsourcing contracting centers, attracting the overseas large-size contracting enterprises to build Asia-Pacific even global service outsourcing contracting centers in China so as to enable China to be the largest service outsourcing contracting market worldwide and thus raise China’s strategic positioning in the development of global service outsourcing.

9.4.2.2

Accelerating the Growth of New Types of Service with the Introduction of Foreign Capital

Currently, the international FDI investment has transferred from manufacturing industry dominated structure to service industry dominated structure. With the emergence of global service outsourcing, the transnational investment in service industry has replaced that in manufacturing industry and become the mainstream of international investment. Since 2007, the foreign capital introduction in China’s service industry appears to be on the rise and the proportion of foreign investment in service industry over the total foreign investment is also increasing constantly. The foreign investment in China reached 105.7 billion dollars in 2010 and among it 49.96 billion dollars was invested in service industry, which was nearly the same as that in manufacturing industry and thus accelerates effectively the transformation of China’s service industry. However, the introduction of foreign investment still mainly focuses on the real estate, which accounts for 48% of total foreign investment in service industry, and the foreign investment introduced in emerging service businesses especially knowledge intensive service industries is comparatively insufficient. The focus of the next phase lies in the following three aspects: the first is to minify the restrictions of foreign capital introduction. The opening up area should accelerate the improvement of legal norms related to service trade and establish a sound and unified admittancewithdrawal system for service industry market as well as broaden some restrictive conditions of service industry. For example, we should lay down corresponding

5 ITO (Information Technology Outsourcing) means that the service outsourcing contractor entrusts

the supplier of service outsourcing to provide partial or overall information technology service functions for enterprises; BPO (Business Process Outsourcing) refers to that enterprises entrusts some repetitive non-core or core business processes to suppliers to reduce the cost and improve the service quality; KPO (Knowledge Process Outsourcing) is the top-level extension of BPO, which refers to that the company’s internal concrete businesses are entrusted to the external service supplier.

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criteria to admit those service industries that are not closely related to national security but helpful to improve the structure of service industry. The second is to grasp the key points of foreign capital introduction in service industry. The introduction of foreign capital is closely related to technological progress, so we should introduce advanced service industries, such as counseling industry, information industry, transportation industry, scientific research, education and public services. The third is to clarify the introduction purpose of service industry, which should aim at the adjustment of industrial structure and acceleration of development mode transformation. Besides that, the technological spillover produced by service industry introduction should guide the upgrading of service industry so as to promote the competitiveness of service industry. Therefore, in the process of introducing service industry, we should emphasize on the introduction of foreign top-level service industries and their advanced management concepts as well as market operating methods and skills.

9.4.3 Accelerating the Servitization of Manufacturing Industry According to the experience of developed countries, the integration of manufacturing and service industry obscures their boundary gradually and the economic development has shifted its center from manufacturing industry to service industry, which promotes the acceleration of servitization of large-sized manufacturing industries. Unlike the traditional service industry, the service sectors occupying in manufacturing industry after being servitized are usually the extensions of manufacturing products’ related fields, which have the features of new form and high added value and own huge developing space hardly possessed by traditional service industry. After decades of development, China has formed a good number of highly competitive manufacturing enterprises, but compared with developed countries, the servitization pace of these enterprises is obviously slower and most enterprises have not started their steps. By accelerating the servitization of manufacturing industry, we can expand the strategic space for manufacturing industry and speed the formation of new service business so as to establish some competitive service enterprises within a short period of time.

9.4.3.1

Promoting the Large-Sized Manufacturing Enterprises to Open their Service Scope

Large-sized manufacturing enterprises generally integrate such service sectors as R&D design, market analysis, logistics management, inspection and testing, human resources, financial management, information technology and after-sale service. These sectors own huge space of market operation. For example, with its own powerful capabilities in financial management and human resources management,

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289

IBM provides overall services from accounting and customers’ service to human resources management and purchase for other enterprises. We should study and lay down specific industrial policy and encourage national brand manufacturing enterprises to open their service scope, including some large-sized privately operated manufacturing enterprises such as Lenovo, Huawei, Haier and Chery. Special emphasis should be laid on advantageous service sectors and building specialized service enterprises which should be separate from the interior of enterprise and operated in a marketized way.

9.4.3.2

Promoting the Transformation of Large-Sized Manufacturing Industry to Solution Provider

Another route to realize the servitization of manufacturing industry is to make products as the basis and extend the relative services and thus transform itself into supplier of solution project. Take Toyota for example, in order to raise its own market competitiveness and promote the serial Toyota touring cars, the company designed a roundclock service for customers and provided accident handling service free of charge so as to effectively expand the audience and realize its purpose of expanding market share. IBM extends its service from selling servers to information technology, benefiting 4 billion dollars from providing information technology service for American Express Bank. We should study the products of national brand manufacturing enterprises and large-size privately operated manufacturing enterprises and encourage them to extend relevant services based on material products and transform from products seller to package solutions supplier. For example, we can encourage refineries to extend to energy management area, air conditioner manufacturing enterprises to temperature comprehensive management, automobile manufacturing enterprise to customers’ trip management and computer manufacturing enterprise to information technology service.

9.4.4 Building an Institutional Environment Conducive to the Evolution of the Division of Labor in the Service Industry The opposite side of labor division is the increase of market trading density and the market trading cost determines the labor division progression of service industry. The reduction of service industry’s market trading cost should be conducted in three aspects: accelerate the promotion of tax reformation in service industry, reduce the admittance restrictions in service industry and reinforce the intellectual property protection of service goods.

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9.4.4.1

9 Scientific and Technological Progress and the Transformation …

Accelerating the Reform of the Tax System for the Service Sector

The key in reducing the trading cost of service goods lies in tax reform, which should be operated from three aspects: the first is to accelerate the transformation from business tax to added value tax. The current tax system in service industry is business-tax-dominated and levies tax on business turnover without deduction of service investment. In the primary development of service industry, as production is integrated with consumption, the deficiency of business tax is not apparent. However, with the separation of service industry’s productive sector, the deficiency of repetitive levy of business tax is revealed increasingly. The second is to perfect the export drawback system for service goods. With the increasing proportion of service outsourcing and international service trade, the export draw-back of service industry should be put on agenda. As service is mostly intangible product, there is high proportion of personalized customization; what’s more, it is mainly traded on internet and thus has problems of pricing difficulty, lacking in correspondent category and customs clearance, etc. We must strengthen research on export of service goods and perfect the export draw-back system as soon as possible. The third is to expand the scope of turnover variable levy. As for the service scope still maintaining turnover levy, we should further broaden the range of turnover variable levy according to the productive features of service goods and requirements for perfecting industrial structure of service industry as well as reduce the tax rate of emerging business and highly labor-divided service business.

9.4.4.2

Deregulation of the Access to Service Industry

China is among those countries with highly-restricted service industry. Up to now, telecommunications and financial industry restrict the access of private capital as they are concerned with such sensible problems as ideology, information security and financial security. Education and health care industry are considered as public goods (actually only basic education can be considered as public goods) and have been monopolized by government all the time. Apart from these, transportation, ports and airports are restricted to some extent. Although some scopes do not have definite access restrictions, it is still difficult for privately operated enterprises to get access due to the powerful state-owned monopoly and strict barrier to access. At present, the boundary of various service scopes is being obscured and many scopes are restricted and there exist real barriers to access. The labor division of service industry is surely influenced by this condition. For example, the broadcasting channel of China’s TV programs is controlled by government, but the productive section is open. Under the condition of restricting broadcasting channel, there are still a lot of barriers in the development of productive section by privately operated enterprises. Therefore, we should deepen the implementation of “the new thirty six regulations” for service industry and lower the admittance threshold so as to create fair and orderly

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environment for the market development of service industry, which are the key points in solving the current service development problems and promoting the further labor division of service industry.

9.4.4.3

Reinforcing the Intellectual Property Rights Protection in the Service Industry

The protection of intellectual property rights in China is at a low level for a long time. Recently, with the reversed reform under the international pressure, the awareness of intellectual property protection has been strengthened to some extent, however, these strengthening measures are targeted for manufacturing industry or industrial finished goods and there is no substantial measure for the intellectual property protection of service industry. Such a consequence is certainly related to the abstract features of service industry and the primary stage its development belongs to. At first, we must realize clearly that traditional service industry still accounts for a majority in service industry currently in China. Due to its low knowledge content and little originality, the requirements for intellectual property protection are not strict; secondly, so far the originality in service industry has mainly been focused on business model creativity and it has a high copying degree, so it is difficult to protect; thirdly, the service enterprises are mostly involved in regional competitions. Unless the offenders of intellectual property are in the same region, the victims suffer from little loss. However, with the increasing technological progress and development of modern service industry, the knowledge intensity of service industry has been increased constantly and the development of service industry depends more and more on intellectual properties in the transformation and upgrading process of traditional service industry. Take service outsourcing as example, it is hard for China to get access to the top international executing enterprise; besides the insufficient enterprise size, another important reason lies in its insufficient knowledge intensity. The closer you get to first level contracting enterprise, the higher their knowledge intensity will be and the more influence the leaking of intellectual properties will exert on contracting enterprises. Another example is R&D industry, which is an important constituent in modern service industry. However, China’s R&D industry obviously lags behind in its development, forming a striking contrast with many medium and small enterprises in their requirements for R&D service. The key reason also lie in its intellectual properties. Therefore, we need enhance the intellectual property protection in service industry from three aspects. Firstly, we must establish a firm awareness of intellectual property protection, which is not only embodied in industrial finished goods but also in the development of service industry. Meanwhile, we must emphasize on the lawmaking work of intellectual property protection in service industry. Secondly, we should conduct research on the methods and scopes of intellectual property protection in service industry and focus on the study in the creative protection of business model so as to establish the reasonable degree and criteria of business model protection. Thirdly, we should try to establish the intermediate system for the intellectual property protection in service industry.

Chapter 10

The Linkage Between Advanced Manufacturing and Modern Service Industry Promoted by Scientific and Technological Progress

10.1 Scientific and Technological Progress Has Promoted the Linkage Between Advanced Manufacturing and Modern Service Industry: Concrete Manifestation1 10.1.1 The Process of Service Externalization Promoted by Scientific and Technological Progress The process of service externalization promoted by scientific and technological progress can be analyzed from a micro perspective and there are mainly two routes for its realization. Firstly, technological progress can optimize the productive chain of manufacturing industry. By promoting the labor division efficiency and the segmentation of specialized labor division, it increases the intermediate products session and raises the products’ specialization as well as separates itself from manufacturing industry. For example, the development of internet technology promotes the resource allocation of global productive network and the development of financial technology enables the sections of audit and accounting to separate from it gradually and become specialized companies. Secondly, technological progress can change the productivity of enterprises, which specifically refers to the transformation of enterprises’ production function so as to promote the total factor productivity of enterprise and accelerate the externalization of service. The productive service industry owes its emergence to the development of manufacturing industry to a certain extent. It can be also considered as the product of internal labor division segmentation of enterprise or the reorganization of businesses. It is the emergence of labor division requirements that stimulates the emergence of productive service industry. Technological progress promotes the development of productive service industry based on the following routes. Firstly, technological 1 The

main viewpoint of this part was published in the 7th issue of Economists in 2012.

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_10

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progress improves the productive technology of service industry and promotes the productivity of service industry constantly as well as the development of top-level service industry so as to facilitate the improvement of modern service industry. Based on this, modern service industry is constantly penetrating into manufacturing industry, especially its productive service industry. Being transformed by high technology, the modern service industry can promote the productivity of the manufacturing industry. The productive service industry is of managerial function with lubricating effect and transformed into an indirect investment enabling manufacturing industry to produce goods with higher technology-content and more addedvalue. Thus it becomes the spreader of emerging technology and creative revolution with more strategic functions and “propeller” effects. The development of productive service industry is the consequence leading to the specialized labor division of production together with the sophisticated and diversified development of productive technology.

10.1.2 Specialization Promoted by Scientific and Technological Progress In the research of industrial structure upgrading and specialized labor division, many scholars agree that technological innovation is the core factor to promote specialized production of enterprise. Technological progress is conducive to the development of manufacturing industry, but the segmentation of labor division will be intensified with the development of manufacturing industry and the requirements for the intermediate goods are higher and higher, including the intellectual properties, so the productive section in the industrial chain will be clarified gradually. Some service industries will be separated from manufacturing industry but must get themselves integrated with manufacturing industry at a deep level. It can be said that productive service industry derives from an important section of manufacturing industry but its development remains independent of the latter. With the increasing development of economy, China’s manufacturing industry has gained much progress. However, it is undeniable that its specialized labor division is lower than that of developed countries. Many large-sized enterprises prefer to establish the corresponding sections internally to provide various services required in production, which results in the less specialized labor division and shorter industrial chain. Well-rounded enterprises are in great number, but the real specialized enterprises capable of producing qualified goods are in scarcity, which is one of the key reasons for the poor international competitiveness of the goods produced by China’s enterprises. As for the interaction of manufacturing industry and service industry, the lower level of specialized labor division in manufacturing industry results in the lagging behind of the development in productive service industry, which hinders the further development of manufacturing industry.

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Scientific and technological progress breaks the stability of the original productive process and forms a new industrial process, which promotes the productivity of goods to a large extent. In this process, lots of intermediate services are needed as support and this accordingly needs the development of modern service industry, which also requires technological progress. Therefore, technological progress can promote the linkage of advanced manufacturing industry and modern service industry. Take information industry as an example, the internet technology can promote the rapid development of communications technology, while the latter can facilitate enterprise production and enables the enterprise to allocate its resources globally and even lay out the production network worldwide. Meanwhile, the internal enterprise management are more and more realized through information management system, whose development and maintenance is usually outsourced to specialized network company. Therefore, technological progress promotes the linkage of productive service industry and manufacturing industry effectively. Scientific and technological progress promotes the upgrading of industrial structure mainly by three routes. Firstly, scientific and technological progress can promote R&D strength and thus the development of new goods. Scientific and technological progress can promote the improvements of productive machinery to a large extent and thus its productivity and new goods. The promotion of productivity and the successful R&D of new goods can constantly optimize the social demanding structure, which will put forward new requirements for production and thus forms a virtuous circle. In the process of virtuous circulation, productive service industry will be in constant development as the important lubricate. It is based on this route that scientific and technological progress plays an important role in the upgrading of industrial structure and develops productive service industry effectively. Secondly, scientific and technological progress can promote the workers’ quality and apply the technological innovation directly in productive technology and thus promote the technological attached value of the whole industry so as to promote the factor-intensive production to be transformed into technology-intensive production. During this process, the properties of goods can be optimized and its international competitiveness can be raised accordingly so as to enable China’s manufacturing industry towards a highquality development. Thirdly, scientific and technological progress promotes further development of industrial sections and stimulate new consuming requirements so as to exploit new industrial sections and pull the development of productive service industry as well as promote the linkage of manufacturing and service industry. Meanwhile, scientific and technological progress can optimize the structure of goods in that it not only helps promote new goods but also improves the properties of original goods so as to replace old goods with the new-generation products. In this way, the corresponding industrial products can increase their market share constantly and maintain the favorable developing momentum.

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10.1.3 Optimization of Industrial Structure Promoted by Scientific and Technological Progress By studying the effects of scientific and technological progress in various periods of China’s economic development, we can find that industrial cluster is the important means to promote scientific and technological progress and lots of scientific and technological progresses have been made by industrial cluster, which promotes scientific and technological development through technology spillover effect. From the perspective of regional economic development, scientific and technological progress can radiate the whole region through the spillover effect of industrial cluster and facilitate the transformation and upgrading of manufacturing enterprises through the differentiated productive service industry. Surely the development of manufacturing industry can promote the structure upgrading of industries within the industrial cluster. Meanwhile, the effects of industrial structure upgrading can be extended to the development of regional economy and thus run through the promotion of technological progress for the development of regional economy. We can easily recognize the close relationship between industrial structure optimization and regional economic transformation and upgrading, which are complementary with each other and form a causal relationship. The upgrading of industrial structure is the important embodiment and propeller of regional economic development while the latter can provide environmental guarantee for technological progress. Therefore, it is necessary to promote regional economic progress through technological progress. On one hand, technological progress can promote the upgrading of traditional industry and raise the regional technological level so as to improve the industrial structure. On the other hand, the application of new technology can promote the labor division between industries and develop productive service sections; besides that, it enables productive service industry to maximize its regional effect through industrial cluster and provide great impetus for the transformation of regional economic development mode. Among the studies of economic growth theory, it is universally acknowledged that industrial cluster can promote economic development and the development of industrial cluster has become an important mode of economic development transformation. Industrial cluster can strengthen the industrial relevance, share factors resources, reduce social costs and expand technology spillover, etc. Apart from the above advantages, it can realize scale economy and attract more service enterprises to enter industrial cluster and thus promote the development of manufacturing industry. Technological progress relies on industrial cluster to a large extent. For example, the emerging technological park is a form of industrial park, which can promote the gathering of high tech enterprises and at the same time attract various kinds of productive service enterprises to be integrated so as to promote the linking effects of advance manufacturing industry and modern service industry. Industrial clustering zone is an inevitable product of economic development and it is an important means to promote technological and economic progress. The development of industrial clustering zone

10.1 Scientific and Technological Progress Has Promoted the Linkage …

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can promote productive service industry to integrate in manufacturing industry in a better way so as to enable regional industrial structure to be adjusted and optimized constantly.

10.2 Scientific and Technological Progress has Promoted the Linkage Between Manufacturing Industry and Service Industry: Perspective Analysis2 According to the above theoretical analysis, we can set the following three test equations. The first is the fundamental equation testing the influence of knowledge intensive service industry on the productivity of manufacturing industry: T F P AMit = C + βT Iit + χ T P Sit × O T P Sit + εit

(10.1)

In this equation, TFPAM it represents the productivity of advanced manufacturing industry, measured by the proportion of advanced manufacturing industry’s total production value over the quantity of jobholders. TI it represents the degree of technological progress, measured by the proportion of provincial patents applying number over the total national patents applying number. The data come from the accepted number or authorized number of three domestic patents application categorized by regions in China’s Statistical Yearbook over the years. This equation sets an interactive item TPS it × OTPS it . TPS it represents the development of knowledge intensive service industry, measured by the GDP proportion of the total production value of computer and information service industry as well as such knowledge intensive service industries as R&D and technological service industry. OTPS it represents the proportion of knowledge intensive service industries of various provinces over the intermediate goods and investment of advanced manufacturing industry. As this datum is not counted every year, we select the relative data from the provincial investment and output table of 2007 as representatives. The second is the regressive equation testing the influence of technological progress on service industry under the condition of different regional industries. P Sit = C + α AMit + βT Iit × O T Dit + ϕ M L it + ϑ U bar n it + γ P E it + δS Iit + εit

(10.2)

PS it refers to the development of productive service industry, represented by the GDP proportion of the total production value of transportation, storage and post service, wholesale and retail trade, hotels and catering service as well as 2 This

part was published as an academic paper in the 7th issue of Economist and was reproduced in full by Xinhua Digest.

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financial industry. AM it refers to the total production value of advanced manufacturing industry, including pharmaceutical manufacturing, aerospace manufacturing, computer and office equipment manufacturing, electronic and communication device manufacturing as well as medical instrument and apparatus manufacturing industries. This equation sets an interactive item TI it × OTDit . TI it refers to the degree of technological progress while OTDit represents the proportion of productive service industries of various provinces over the intermediate goods and investment of manufacturing industry. As this datum is not counted every year, we select the relative data from the provincial investment and output table of 2007 like OTPS it . Based on this criterion, we suppose a 5% changing growth rate the years before and after 2007. PE it represents the proportion of provincial processing trade export over its total trade export and serves as control variable, for the export orientation strategy participating in international labor division restricts prominently China’s industrial structure servitization. SI it represents various provinces’ proportion of state-owned enterprises and serves as control variable. With the promotion of China’s urbanization, the transformation of industrial structure plays a positive role in it. ML it refers to the proportion of enterprise total production value of provincial modern manufacturing industry above designated size over the total production value of the provincial manufacturing industry. In our opinion, the current advanced productive service industry will provide favorable environment, high-quality and low-cost intermediate goods for high technology-content manufacturing industry and promote the properties of manufacturing goods and thus its international competitiveness. Meanwhile, we should also recognize that the development of high tech manufacturing industry facilitates the rapid growth of productive service industry. Obviously, it is demand-driven type, as in the process of high tech manufacturing industry the demand for intermediate service promotes the rapid growth of productive service industry. The third is the regressive equation testing the influence of technological progress and modern service industry development on the upgrading of industrial structure. w = c + β1

bs + β2 T Ilt + β3 Urbantt + β4 P E tt + β5 S Itt + εtt bm

(10.3)

To analyze the influence of technological progress on the upgrading of industrial structure, we must consider the specific characteristics of industrial structures in different regions. Firstly, take labor intensive industry for example, its characteristics lead to the limitation in labor division and the deepening of specialized technology on one hand; on the other, there is no development space for productive service industry and the enterprises do not tend to outsource their intermediate goods. Secondly, the monopolized industry lacks enthusiasm for outsourcing their intermediate goods and tends to self-digest. Lastly, the demand by productive service of state-owned enterprises is low. Based on the statistical characteristics of concrete variables, this equation uses three control variables: the proportion of processing trade over export, the proportion of state-owned enterprises and the urbanized development of various regions.

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299

The measurement of industrial effect adopts the layer coefficient of industrial structure as dependent variable. The layer coefficient of industrial structure w mainly reflects the change of a certain region’s total output, i.e., arrange the n industries with the regional proportion qj from high level to low level. Thus the layer coefficient of the regional industrial structure should be: W =

i n  

q( j)

(10.4)

i=1 j=1

So far as three industrial changes are concerned, domestic and foreign scholars have conducted a lot of researches and dug out the general rule for these three industrial changes. Such foreign scholars as William Petty (1623–1687), Colin Clarke (1905–1989), Simon Kuznets (1955–) and Hollis Chenery (1918–1994) explored the internal development route of industrial change by studying the evolution of industrial structures of various countries. In the economic development, the secondary industry and tertiary industry will replace the primary industry gradually as the dominant industry in national economy. To be specific, when economic development arrives at a certain level, the primary industry will lose its dominant position gradually and its proportion in national economy is declining constantly; to the contrary, the secondary industry and tertiary industry appear to be more and more important and become the pillar industry of national economy. In the primary stage of rapid economic development, the secondary industry will become the pillar industry, and after further economic development, the proportion of secondary industry will be lowered while that of the tertiary industry still continues to be on the rise and will become the pillar industry in national economy. This is the so called social servitization. The above general route can be understood as the process of industrial structure optimization, which directly reflects the increasing promotion of a nation’s economic development. When national economy reaches a high level, the proportions of the three industries will surely be rearranged as tertiary, secondary and primary. That bs /bm represents the comparative productivity of modern service industry versus manufacturing industry can reflect the technological progress level of modern service industry to a certain degree. Its measurement is based on the salary ratio between service industry and manufacturing industry and the data are based on the employers’ average salary in different sections and regions from China’s Statistical Yearbook over the years.

10.3 Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress: An Empirical Analysis In the actual test, we select the data from 2004 to 2009 as sample period. As the data of Hainan province, Chongqing municipality, Tibet and Xinjiang autonomous region are incomplete, our sample section points include 27 provinces except the above

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four regions. The data come from China’s Statistical Yearbook, China’s Industrial Statistical Yearbook and China’s Technological Statistical Yearbook over the years as well as various provinces’ investment and output tables of 2007. Table 10.1 shows that great differences exist in the working efficiency of manufacturing industry, the development of service industry and the industrial structures among 27 provinces, thus it can be seen that the industrial structures of China’s provinces are in imbalanced development and there are great variations in the influence by different factors, which to a certain extent reflects great differences exist in the economic development among all provinces. Therefore, the optimizing and upgrading models of provincial industrial structures are different. As the empirical analysis of this part adopts the panel data, we must consider the two-dimensional features of section and time sequence. First we should test the model with parameters at all sample points of sections and time sequences. If the results are the same, the regressive parameter estimation of the model is effective. Suppose the intercept (C) and the slope (α, β, ϕ) are identical at various sample points of sections and time sequences and we use F 1 to test the model parameters (as in Table 10.2); if it passes the test, the equation will use parameter homogenous model, i.e., the parameters remain invariable despite the change of time. F1 =

(S3 − S1 )/[(n − 1)(K + 1)] ∼ F[(n−1)(K + 1), n(T −K − 1)] S1 [nT − n(K + 1)]

(10.5)

On condition of failing in the test, the equation will use variable intercept model, i.e., the slope (α, β, ϕ) is at different sections with the same sample points of time sequence, while the intercept (C) is different and is further tested through F 2 . F2 =

(S2 − S1 )/[(n − 1)K ] ∼ F[(n−1)K , n(T −K − 1)] S1 /[nT − n(K + 1)]

(10.6)

Take regression test on Eqs. (10.1), (10.2) and (10.3) with the sample data of 27 provinces from 2004 to 2009 and the results are shown in Table 10.2, in which the specification of model form is based on the testing value of F. The analysis of empirical results is as follows: (1) As for the influence of the cross item of TPS it (knowledge intensive service industry) and OTDit on the working efficiency of manufacturing industry, it passes the significance test at the level 10%, but its influence is not very significant and the marginal effect is 0.0234. If OTDit is excluded, TPS will not pass the significance test. The empirical result shows that the development of knowledge intensive service industry plays a decisive role in the change of industrial structure of service industry, for the former needs a great amount of R&D investment and the investment of R&D capital can promote the productivity of various sectors to some extent so as to promote the productivity of knowledge intensive service industry, which will make it different from other sectors of service industry. With the increasing promotion of productivity, the development of

3.52

5.21

2.93

1.21

27

162

Average value

Maximum

Minimum

Standard deviation

Number of section samples

Number of observed values

TFPAM it (ten thousand yuan per capita)

162

27

1.06

1.21

6.47

3.63

T it (%)

162

27

1.89

1.18

3.31

1.54

TI × OTD

162

27

2.41

3.37

6.43

4.93

TPS × OTPS

Table 10.1 Descriptive analysis of all variables’ indicators

162

27

5.22

12.98

21.33

18.45

PS (%)

162

27

0.76

0.08

1.56

0.83

AM it (thousand billion yuan)

162

27

9.45

16.44

37.72

25.32

ML it (%)

162

27

52.33

231

284

265

W

162

27

0.08

0.79

1.36

1.03

bs /bm

162

27

5.02

17.27

74.31

34.92

PE it

162

27

3.42

28.38

41.22

31.51

SI it

162

27

15.22

28.41

89.36

47.45

Urbani (%)

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Table 10.2 Sample test results (10.2)

(10.3)

F test of F 1 :1.71 model specification

(10.1)

F 1 :1.78

F 1 :1.81

Form of Homogenous model parameter model specification

Homogenous parameter model

Homogenous parameter model

C

3.2363

3.5331

10.3867

(10.65a )

(28.632a ) (22.831a ) (21.655a )

6.3727

5.9526

(24.53a )

(22.3455a ) (12.19a )

AM it

0.891 (3.78b )

0.167

0.163

(4.387b )

(4.233b )

3.1298

0.767 (3.781b )

bs /bm TI it

3.0431

0.103

0.100

(2.656c )

(2.502c )

0.041

0.189

(0.781)

(6.254b )

TI it × OTDit

0.103 (1.782c )

TPS it

0.0013 (0.875)

TPS it × OTPS it

0.0234 (1.692c )

PE it

−0.045

0.028 (0.883)

SI it Urbanit adj − R2

(0.184)

−0.034 (0.133)

−0.203

−0.2103 −0.303

−0.198

−0.195

(4.102b )

(4.102b )

(4.338b )

(4.202b )

(4.451b )

0.303

0.242

0.273

0.223

0.204

(2.492c )

(2.378c )

(2.402c )

(2.487c )

(2.465c )

0.402

0.400

0.436

0.431

0.430

0.353

0.321

F test

321.15a

312.65a

53.31a

51.722a

44.182a

36.343a

32.581a

Quantity of samples

162

162

162

162

162

162

162

Note a, b, c represent the significance level of 1%, 5% and 10% respectively

service industry tends to be favorable for the service sectors with high productivity, which will be conducive to the optimization of supplying-demanding structure of service industry and resources allocation so as to reach the goal of industrial upgrading. The empirical results show that the investment of R&D is the primitive driving force of industrial upgrading. (2) The influence of technological progress level (TI it ) on the working efficiency of manufacturing industry is significant and positive and its marginal effect is

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303

0.167, i.e., when TI it increases one unit, the working efficiency of manufacturing industry will be promoted by 0.167%, which conforms to the expectation. (3) The positive promoting effect of technological progress level on the development of service industry is influenced by the regional economic characteristics, such as the enterprise scale of manufacturing industry. But to the contrary, some researches show that the influence of technological progress on the development of service industry is not significant, i.e., it does not pass the significance test. Although this result is opposite to our prediction, it is undeniable that technological progress surely influences the development of service industry. From the test effect of cross item TI it × OTDit , we can see that it passes the significance test at the level of 10% and its marginal effect is 0.103, which conforms to the prediction. This shows that the influence of technological progress on service industry is the result of cross effects, for the degree of influence relies on the linkage level between service industry and manufacturing industry, i.e., the relevance degree. In other words, the higher the relevance of manufacturing and service industry is, the more spillover effects technological progress will have on service industry. (4) The production value of advanced manufacturing industry (AM it ) has significant and positive influence on the development of service industry and its marginal effect is 0.767, i.e., when the GDP proportion of advanced manufacturing industry increases one unit, the development of service industry will be promoted by 0.767%, which conforms to the expectation. (5) The technological progress level (TI it ) is of significant and positive effect on the upgrading of industrial structure and its marginal effect is 0.189%, i.e., when TI it increases one unit, the level coefficient of industrial structure will be promoted by 0.189%, which conforms to the expectation. The R&D of advanced technology like inventions, technological spreading and application and its investment in daily production can not only promote the productivity but also enables the social production in a more procedural, specialized and intelligent way. Judging from the world development tendency, we find that the world manufacturing industry will be transformed from capital intensive to technological intensive type. The contribution of technological progress to worldwide production will be greater and the world industrial structure will become more and more reasonable.

10.4 Policy Implications for the Linkage Between Manufacturing Industry and Service Industry Promoted by Scientific and Technological Progress It can be said that both manufacturing industry and modern service industry are toplevel industries and their emergence is based on the higher economic development dominated by industrialization. Both industries are characterized with comparative intensity of knowledge, information and technology, high output attached value, less

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consumption of resources and environmental pollution, etc., which conforms to the fundamental national policy of “resources-saving and environment-friendly society”. Meanwhile, the report of the 18th CPC national congress emphasizes on “accelerating the transformation and upgrading of traditional industry and promoting the development of service industry and especially modern service industry”, which requires the bi-lateral linkage of advanced manufacturing industry and modern service industry to promote China’s sustainable economic growth. Based on the importance of technological progress in the linkage of advanced manufacturing industry and modern service industry, we should promote the sustainable development of advanced manufacturing industry and modern service industry from the following aspects: firstly, modern service industry can promote the productivity of advanced manufacturing industry; secondly, it can promote the service demand and externalized level of advanced manufacturing industry; thirdly, technological progress can promote the interactive development of advanced manufacturing industry and modern service industry.

10.4.1 The Role of Government in the Optimization of Industrial Structure A great number of technological innovative activities enable the segmentation of labor division and in turn the latter continues to promote technological innovation. Judged from another angle, the change of industrial structure is a process of interactive influence between labor division and technological innovation. In different stages of economic development, due to the limits of internal mechanism and labor division level in industrial structure change, there are variations in the influence of technological innovation on the change of industrial structure, while in the technological innovation process of different industries, different innovations made in industry have similar effects. All these conditions depend on the capability and category of technological innovation of various industries and thus each industry owns its own special developing trend. Theoretically speaking, the technological innovations within each industry or between the industries can change the system of social labor division continually; under such a condition, industrial structure will have the incentive evolution from low level to high level. In this process, government must assume the corresponding responsibilities, for China has a complicated market environment. Firstly, the central and local governments should pay attention to the important function of technological innovation in the promotion of industrial structure’s optimization and upgrading. They should try their best to establish and implement an effective incentive and promoting mechanism and on this basis accelerate the development of new products so as to facilitate the emergence and extension of new industry. Secondly, the local governments should adopt effective policies to encourage the application of excellent technological innovation achievements to realize the goal of reforming traditional

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305

industry, which will push the way of information-driven industrial development. Finally, the local governments should enhance their support for service industry and reduce the access threshold of service industry to enable the modern service industry in particular to become the propeller of China’s economic development. So far as all local governments are concerned, their tasks should be focused on laying down policies to promote the effective integration of productive service industry and manufacturing industry. Their roles are embodied in the following aspects. Firstly, their goal is to realize the effective integration of productive service industry and manufacturing industry and fully exert the role of technological progress. As policy makers, the local governments need lay down reasonable regulations and policies and try to eliminate the out-of-date policies. They should strive for the most effective allocation of resources at the least cost and with this as basis promote the integration of modern service industry and advanced manufacturing industry. Meanwhile, the local governments need introduce reasonable policies to promote technological progress. Therefore, the local governments should replace the original monotonous policy with the coordinative policy to promote the development of modern service industry and advanced manufacturing industry so as to realize the goal of their effective integration. Secondly, the government should realize that the interaction of modern service industry and advanced manufacturing industry is actually the constant separation and integration of industrial value chain, and in this process government assumes the role of facilitator. It is through this process that modern service industry can be smoothly inserted in various links of manufacturing industry value chain and also enter various auxiliary links. Therefore, while laying down the policy, government should make the promotion of interaction between the two industries as the starting point and try to create a pleasant industrial environment. The core of government policy should center on reducing the transaction expenses and encouraging enterprises’ scientific research investment, create favorable innovative platform and establish the sharing system of technological information in big data time so as to promote the interaction of productive service industry and advanced manufacturing industry. Thirdly, as the concrete policy implementers, before laying down the policy, the local governments should make the different interactive models of modern service industry and advanced manufacturing industry as the basis and exert the function of industrial value chain. Meanwhile, they should try to apply different interactive models in different types of industries so as to make the best use of industrial interaction and promote the enterprises’ competitiveness to the largest extent. Therefore, while laying down and implementing policies, the governments should select suitable policies combination depending on the different interactive model and try to focus on the core of policy, such as how to promote technological innovation, reduce transaction costs and promote specialized labor division, aiming at realizing the effective interaction between modern service industry and advanced manufacturing industry.

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10.4.2 Policy System for Technological Progress Promoting the Linkage Between Advanced Manufacturing Industry and Modern Service Industry 10.4.2.1

Realizing the Optimization of Resources Allocation and Building a Differentiated System for the Effective Transmission of Scientific and Technological Innovation

In constructing the policy system, the local governments should expand resource investment and effective allocation and guide the self-innovation of the enterprises as well as enable the enterprises to play the dominant role in technological innovation according to “the 13th Five-year Plan”. Meanwhile, local governments should accelerate the building of technology intermediate market and the fulfillment of technological achievements so as to enable them to be applied in real production. While developing manufacturing industry, they should be concerned with the transformation and upgrading of service industry, especially the productive service industry, to promote the proportion of productive service industry in the national economy. To realize the optimal resource allocation, it is necessary to build an effective transmitting route for technological innovation and construct a differentiated policy system. Firstly, we should focus on laying down differentiated policies of leading industries, i.e., according to the actual characteristics of the present industrial structure and the future development plans, we’d better focus on those leading industries with high economic relevance to other industries and high technology as well as with wide range of influence, adopt priority development strategies and emphasize on the obtaining of technological innovation resources. Secondly, we should pay attention to the promotion of technical efficiency and insist on the effective coordination of self innovation and technological introduction so as to promote the development of modern service industry by the constantly updating modern management. Finally, guided by the principle of saving and high efficiency, local governments can take advantage of technological progress and innovation to build fundamental industries and infrastructures so as to form the differentiated development system of optimization and upgrading for industrial structure.

10.4.2.2

Improving the Investment and Financing Systems for Various Industries and Establishing a Dynamical System for Effective Industrial Interaction

Technological progress requires a large amount of technological R&D investment, so vast amount of money is needed to guarantee technological investment and effective industrial interaction in the process of industrial upgrading. As for the technological investment system, local governments encourage the local enterprises to conduct independent R&D by such means as financial support currently. However, it also needs establish a perfect investment and financial system to provide fund guarantee

10.4 Policy Implications for the Linkage Between Manufacturing …

307

for the independent innovation of enterprises. Compared with developed countries, it is undeniable that China’s technological investment still remains at a low level whether in terms of absolute number or relative number, so it is necessary for China to establish a dynamical system for the effective industrial interaction. Firstly, government should expand the national technological investment and establish an effective mobility mechanism of technological fund and enhance the incentive mechanism to build the enterprise-dominated technological innovative system so as to exert the leading role of enterprise in technological innovation. Secondly, we should enhance industry-university-research cooperation to guarantee the technological progress not only with competent researchers but also with governments’ support. In this way, technological innovation can be achieved in relative industries at the least cost and the industrial technological innovation resources can be integrated. Finally, we should reform the established investment and financing system and develop such financing routes as venture capital and venture capital investment so as to provide effective financing channels for enterprise innovation. In particular, we should be concerned with the financing difficulty in small-medium-sized technological enterprises not only through financial allowance but also by perfecting the present financing system to guarantee the required fund in the R&D of enterprises by expanding the direct financing channel and innovating the indirect financing channel.

10.4.2.3

Deepening the Innovation of Various Mechanisms and Constructing the Supporting System for Effective Industrial Interactions

The relationship between modern service industry and advanced manufacturing industry is not a simple proportional calculation, but needs the explanation through the complicated systemic project. It is not sufficient to explain the effective interaction between industries with single factors, so it requires various kinds of factors for their mutual effects. Therefore, it needs establish and perfect various systems’ bases and innovative mechanisms. In terms of talents, it requires constantly deepening the implementation of “revitalizing China through science and education” strategy and that of “strengthening China through talents cultivation”. In terms of scientific and technological achievements, we need perfect the technological intermediate market and promote the combination of “Going-out” and “Bringing-in” strategies for technological achievements. In terms of income and distribution system, we need innovate the distribution method by combining the performance distribution and factors distribution. As for the series of policy making, governments should fulfill the following three tasks. Firstly, different levels of governments should perfect the income and distribution system and innovate the models of income and distribution on the basis of perfecting the established performance and factors distribution. For example, we can construct an effective incentive system by such innovative routes as applying equity so as to motivate the labors’ enthusiasm for participating in technological R&D. Secondly, various governments should improve the financial system and promote enterprises’ technological R&D by means of tax support,

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financial allowance and bank loan, etc. Meanwhile they should innovate the financial system such as establishing platform for guarantee system and equity exchange center. What’s more, they should perfect the public service system for technological innovation to provide favorable atmosphere for enterprises’ technological innovation. Thirdly, various governments should enhance the intellectual properties protection, which is not only embodied in industrial finished goods but also needs to be extended to the relative goods of service industry. In particular, they should emphasize on the intellectual properties protection of network. Apart from the above three tasks, they should promote such intermediary services as technological consultation to optimize the whole social innovative environment so as to construct a comprehensive and multi-layered institutional system to support technological innovation.

10.4.3 Scientific and Technological Progress Promotes the Linkage Between Advanced Manufacturing Industry and Modern Service Industry: Concrete Policy Suggestions 10.4.3.1

Policy Suggestions on the Promotion of Scientific and Technological Innovation of Modern Service Industry

Firstly, knowledge-intensive and technology-intensive service industries should be focused on to accelerate the development of modern service industry. As for China’s service industry, the traditional service industry has reached a complete development stage while the emerging modern service industry has encountered lots of problems. For example, the business service industry is abundant with information technology application whereas its development level and speed are not ideal, which will influence the overall rapid growth of modern service industry. Therefore, governments should accelerate the development of knowledge intensive and technology intensive service industries represented by information industry to support and lead the development of modern service industry and thus promote the linkage of modern service industry and advanced manufacturing industry so as to enhance their positive interaction. Secondly, service trade should be developed greatly to further promote the international competitiveness of China’s modern service industry. China has achieved rapid growth in service industry currently, but we must realize clearly that the present development mainly focus on the labor intensive low-level service industry and the development of such service industries as finance and telecommunications is far from satisfactory. The very reason lies in the insufficient number of technological achievements or the low conversion rate of these achievements in service industry. Therefore, this book holds that the development of China’s modern service industry can be promoted in the following ways: it can rely on international resources by means of service trade; or it can open up some

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service sectors to bring in some worldwide powerful service enterprises, such as the top-level financial and electronic industries; or it can guide the service industry development through technology spillover. In the past two decades, the waves of information technology reform swept the modern service industries of the world. China can enhance the technological and service linkage with developed countries via service trade or by absorbing the advanced technology and experience from developed countries so as to promote the comprehensive competitiveness of modern service industry development. Thirdly, the cultivation of human capital should be paid enough attention to realize the optimal allocation of labor resources in modern service industry. We should promote the quality of the laborers in service industry, especially those in traditional service industry. The traditional service industry absorbs the most surplus laborers, but the human resources are mostly from the surplus laborers in rural areas or the laid-off workers in cities and towns. It is undeniable that the education degree of these employers are generally not high and their intellectual level is comparatively very low, which makes the human resources of China’s service industry remain at a low level all the time and also is the constraining factor of China’s modern service industry development. Therefore, governments should provide specialized investment and training for the applicants in service industry to raise their intellectual and skill level. Surely, governments should also emphasize on the cultivation of badly needed specialized talents of modern service industry or that of the technical talents with comprehensive knowledge and capacity. Only in this way can the technological innovative level of modern service industry be promoted.

10.4.3.2

Policy Suggestions for the Linkage Between Modern Service Industry and Manufacturing Industry as well as its Efficiency Improvement Promoted by Scientific and Technological Progress

The above research proves that the modern service industry serves the manufacturing industry and the deepening segmentation of labor division and rapid development of manufacturing industry gradually separate the service function from itself to realize the externalization of service. The segmentation of labor division and specialization of manufacturing industry is the demanding origin of modern service industry. Therefore, the optimization of specialized labor division efficiency of manufacturing and service industry on one hand can provide promising prospect for the development of modern service industry and on the other it can help promote the competitiveness of manufacturing industry. Various governments should try to promote the servitization of advanced manufacturing industry and create broad market space for their interactive development. To realize the effective interaction between modern service industry and manufacturing industry, we should be concerned with the following three issues:

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Firstly, expand the developing space of information industry and provide technological basis for the interactive development between modern service industry and manufacturing industry. In the recent two decades, many modern service industries represented by information technology have achieved rapid development. In particular, they have been widely applied in the interactive development of modern service industry and advanced manufacturing industry so as to minimize their distance and even achieve a certain integration as well as a strengthening tendency in the future. In the interactive development of modern service industry and advanced manufacturing industry, information technology industry becomes the most important intermediary agent. Take America and EU for example, even if information technology accounts for a low proportion in their overall manufacturing industry, it still assumes important functions in the service for producers and users. Both the development of information technology and the expansion of information industry can play a positive role in the interactive development of modern service industry and advanced manufacturing industry. Governments’ policies should favor those critical industries that influence the industrial interaction so as to promote the rapid development of information industry. Secondly, adopt initiative policies and promote the outsourcing of productive service business. In modern service industry, productive service industry has very close relationship with advanced manufacturing industry. The labor division segmentation of manufacturing industry speeds up the development of productive service industry and its outsourcing. The outsourcing of productive service industry is an important source to create its market demand and of course its main function lies in helping promote the productivity of manufacturing industry. Therefore, in the process of industrial policy making, governments should adopt proper measures to encourage manufacturing enterprises to implement the project of separating main part from the supplementary parts, i.e., the labor division and modularization of intermediate business, so as to outsource the non-core service business and enable the productive service enterprises to conduct specialized management. In addition, by means of various regulations or policies, governments should encourage state organizations, enterprises and public institutions as well as social organizations to outsource the possible businesses and push these market-oriented services into the market to enable market to determine the manufacturing enterprises’ selection of service enterprises. On one hand, this can promote the service industry’s productive efficiency and on the other hand the introduction of market competition can accelerate the transformation of service enterprise. To be specific, governments can implement public bidding for those workable market-oriented services like information consultation and conferences & exhibitions, or they can entrust the social intermediary agents with the marketable operation and assign it to the productive service enterprises according to the market supplying-demanding matching principle so as to facilitate a closer interaction between advanced manufacturing industry and modern service industry. Thirdly, coordinate different industrial policies and realize the synchronous development of knowledge intensive service industry and high tech industry.

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It is an undeniable fact that in the long period of China’s economic development there exists a tendency of favoring manufacturing industry. In the past development, all preferential policies of the governments are inclined for advanced manufacturing industry. For example, in terms of the identification of high tech enterprises, China’s governments did not incorporate modern service enterprises into this category, especially the knowledge intensive enterprises. One of the consequences is that the technology intensive enterprises are biased and cannot enjoy the same preference for advanced manufacturing enterprises, which is a serious barrier to the technological progress of modern service industry and thus hindering the technological progress and innovative development of modern service industry. We suggest that relative sectors should treat knowledge intensive service industry and high tech manufacturing industry equally and categorize both as high tech industry in governments’ policy making. Only in this way can governments provide various policy support for the relative service industries with proper emphases and plans, such as scientific research investment, tax levy or other policies. This book holds the view that the relative management departments of governments should introduce more preferential industrial policies and supporting policies according to the uniqueness of technological innovation of modern service industry so as to accelerate the development of modern service industry and promote a better interaction between modern service industry and advanced manufacturing industry.

Part IV

Strategies and Suggestions

Chapter 11

Institutional Guarantee for China’s Technological Progress Strategy

11.1 Macroeconomic Background of the Implementation of China’ Technological Progress Strategy 11.1.1 Practice and Theory of Technological Progress Promoting Economic Development Although the Comparative Advantage Theory of David Ricardo illustrates the wonderful win-win situation inevitably brought about by the trade division between the one with high productivity and the one with low productivity, it is by no means the reality of the international social economy under a complete free market structure. The portion obtained by the one with low productivity that is contented with the trade division is far less beautiful than what the theory portrays. The per capita income of developed industrialized countries that have completed industrialization is now dozens of times higher than that of some poor countries in Asia or Africa. After the industrial revolution, the income levels of various countries in the world have shown obvious differences and they are still expanding, which has also become the cruel fact that can not be ignored under the current trend of economic globalization. Such differences make people have to pay attention to the factors that promote economic development as well as the path for a country to develop its economy in order to provide experience and theory, from which economically backward countries can learn to develop its economy. Of course, the fact that Britain overtook France and became a “factory of the world” through the first scientific and technological revolution in the eighteenth century, Germany relied on science and technology to develop its industry and overtook the United Kingdom in the nineteenth century, and after World War II Japan put forward the policy of “establishing a nation by science and technology” and rapidly became an industrial power in the world accounts for economic development most obviously. At the same time, a large number of empirical studies have also confirmed the importance of technological progress in promoting economic development. The discussion on the factors such as capital accumulation, © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_11

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population growth, technological progress, institutional reasons, geographical environment, etc. by neoclassical economics, new growth theory and institutional school deepens people’s understanding of how to achieve economic development. Among them, the new growth theory elaborates that technological progress is endogenous and plays a leading role in economic growth, which provides a theoretical basis for all countries to achieve economic growth by actively implementing technological innovation. The Royal Society of Britain (2010) pointed out that the performance of the economic development in many countries had proved that technological progress plays an important role in the speed and quality of economic development. In the process of the competition of international comprehensive strength, the competitive trend is becoming more and more obvious. The owners of core technologies or core products can be in a favorable position or even dominate the international economic competition. Therefore, in the current era when economic globalization is intensifying and the division of labor in the international industrial chain is constantly adjusting, it has become the common choice of many countries to formulate and implement the strategies of technological progress in order to obtain the dominant position in the division of labor in the global industrial chain, thus enhancing their comprehensive competitive strength in the global economy.

11.1.2 The Necessity of Promoting Economic Development Through Technological Progress China is in the critical period of social and economic transformation. To make breakthroughs in transforming the economic development mode, the strategy of technological progress must be vigorously promoted. Both the efficiency and the quality of economic development should be improved. Since the Reform and Opening up, China’s economic development has made tremendous achievements. The living standards of Chinese people have been improving day by day. The comprehensive national strength has made tremendous changes. However, it is undeniable that the economic structure and industrial structure of China are still far from being rational and the structural readjustment has not really made dramatic breakthroughs. The problems of population, resources and environment, etc. in the process of economic development remain unresolved. Economic quantity did not keep pace with economic quality. To solve these problems, technological progress and innovation drive must be heavily relied on to strengthen the position of technological progress in transforming economic development mode, and improve the contribution level of technological progress to the transformation of economic development mode, so that innovation drive can greatly promote the transformation of economic development mode. Only in this way can we truly achieve sustainable economic development. Chinese government has paid enough attention to the development of science and technology and

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formulated the “National Medium-and Long-term Plan for Scientific and Technological Development (2006–2020)” in the year 2006, which is conducive to the all-round development of Chinese science and technology. Moreover, it has raised the establishment and improvement of the scientific and technological system to the national level, providing effective scien-tech safeguards for building a well-off society in an all-round way as well as a socialist harmonious society.

11.1.3 Overview of Theoretical Research on Technological Progress in China Technological progress involves many aspects of social economy operation such as micro-enterprise behavior, medium industrial structure and macroscopic institutional changes. Therefore, the implementation of the strategy of technological progress is also a systematic project. Viewed synchronically, it mainly involves how to produce and allocate the factor resources needed for technological progress, how to motivate and evaluate the achievements of technological progress, and how to create an environment which is more conducive to technological progress. Viewed diachronically, the implementation of the strategy of technological progress also involves the optimal choice of paths, that is, how to find the most effective path of technological progress on the premise of correctly assessing the existing resources and capabilities of a country’s technological progress to obtain the most efficient output of technological progress. The successful implementation of a country’s technological progress strategy depends on the effective combination of factors, systems and paths. In order to effectively implement the strategy of technological progress, Chinese scholars have also conducted a large number of theoretical and empirical studies on how to make technological progress in China, which can be mainly summarized as follows.

11.1.3.1

Production and Pricing of Science and Technology as a Special Kind of Commodity

Scien-tech commodity is a kind of scientific and technological product that coagulates the undifferentiated abstract labor of human beings in the production of commodities through complex labor for the purpose of exchange. Different from general commodities, scien-tech commodities have many obvious features. Yan and Liu (2009)1 points out that scien-tech commodities are dominated by complex labor, and are mainly manifested as spiritual products. Meanwhile, the value of scien-tech commodities has the characteristics of permanence and will not die out over time. Finally, scientech commodities are also experiential products in the sense of economy, whose 1 Bing-zhen

Yan and Guan-jun Liu. An Analysis of the Value and Value Realization of Science and technology Commodities. Northern Economy, 2009(10).

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quality can not be clearly defined before purchase, and can only be determined after purchase and experience. Song and Wang (1994)2 think that scien-tech commodities have their own unique value, which is mainly reflected in their indirect use, that is, scien-tech commodities themselves can not reflect their application value, which can be reflected only when they are brought into contact and combined with the media such as the production process, etc. and there is no tangible loss of the use of scien-tech commodities. At the same time it also has a strong timeliness, only within a certain period of time it has use value, there are obvious intangible losses. Different from the analysis of Bing-zhen Yan et al., Yuan-fang Song et al. consider the use value of the commodity as a whole, decomposing it into the tangible loss and intangible loss, thus making their study more comprehensive. Yi (2002)3 also elaborates the distinctive characteristics of scien-tech commodities from the four aspects of absolute monopoly, absolute scarcity, asymmetry of exchange and nonexcludability, which are different from that of general commodities. Yang (1985)4 distinguishes concrete labor from abstract labor, making his study on the differences of scien-tech commodity more specific. In terms of concrete labor, the workplace, labor means and the purpose of labor differ from each other. In terms of abstract labor, scien-tech commodities can not be averaged into necessary social labour because of their individuality and limitness. At the same time, scien-tech commodities are not only complex labour, but also complex labor with considerable labor intensity, and labor has the characteristics of inheritance, which requires that laborers engaging in R&D should have extraordinary capacity to absorb knowledge, can fully inherit the research achievements of predecessors, and improve them to shorten their time to do scientific research. There are differences between scien-tech commodities and general commodities, and the pricing of scien-tech commodities is more difficult and complicated. Yan and Liu (2009)5 proposes the root cause is that the labor involved in producing scien-tech commodities is complex, and therefore its pricing process will involve the conversion ratio between simple labor and complex labor. What is more, as mentioned earlier, scien-tech commodities also have the characteristics of spiritual commodities and experiential commodities, the improper pricing of which can easily lead to adverse selection. At the same time, their pricing becomes extraordinarily complicated due to the permanence of their value and the feature of public goods. Starting with the specific nature of scien-tech commodities, Song and Wang (1994)6 analyzed the difficulties in the price-making of scien-tech commodities. First, scientech commodities are the products of a single labor instead of repetitive labor of the 2 Yuan-fang Song and Ying-luo Wang. Science and Technology Commodities: Feature, Value, Price.

Journal of Industrial Engineering and Engineering Management, 1994(3). 3 Chonghua Yi. The New Test of Scientific and Technological Commodity to Labor Theory of Value.

Socialism Study, 2002(3). Yang. On the Particularity of Special Commodities. Inquiry Into Economic Issues, 1986(11). 5 Bing-zhen Yan and Guan-jun Liu. An Analysis of the Value and Value Realization of Science and technology Commodities. Northern Economy, 2009(10). 6 Yuan-fang Song and Ying-luo Wang. Science and Technology Commodities: Feature, Value, Price. Journal of Industrial Engineering and Engineering Management, 1994(3). 4 Wei

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same process, so it is impossible to calculate their value and the socially necessary labor time for their production, making it more difficult to directly estimate the prices of scien-tech commodities. Second, scien-tech commodities also contain the research achievements and the labor products of predecessors. As scien-tech commodities are improved on the basis of the accumulation of previous research achievements, it is difficult to truly measure the value of the work attached to scien-tech commodities at this stage and it is hard to truly determine the value of scien-tech commodities. At the same time, Li et al. (1995)7 also points out that when making price for scientech commodities, the traditional theory of Marxist political economics can not be applied mechanically. Scien-tech commodities are intangible products, so media is needed in the process of their application to really exert their value. When scien-tech commodities are combined with the production process, that is, when scien-tech commodities are really put into production, then they can truly create value which is greater than their own value. This shows that the value of scien-tech commodities can not simply be measured in terms of working hours. Due to the differences and the difficulty of price-making mentioned above, there exists a kind of perception of scien-tech commodities which is similar to religious worship in modern commodity economy society. Liu and Xing (2004)8 called it “scien-tech commodity fetishism”, the mysterious feeling that science and technology could do everything. In order to expose the essence of the fetishism, it is necessary to conduct a detailed analysis and research on the price-making of scien-tech commodity. In his research, Nie (1987)9 proposes that the pricing of scien-tech commodities should be based on the labor theory of value, taking into consideration social and economic benefits and other social factors such as timeliness, regionalism, and exclusiveness. Song and Wang (1994)10 added two important basic principles to the pricing of scien-tech commodities, which also determine the value of scien-tech commodities to a certain extent. First of all, the use value of scien-tech commodities should include the economic and social benefits arising from the process of their application and production, which are the characteristics that all commodities must possess. Secondly, it should also include the direct cost of scien-tech commodities, namely, the cost of direct investment in R&D, including a series of factors such as labor input, capital input and factor input. Moreover, factor input is the necessary prerequisite to scien-tech commodities. The more the input, the more complex the input, the higher the value of scien-tech commodities. At the same time, it must be realized that the price of scien-tech commodities is also related to the degree of difficulty in using them. The more complicated the use of scien-tech commodities, the higher the price of scien-tech commodities. This is because the more complicated the commodities are, 7 Zhang-yun

Li, Dan-hua Jia and Yu Zheng. The Use Value of Scien-tech Commodities. Jianghai Academic Journal, 1995(5). 8 Guan-jun Liu and Run-chuan Xing. A Study on Scien-tech Commodity Fetishism in Modern Commodity Economy Society. Journal of Tianjin Normal University (Social Science), 2004(5). 9 Tian-kuang Nie. How to Determine the Value of Scien-tech Commodity. Modern Law Science. 1987(1). 10 Yuan-fang Song and Ying-luo Wang. Science and Technology Commodities: Feature, Value, Price. Journal of Industrial Engineering and Engineering Management, 1994(3).

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the more input in R&D, resulting in the increase of the price of scien-tech commodities. Moreover, the effective service life of scien-tech commodities also affects the pricing of the commodities, the longer the service life is, the higher the value is. The prices of scien-tech commodities are also affected by market competition and ascendancy, which is embodied as follows: in the intellectual property-oriented society, if the ultimate goal of the buyer who buys scien-tech commodities is either to improve their competitiveness through technological progress, resulting in market monopoly or to have absolute control over a high-tech, then the buyer should pay a relatively high price for scien-tech commodities. As for the specific price-making, Guo (1996)11 points out that the price of scien-tech commodities should include the cost and profit of scientific research. To be specific, the cost of scientific research refers to the investment made in order to complete or obtain scientific and technological achievements, including investment, manpower, material and intellectual resources, etc. The profit is comparatively complex, including economic benefits and social benefits, industrialization and longevity of technological achievements, rights and responsibilities of the parties, market supply-demand relationship, payment methods and so on. The general empirical formula for the pricing of scien-tech commodities summarized by Yan-fei Guo is as follows: the minimum requirement is to compensate for the cost of R&D, and coupled with appropriate profit, which is taken as the price performance of this kind of special commodity. More specifically, Zhao (1991)12 expressed the pricing of scien-tech commodities in the form of a formula, which is the sum of the production cost of commodities and the remuneration for human labor plus the product of the profit and the risk coefficient of the commodities. Among them, as a kind of risky commodity, the risk coefficient of scien-tech commodities is defined as the proportion of the R&D cost of successful scien-tech commodities in that of all scien-tech commodities. Finally, he also pointed out that the development of scientech commodities should serve economic construction and accord with the current development trend. With the acceleration of China’s economic development, the direction of scien-tech commodities development should be energy-saving, informatization and diversification, instead of simply taking economic interests as the guide, we should constantly pay attention to energy-saving, emission reduction and environmental protection. Overcoming such problems requires a large initial investment, which also leads to the change in the prices of scien-tech commodities, so that the price of scien-tech commodities can be adapted to the sustainable development of economic society.

11 Yan-fei Guo. The Pricing of Scien-tech Commodities. Technology and Innovation Management, 1996(3). 12 Hong-Yue Zhao. To Reasonably Determine the Price of Scien-tech Commodities. Research on Economics and Management, 1991(5).

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321

Micro-market Mechanism of Technology Introduction

At the micro level, the market that introduces technology presents different characteristics, and the interaction between supply and demand parties is also different. Zhang (2010)13 points out that as the main body of technology market and technological progress, enterprises are the technology producers who know the users of technology best and have become the main body of technology supply. However, there are still many problems existed in the micro supply and demand of technological progress in Chinese enterprises. In terms of supply, there are problems such as low total investment in R&D, weak capacity for technological progress, and low technical content of technology supply. In terms of demand, there is insufficient demand for domestic innovation and excessive dependence on foreign innovation. In order to improve the micro-mechanism of supply and demand, Jiang-xue Zhang suggested that the government should improve fiscal and taxation policies to cultivate enterprises’ capability of scientific and technological progress of and vigorously promote the cooperation among government, industry, universities and research institutions. Lu (1995)14 thinks that in China’s textile industry, technology producers and technology demanders are faced with a seriously asymmetric micro-market. Textile industry is a pillar industry that affects people’s life, which urgently needs the upgrading of advanced technology. However, technology suppliers often consider textile enterprises as “sunset enterprises” which are not worth investing in technology innovation. Zhang (2001)15 thinks that the technological progress in agriculture is a dynamic process, which is the process of the interaction between scien-tech demanders and scien-tech suppliers, namely, the process of the dynamic game between the suppliers and demanders in agricultural sci&tech market. It can be said that the progress of agricultural sci&tech is the process of coordinated development. The three indispensable participants in this process are agricultural research institutions, government and agricultural enterprises. For agriculture, the micro mechanism of technological progress is a typical management mechanism. Entrusted by the government and as the researcher, innovator and promoter of agro-technology, agricultural research institutions are the supplier of agro-technology. At the same time, Gui-rong Zhang also points out that since agriculture is the basic industry of national economic development, the government must consider its strategic security. Therefore, in the progress of planning agricultural technological progress, the government should continually set up a sound system of agricultural research innovation and improve the intermediary market of agricultural research. From this perspective, the government may act 13 Jiang-xue

Zhang. Research on the Problems and Countermeasures of Technology Supply and Demand of Chinese Enterprises. Fortune World, 2010(11). 14 Zong-lu Lu. Technical and Economic Market for Textile Research. Textile Dyeing and Finishing Journal, 1995(3). 15 Gui-rong Zhang. An Analysis of the Obstacle to the Coordination between the Supply and Demand of Agricultural Technology and Countermeasures. Seeker, 2001(3).

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as the designer and supplier of agricultural sci&tech progress. Farmers who are at the forefront of agricultural production are the terminal of agricultural technology application and the subject of agricultural technology demand in the managed market mechanism. Wang (2010)16 thinks that railways have such technical and economic advantages as large transport capacity, low cost, less energy consumption, less environment pollution, less land occupation and so on. The technical and economic advantages of highspeed railways are even more remarkable, and the technological demands of them are very important and in line with China’s national conditions. The economic and geographical conditions, population and its distribution, resources and the economic development in China are all in need of high-speed railway development. In terms of technology supply, Chinese government should increase the investment in research on high-speed railway technology and form an incentive mechanism to constantly improve high-speed railway technology, which could better adapt to China’s geography and population, enabling the supply of high-speed railway technology to meet the ever-increasing technological demands.

11.1.3.3

Enterprise Features Suitable for Technological Progress and Medium Industrial Environment Relating to Industrial Structure

The features and content of technological progress are different for different industries and enterprises (Zhang 2010).17 The characteristics and the industrial environment of enterprises will affect the innovation of enterprises to a certain extent, thereby affecting technological progress. So what are the corporate characteristics that help drive technological progress? Guo and Teng (2007)18 thinks that the fundamental driving force for the survival and growth of enterprises, including the driving force for enterprises to pursue profits, the driving force for enterprises to reduce transaction costs and management costs, the expanding force for enterprises to expand, entrepreneurship and the driving force for enterprise employees to realize their own needs, has promoted the technological progress of enterprises. At the same time, Zhang (2001)19 points out that the technological progress of enterprises is affected not only by internal factors, but also by external factors such as national system, national economic development and world 16 Hui-chen Wang. An Analysis of China’s High-speed Railway Technology and Economy. Railway

Economics Research, 2010(6). Zhang. A Research on Characteristics and Contents of Scientific and Technological Progress of Coal Enterprises. Science and Technology Management Research, 2010(19). 18 Tao Guo and Xiang-lin Teng. A Study on the Dynamic System of Enterprise Organizational Innovation. Science and Technology Management Research, 2008(3). 19 Gang Zhang. A Research on the Source and Mode of Enterprise Organizational Innovation in China. Science Research Management, 2001(22). 17 Feng-wu

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economic development trends, etc. What’s more, the pressure of market competition will also promote the technological progress of enterprises. The industrial environment of enterprises and industrial policies have a great impact on the technological progress of enterprises. Industrial policies are economic policies at the medium-level, aiming at promoting the technological progress of enterprises through dividend policies so as to promote industrial upgrading. However, the making of industrial policies must conform to the general trend of China’s economic development and the general direction of China’s industrial structure changes.20 In addition, Hu and Feng (2006)21 put forward that only when the intellectual property rights brought by technological progress are effectively protected can they in turn promote further innovation of enterprises and scien-tech progress.

11.1.3.4

Macro Policies and Systems Suitable for Technological Progress

In order to promote technological progress, China has issued corresponding fiscal and tax policies in recent years, on which some researches have been made by academics. Kou and Sun (2007)22 summarized the role of tax policies in promoting technological progress as follows: the policy-oriented role; the costs and benefits affecting technological progress, the risk reduction of scien-tech progress activities and the transformation of scientific and technological achievements into practical productive force. Huang and Feng (2010)23 divided the driving role of tax policies for science and technology into two parts for analysis, namely, promoting technological progress and human capital formation and pointed out that only when it is taken as the basic starting point, can it fundamentally promote the transformation of economic growth mode from extensification to intensification. Bai (2010)24 pointed out that the existing problems in the tax policies of science and technology in China at the present stage are as follows: the imbalance of tax preferences across the country; scattered tax preferences, the lack of target and system; at the same time, in terms of China’s preferential policies at the present stage, China has not adopted such international tax incentive methods as accelerated depreciation and investment deduct, instead it still fixes on traditional tax preferences such as tax rate preferences and tax deductions, etc. Insufficient tax incentives for scientific and technological personnel are mainly reflected in the low proportion of the funds 20 Wenlong Lu and Hongmin Chen. Optimal Industrial Policy and Scientific and Technological Progress. Journal of Systems & Management, 2004(13). 21 Zhi-jian Hu and Chu-jian Feng. Foreign Policies to Promote Scientific and Technological Progress and Innovation. Science & Technology Progress and Policy, 2006(1). 22 Tie-jun Kou and Xiao-feng Sun. Thoughts on Tax Policy of Science and Technology in China. Journal of Shandong University of Finance, 2007(2). 23 Jing Huang and Yue Feng. Adjusting Fiscal and Taxation Policies to Promote Scientific and Technological Progress and Human Capital Formation. International Taxation in China, 2010(12). 24 Ya-nan Bai. The Problems and Countermeasures of Fiscal Policy to Promote the Progress of Science and Technology. Co-operative Economy & Science, 2010(12).

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for staff education, and the individual income tax is not conducive to mobilizing the enthusiasm of scientific and technological personnel for innovation. Huang and Feng (2010)25 think that in terms of promoting technological progress, the growth rate of government investment in science and technology is relatively slow, and the structure is not reasonable, and meanwhile it lacks systematicness, standardization, pertinence and diversity. In terms of promoting the formation of human capital, the problems with relevant fiscal and tax policies are insufficient investment and unreasonable structure. In view of the above defects, Li (2002)26 points out that the methods for tax preferences should be the combination of ex post encouragement and ex ante support taken as the primary method. Among them, ex post encouragement is mainly reflected in the tax credit of the final achievements, including tax preferences and tax deduction and exemption, with a strong emphasis on ex post rewards for enterprises, or the transfer of benefits. The emphasis of ex ante support is reflected in the tax base preferences, focusing on ex ante adjustment. At present, China’s preferential tax on science and technology still stays in the reward for scientific and technological achievements to realize the transfer of benefits, that is to say, the above-mentioned ex post encouragement, but the ex ante taxation support for scientific and technological activities is still insufficient, which needs to be strengthened. At the same time, Value Added Tax (VAT) should be transformed from production VAT to consumption VAT, and science and technology preferential tax should be transformed from the regionoriented preferential tax to industry-oriented preferential tax. As for the individual income tax, Song-qing Li said that it is necessary to introduce preferential policies on the individual income tax for the scientific and technological industry, and learn from France and South Korea to encourage private capital to invest in the scientific and technological industry. Finally, at the regulatory level, he proposed to strengthen the science and technology tax legislation to regulate the science and technology tax policy and prevent the abuse of preferential policies. However, focusing on the legal system of science and technology tax, preferential tax policies and preferential tax types, etc., Bai (2010)27 elaborated the idea of improving China’s science and technology tax policy Huang and Feng (2010)28 put forward the reform proposal from the aspects of both technological progress and human capital: to establish a stable growth mechanism of financial investment in science and technology and to invest more in human capital cultivation, to optimize the structure and direction of financial investment in science and technology, and coordinate the balanced development of all regions, to improve the tax policy system for science and technology, and 25 Jing Huang and Yue Feng. Adjusting Fiscal and Taxation Policies to Promote Scientific and Technological Progress and Human Capital Formation. International Taxation in China, 2010(12). 26 Song-qing Li. Tax Policy Choice to Promote the Progress of Science and Technology in China. International Taxation in China, 2002(7). 27 Ya-nan Bai. The Problems and Countermeasures of Fiscal Policy to Promote the Progress of Science and Technology. Co-operative Economy & Science, 2010(12). 28 Jing Huang and Yue Feng. Adjusting Fiscal and Taxation Policies to Promote Scientific and Technological Progress and Human Capital Formation. International Taxation in China, 2010(12).

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formulate preferential tax policies to encourage enterprises, social groups, families and individuals to increase human capital investment. The above researches in China have involved many aspects of the implementation of the strategy of scientific and technological progress, but the research on the implementation of the strategy of scientific and technological progress as a dynamic system still needs to be deepened.

11.2 The Institutional Basis for Implementing the Strategy of Scientific and Technological Progress The implementation of the strategy of scientific and technological progress requires overall planning and layout. In this process, various institutional bases are of great significance to the implementation of the strategy. Various systems can provide a good environment for the implementation of the strategy of scientific and technological progress, which is an indispensable basis for the implementation of the strategy. This section will demonstrate the impact of the four institutional bases on the implementation of the strategy from the perspective of market system, patent system, financing system and fiscal and taxation system.

11.2.1 Market System and the Implementation of Scientific and Technological Progress Strategy The so-called market system refers to the operating mechanism of organic connection and institutional connection between various factors affecting economic development in the current market system. The market here is not a single concept, but the overall concept of the whole market system. The Third Plenary Session of the 18th CPC Central Committee made it clear that in the process of deepening the reform of the scientific and technological system, it is necessary to give full play to the role of the market and determine the direction of the implementation of the strategy of scientific and technological progress through the choice of the market. This fully shows that in the process of implementing the strategy of scientific and technological progress, the Chinese government needs to make good use of the market, and the most important thing is to establish a fair and orderly competition environment. Moreover, the meaning of market reform for the Third Plenary Session of the 18th CPC Central Committee is not just limited to the field of scientific and technological progress but the reform of all aspects of economic and social development. The perfection of the market system can play a very important role in the strategy of scientific and technological progress, which includes not only the choice of the direction of scientific and technological progress, but also the process of the development of scientific and technological progress strategy. Specifically, the establishment of market system

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plays an important role in the implementation of scientific and technological progress strategy in the following three aspects. First, the establishment of the market system can guide the implementation of the strategy of scientific and technological progress, directing scientific and technological progress toward what the market needs. At present, China is in the critical period of market economy construction and reform, and various market systems are constantly improving. However, it is undeniable that there are still some imperfections in the construction of China’s market economy system. In particular, compared with developed countries, there is still a big gap between China’s market economy system and that of developed countries. The continuous improvement of the market system can promote the improvement of the structure of consumer demand, and the improvement of the structure of consumer demand will produce specific requirements on the products provided in the market, which is exactly the main direction of scientific and technological progress. From this perspective, the improvement of the market system provides a good development direction for the implementation of the strategy of scientific and technological progress. Second, the improvement of the market system can promote the process of implementing the strategy of scientific and technological progress. At present, China is implementing innovation-driven strategy on a large scale, which requires not only the guarantee of government policies, but also the guidance of market system. Only when the market system is really perfect can the implementation of the strategy of scientific and technological progress be promoted rapidly. In the era of planned economy, the decisions for the implementation of any strategy for scientific and technological progress were all made around the planned system, which led to the fact that the implementation of the strategy for scientific and technological progress did not respect the market and could not really meet the needs of people. Moreover, the development of China’s industrialization and urbanization are also in need of a perfect science and technology market system to ensure that it can innovate and develop technologies which meet the needs of industrial and urban development. In particular, in the post-industrialization era, the vigorous development of the service industry needs more support from science and technology, which in essence requires a perfect market system to ensure the unification of technology demand and technology supply. The implementation of a series of strategies such as industrialization, informatization and urbanization requires the continuous improvement of the market system, which provides a good foundation for the implementation of the strategy of scientific and technological progress and is conducive to promoting the implementation of the strategy. Thirdly, the improvement of market system can guarantee the implementation of the strategy of scientific and technological progress. Because enterprises are the main force of scientific and technological progress, and the implementation of scientific and technological progress strategies is mainly aimed at enterprises, especially hightech enterprises. The social environment which enterprises need to rely on or face in the process of its development is the economic system. In the era of planned economy, the direction of enterprise innovation is dominated by superior departments, which is not conducive to motivating enterprises’ enthusiasm for science and technology

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innovation, thereby inhibiting the implementation of the strategy of scientific and technological progress. The improvement of the market economy system can ensure that the information between the enterprise and the market is symmetrical. Enterprises can fully capture the needs of consumers and the development direction of the market through market, so as to better formulate the strategy of scientific and technological development. The scientific and technological strategic planning of an enterprise is a full guarantee for the implementation of the strategy of scientific and technological progress at the micro level. Only when an enterprise fully recognizes the important role of scientific and technological progress can it truly promote the technological progress of the enterprise, which is conducive to the implementation of the strategy of scientific and technological progress. The author of this book proposes that the market system should be improved from the following three aspects: First of all, the government should continue to delegate power, simplify administrative examination and approval procedures, promote economic development through market, and minimize interference in the development of market. In particular, healthy competition in the market should be promoted to build a level playing field and guide the direction of scientific and technological progress through market. When it is time for economic downturn, the government should not make special subsidy for enterprises, but should play the role of the market in reshuffling enterprises, eliminating those enterprises with backward technology, overproduction, and serious pollution, and supporting those high-tech enterprises, so as to make the enterprise structure more reasonable, which will be conducive to the implementation of the strategy of scientific and technological progress. Secondly, the improvement of the market system should make the market more inclusive and open, and the threshold for the introduction of foreign capital should be lowered, especially for the opening of some service sectors. The entry of foreign investment has the effect of technology spillover, which brings not only the capital needed for development but also advanced technology, management system and so on. The reasonable introduction of foreign capital can help implement the strategy of scientific and technological progress. Thirdly, the improvement of the market system does not simply mean that the development direction in economic operation is dominated completely by the market. Nor does it mean that the government should not step into guide the market development. At the appropriate time, the government should actively guide the market, especially in the process of implementing the strategy of scientific and technological progress. The market can guide the specific direction of scientific and technological progress, but it is the government that needs to grasp the principle direction of the implementation of scientific and technological progress strategy. The implementation of the strategy of scientific and technological progress as a national strategy requires the government to grasp and control the overall situation. For example, for strategic emerging industries, the government should play an important role in guiding their development and the market system should provide a good environment for their development. For the new scientific and technological revolution and the new industrial revolution that are taking place at the present stage, the government should make unified layout and planning, issue corresponding scientech plan, deepen the reform of the market system and improve the market system.

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Only in this way can we better grasp the opportunity of the “two new” revolutions to promote the scientific and technological progress in China.

11.2.2 Patent System and the Implementation of Scientific and Technological Progress Strategy The patent system refers to a system that protects the scientific and technological achievements generated by scientific and technological progress. The implementation of the patent system can stimulate the generation of R&D activities. Therefore, the patent protection system is of great significance for the implementation of scientific and technological progress strategy. Especially under the background of “mass entrepreneurship and innovation” strategy, the improvement of the patent system is an important support to guarantee mass innovation and entrepreneurship. If the patent is not protected, the scientific and technological achievements will be copied at will, which is not conducive to motivating researchers to engage in R&D activities. Therefore, the implementation of patent system plays an important role in safeguarding the strategy of scientific and technological progress. Throughout the United States and some other developed countries, there is a complete set of systems to protect scientific and technological patents, so that intellectual property rights are very closely protected, which is conducive to mobilizing the enthusiasm of researchers, because patent protection means that patents are still in a valuable position and can bring benefits to patent holder. There is still a large gap between China’s intellectual property protection and that of developed countries, which has led to unclear intellectual property rights, and patent infringement, etc., which have not been effectively solved in China, resulting in decreased enthusiasm for scientific research and waste of resources etc. Moreover, the patent system is not perfect, which has also caused serious imitation of scientific and technological achievements and stagnation of real independent innovation. This is the difficulty that our country must overcome in implementing the strategy of scientific and technological progress. Specifically, the impact of patent system on the implementation of scientific and technological progress is mainly reflected in the following four aspects. First, the perfection of the patent system is conducive to the intellectual property protection in the process of implementing the scientific and technological progress strategy so as to ensure the successful implementation of the strategy. The spillover effect of scientific and technological achievements is strong. In a short period of time after the publication of an achievement, it will be imitated by some enterprises and a secondary innovation follows. Without the protection of the patent system, this phenomenon will continue to spread, resulting in two important consequences. First, researchers will not be motivated to engage in R&D, because their research achievements can not be protected by the system. For enterprises, if scientific and technological achievements are easily imitated and used, they will lose a large part of their profits, which will lead to the fact that the cost invested in R&D cannot

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be rewarded at all, and they will not invest a large amount of human, financial and material resources in R&D again. Second, China’s overall capability for technological innovation will be greatly reduced. If there is no patent protection, imitating the existing scientific and technological achievements can be taken as a shortcut. Although better benefits can be obtained in the short term, in the long run it will lead to the lack of real independent innovation ability of the whole country. Second, the implementation of the patent system is conducive to the introduction of more foreign technology, thus promoting the overall industrial technology level. The entry of foreign capital has a strong technology spillover effect, which can promote the progress of local science and technology, because some foreign capital can bring the most advanced technologies, from which our Chinese enterprises can learn and innovate based on that, and this is also an important step in the implementation of the strategy of scientific and technological progress. However, foreign capital has very high requirements for patent protection. Without a relatively perfect patent system, foreign capital is bound to be afraid to come in and is not willing to really share high tech even if it comes in. Over time, the introduction of foreign high-tech will come to nothing. The implementation of the strategy of scientific and technological progress requires not only the rapid development of domestic technology progress but also the active introduction of advanced foreign technologies to make up for the deficiencies of China’s technological development. To solve this problem, we must make up our minds to build a perfect patent protection system. Third, the perfection of the patent system is conducive to the sound development of the scientific and technological market, promoting the commercialization of scientific and technological achievements. The commercialization of scientific and technological achievements refers to the clear pricing of scientific and technological achievements, and the transfer of scientific and technological achievements through the market mechanism, which requires the perfection of the scientific and technological intermediary market. Since it is difficult to measure the real value of scientific and technological achievements and evaluate their real application effect, the perfection of patent system is conducive to clarifying the value and ownership of scientific and technological achievements, which can better promote the commercialization of scientific and technological achievements and thus effectively construct a system for the transfer of scientific and technological achievements. One important part for the implementation of scientific and technological progress strategy is to build a perfect scientific and technological intermediary market, which first requires that scientific and technological achievements can be clearly priced like normal commodities, so as to enable the normal circulation of scientific and technological achievements. The perfection of the patent system lays the foundation for the commercialization of scientific and technological achievements, because the patent system is conducive to clarifying the ownership of scientific and technological achievements, so that the scientific and technological achievements can be transacted just like the other commodities. The patent system can ensure that the scientific and technological achievements bring huge profits to the owners of them, so that the scientific and technological achievements have transaction value.

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Fourthly, the perfection of the patent system is conducive to the construction of an effective market and the effective allocation of scientific and technological resources. The allocation of scientific and technological resources is the core content of the implementation of the strategy of scientific and technological progress. But at present, there is a serious waste of scientific and technological resources in China. Some truly innovative enterprises are not supported by the government, while industries with excess production capacity still enjoy financial subsidies. Such a system makes it difficult for the allocation of scientific and technological resources to meet the requirements of scientific and technological progress. The establishment and improvement of the patent system can stimulate the vitality of the market, so that the government and enterprises can really understand what kind of scientific and technological products are in line with the general trend of economic development at present, and thus stimulate the government to support these products and enterprises to produce these products. Under such circumstances, factors such as talent, capital and so on can be re-allocated and flow into science and technology industry that needs to be vigorously developed at present. It can be seen from the above argumentation that the patent system plays a major role in providing economic incentives and legal protection for the implementation of the strategy of scientific and technological progress. Due to the backwardness of China’s patent system at the present stage, it is necessary to strengthen the construction and improvement of the patent system, especially from the following aspects. First, a perfect legal system of patent protection should be constructed and conscientiously implemented to ensure that it is abode by, instead of just an institutional ornament. Secondly, a perfect science and technology market should be established. Science and technology market and patent system complement each other. Science and technology market is the internal driving force to promote the perfection of patent system, and the perfection of patent system can lay a foundation for the development of science and technology market. Lastly, the improvement of the patent system should be closely related to the development trend of new science and technology. For instance, the rapid development of Internet technology makes it difficult to effectively protect the intellectual property rights in the Internet market. Therefore, in the process of improving the patent system, these new problems should be taken into account, so as to construct a truly perfect patent protection system.

11.2.3 Financing System and the Implementation of Scientific and Technological Progress Strategy Financing is the most difficult problem for the development of technological innovation enterprises. The financing cost of technological innovation enterprises is high, which limits the possibilities for technological innovation enterprises to expand reproduction. Faced with this problem, the Central Committee of the Communist Party of China (CCCPC) and the State Council attach great importance to the

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financing of small and medium-sized enterprises, having put forward many targeted countermeasures to effectively alleviate the high financing cost of some technological innovation enterprises. From the current situation, the problem of poor financing channels for technological innovation enterprises still exists, and the above problems may be more serious in the process of economic structural adjustment. During the period of structural adjustment, traditional industries still occupy a large amount of credit resources, which raises the financing cost of technological innovation enterprises. In the stage of “three-phrase superposition,” China’s economy will continue to suffer from structural transformation. In the process of structural transformation, the clearing process of the original traditional industries is relatively slow and the continuation and development of their businesses need a lot of financial support. In the meantime, commercial banks will not easily cancel the credit support for traditional industries in order to maintain the quality of assets. The credit resources occupied by traditional industries have obviously had the “crowding out” effect on the credit supply of emerging industries, and the demand for credit resources of technological innovation enterprises and other departments undergoing structural transformation can not be effectively met, thus raising the financing cost of enterprises. The soft budget constraint departments have formed a ‘crowding out’ effect on credit, blocking the downward channel of financing cost for technological innovation enterprises. Due to historical reasons, there exist soft budget constraint departments (local financing platforms and real estate) in the financing market, who have obvious competitive advantage in the credit market. At the same time, the above-mentioned departments are not sensitive to the price of capital. As long as financial institutions lend money to them, they can bear almost capital of any price, profit-seeking commercial banks are often kidnapped by the black hole of capital, resulting in abnormal capital allocation market. Commercial banks are quite clear about the risks faced by local financing platforms and real estate developers, but they are still willing to allocate capital to these departments through off-balance-sheet financing, because some commercial banks believe that these departments have credit guarantee from the government or an implicit commitment of “rigid payment”. Moreover, the soft budget constraint means that these economic entities are not sensitive to interest rates and are willing to bear higher financing costs, which, to some extent, has pushed up the interest rates of financial products, such as wealth management products and P2P etc., and in turn, it forces the cost of bank capital to rise, which also blocks the downward channel of the financing cost of technological innovation enterprises. The qualification requirements for direct financing of technological innovation enterprises are too high, forcing enterprises to turn to high-cost financing channels. In recent years, the government has gradually enriched the channels for direct financing of enterprises through top-level design, and explored the formation of a multi-level capital market. However, at present, China’s capital market in our country is still underdeveloped, it is not only in small scale, but also in a single structure and with a lack of hierarchy. In terms of the qualification requirements of direct financing and administrative examination and approval procedures, there still exists a relatively higher threshold. The vast majority of bond issuance funds are inefficiently

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and cheaply occupied by state-owned enterprises and large enterprises in traditional industries, while it is hard for other economic entities, especially technological innovation enterprises to take a share of it. In addition, the requirements for qualification are so high that many technological innovation enterprises and start-ups are blocked from direct financing. In reality, a large number of enterprises can not finance by relying on issuing bonds and stocks. They can only turn to private financing, whose financing cost is much higher than that of stock and bond financing. The continuous development of this phenomenon has continuously raised the overall financing cost of society. The lagging development of diversified financial institutions such as private banks and innovation funds has seriously hindered the fair competition in the financial market. In China’s current financing system, state-owned commercial banks, jointstock commercial banks and urban commercial banks still play a leading role. Meanwhile, diversified financial institutions such as private banks and Internet finance also play an important role in complementing the above. However, diversified financial institutions, such as private banks and Internet finance etc., are still small-scale, their contribution to the enlargement of financing channels for technological innovation enterprises is insufficient. Their actual investment of credit resources is also relatively limited. Therefore, the financing cost of the credit resources obtained through the above-mentioned financial institutions is also too high. At present, there are many restrictions on the establishment and business development of private banks and small-loan companies. Private banks are still in the pilot stage. Even so, the entry threshold for them is still very high. For example, initiators are required to shoulder unlimited liability for residual risk, etc. The limited access to the capital for smallloan companies restricts the expansion of credit scale so that they can not play its due role effectively.

11.2.4 Fiscal and Taxation System and the Implementation of Scientific and Technological Progress Strategy Fiscal and taxation system guarantees R&D activities through financial investment to promote scientific and technological progress. The implementation of the strategy of scientific and technological progress is a systematic national strategy. Therefore, the most important promoter is to improve the fiscal and taxation system. The fiscal and taxation system plays an important role in the progress of science and technology, because enterprises, the main innovator of scientific and technological progress, often face the problem of capital shortage in the process of R&D, which no one enterprise can avoid. The solution to the problem is to get bank credit and private lending and so on, but what is more important at the present stage is to ease it through fiscal subsidies, tax breaks and some other preferential policies. Specifically, fiscal and taxation policies have the following three positive effects on the implementation of scientific and technological progress strategy.

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First, scientific and technological products belong to public products, and their spillover effect is very strong. The generation of a technology can be quickly mastered and utilized by other enterprises or individuals in the society. If there is no enough incentive for them, the scientific and technological development enterprises will lose the enthusiasm to continue R&D. In this case, enterprises can be motivated to continue to engage in R&D activities by adjusting the fiscal and taxation systems. For example, R&D activities requires a lot of money, which is equivalent to “sunk costs”. The government can provide support for enterprises’ scientific research investment through financial subsidies and tax breaks and so on. What is more important is that the externality of scientific and technological activities leads to the increasing risk of R&D activities, because the existence of externality makes the confidentiality of scientific and technological activities greatly reduced, some enterprises may imitate innovation or even copy it to make profits. Although we can not restrain the externality of scientific research activities, we can subsidize R&D enterprises’ losses caused by externality through fiscal and taxation policies, so as to promote the implementation of the strategy of scientific and technological progress. Second, scientific research activities are highly risky, and it is difficult for enterprises to bear the cost of failure alone, so they need the financial and taxation support of the government to carry out scientific research activities. It is hard to truly predict the success or failure of a scientific research activity. Moreover, the production of scientific and technological achievements is also faced with whether it can be applied to production, or whether it can bring about the improvement of production efficiency and the increase of production profits after being applied to production. Therefore, there are always huge risks in scientific and technological activities, and once the risk occurs, it will be a heavy blow to the enterprise. Therefore, government support is needed to mitigate the risks brought by R&D activities. The most direct and effective way for government support is to give subsidies or tax breaks to enterprises directly through fiscal and taxation policies so that enterprises can partially avoid the risks brought about by R&D activities. However, it is worth noting that there is a phenomenon of abuse of fiscal and tax subsidies at the present stage. The fiscal and tax subsidies are not really applied to R&D activities, but are misused by some enterprises, which leads to not only the greatly reduced efficiency of R&D, but also tremendous waste of social resources. However, this problem can not be solved by suspending the fiscal and tax subsidies from the government. Instead, a sound fiscal and taxation system needs to be established to avoid it, including the supervision of the use of funds. etc. Thirdly, the independent innovation of enterprises needs the support of government’s fiscal and taxation policy. Scientific and technological activity is a capitalintensive activity, which requires a lot of money. However, for enterprises, especially small and medium-sized enterprises, there are often financial difficulties in the process of R&D. To solve this problem, it not only requires financial institutions such as banks, etc. to vigorously develop credit modes that are conducive to technological innovation of enterprises, such as scientific and technological finance, but also requires the government to make up for the funding gap for enterprises to carry out R&D activities through fiscal and tax policies. In terms of fiscal and taxation

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policies, the common fiscal polices in China at the present stage are to subsidize enterprises directly in the form of scientific and technological subsidies, while taxation policies are to subsidize enterprises to carry out R&D activities through tax reduction and exemption. These two methods can also be called ex ante subsidy and ex post subsidy. Ex post subsidy for R&D activities of enterprises are very common in foreign countries, which can better encourage enterprises to carry out the real R&D activities. However, China still stays in the stage of ex ante subsidy. The fiscal policy for China to support R&D activities should also gradually shift from ex ante subsidy to ex post subsidy. In terms of the current fiscal and taxation system in China, a great deal of work has been done to subsidize enterprises engaged in R&D activities. However, there are still many problems that need to be overcome. First of all, there exists the problem of lax financial supervision over subsidies. As a result, the government’s subsidies for the R&D activities of enterprises are not really used for R&D, so it requires the effective supervision of the government and the most direct way is to improve the supervision system and to monitor and evaluate the whole process of R&D. Secondly, the subsidy for R&D should shift from ex ante subsidy to ex post subsidy, which is conducive to improving the mechanism for the guarantee of R&D to ensure the implementation of scientific and technological progress strategy.

11.3 Institutional Construction for the Implementation of Scientific and Technological Progress Strategy 11.3.1 Macro-control and Basic Market System The government should construct the market foundation for implementing the strategy of scientific and technological progress by means of macro-control. Only through market dominance and government guidance can the macro allocation of scientific and technological innovation resources reach Pareto optimality. The state should issue the plan for the implementation of scientific and technological progress strategy and establish a mechanism for scientific and technological innovation system so as to lay a broad foundation for the implementation of the strategy. To be specific, the macro-control and the construction of the basic market system can proceed from the following six aspects. Firstly, the leading role of large-scale enterprises should be played to enhance their overall technological innovation capability by means of transfer, help and guidance. Large-scale enterprises usually have their own R&D departments. They should strengthen R&D, constantly improve their R&D capability, and become the backbone of scientific and technological innovation. At the same time, large-scale enterprises are supposed to actively cooperate with scientific research institutions and rely on their scientific research platforms to enhance their own R&D strength. Based on that, large-scale enterprises should play a leading role and actively help and promote the

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scientific and technological innovation level of the small and medium-sized enterprises by means of pass, help and guidance. “Transfer” means large-scale enterprises ought to take the initiative to connect with small and medium-sized enterprises to transfer their own technologies to them, so that scientific and technological achievements can be shared across the whole society. “Help” means that large-scale enterprises should give corresponding instructions to small and medium-sized enterprises, including R&D, company management, etc., so as to promote the development of small and medium- enterprises. “Guidance” means that large enterprises should drive the development of small and medium-sized enterprises. Only when the close relationship between large-scale enterprises and small and medium-sized enterprises is established can the solid foundation for the implementation of the strategy of science and technology progress be laid. Meanwhile, the scientific research activities carried out by both large-scale enterprises and small and medium-sized enterprises should be combined with the local economic development, and be able to promote the development of local science and technology through their own scientific and technological development, so as to promote the local economic development to be innovation-driven. Secondly, taking market as a leading factor, a sound market system should be established to evaluate the scientific and technological research achievements, allocate scientific research funds and scientific research resources. The role of market for scientific and technological progress is not only to connect technology supply with technology demand through the intermediary in the technology market, but also to effectively allocate scientific and technological resources, to establish an appropriate scientific research evaluation system to evaluate scientific research achievements and to truly embody the dominant status of enterprises for independent innovation. First of all, as the main body of scientific and technological innovation, enterprises should be guaranteed priority in obtaining the support of scientific research funds. Secondly, the reform of the fiscal and taxation support system of the government should be deepened so that the government can guarantee the scientific and technological innovation of enterprises without interfering with the market’s active leadership in science and technology innovation. Thirdly, the market can explore new channels to give play to the positive role of enterprises as innovation subjects. In a word, the guidance of the market plays a crucial role in the development process of enterprises. The market mechanism is conducive to mobilizing enterprises’ enthusiasm for R&D, which can accelerate the implementation of scientific and technological progress strategy and achieve more significant results. On the basis of establishing the market system, the reform of the national innovation demonstration zone should be further strengthened, so that the issued policies can pay more attention to and grasp the important significance of the market for the implementation of the strategy of scientific and technological progress, and the policies can be combined with the market, so as to play a “multiplier effect”. Thirdly, the intermediary market of scientific and technological achievements and the system for transferring scientific and technological achievements should be improved. Corresponding laws and regulations should be issued to clarify the transfer of scientific and technological achievements, and the intermediary market

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of scientific and technological achievements should be continuously improved to make the transfer of scientific and technological achievements more convenient. In this process, the most important thing is to clarify the pricing mechanism of scientific and technological achievements, which is often referred to as the commercialization of scientific and technological achievements. Only when scientific and technological achievements are commercialized can they have a clear pricing mechanism and be traded in the market. Fourthly, the mechanism for collaborative innovation among departments should be strengthened and the division of scientific research among relevant departments should be resolutely discarded. The implementation of the strategy of scientific and technological progress is a systematic project, and the construction of the innovation system should be a process of active coordination and cooperation among departments, which should be strengthened to establish the mechanism for collaborative innovation. At present, the Chinese government has done a lot of work on collaborative innovation, and has introduced a large number of policies and measures to ensure the implementation of collaborative innovation. However, we must also deeply realize the following two major problems of collaborative innovation. The first one is that there are still divisions among government departments, which has not been well coordinated and unified. The second one, contrary to the first one, is that collaborative innovation in some areas is excessive, resulting in unbalanced allocation of scientific and technological resources and the waste of resources. To solve this problem, it is necessary to improve the scientific and technological management system, establish the top-level design mechanism of scientific and technological collaborative innovation, establish special organizations or institutions to coordinate scientific and technological innovation, and at the same time, break the interference of administrative orders in scientific and technological innovation to ensure that scientific and technological innovation is determined by the market system. A unified deployment and unified planning for all departments should be carried out to strengthen coordination among them and form a cluster effect so that it will be easier for R&D to be carried out. Fifthly, a transparent system for sharing scientific and technological resources and a sound institutional foundation should be established to ensure the implementation of the strategy of science and technology progress. The implementation of the strategy of scientific and technological progress requires a lot of scientific and technological information to be shared, which includes not only the relevant information of the final result, but also all the information in the process of R&D, which plays an important role in the future scientific research innovation. These information can be shared by the whole society in developed countries, promoting the scientific and technological progress of the whole society. However, China’s work about it is obviously insufficient and there is not even a sound system to provide scientific and technological inquiry services for all walks of life. With the development of network technology, the database of scientific and technological information should be formed by means of big data so that it could be shared by the whole society. The sharing of scientific and technological information can strengthen the supervision of the whole society on science and technology, avoid repeated application, and waste of scientific

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and technological resources, especially the misuse of scientific and technological funds. At the same time, the sharing of scientific and technological achievements can promote the scientific and technological level of the whole society, because everyone can query the current frontier scientific and technological achievements and the achievements of scientific and technological progress made in China through the data sharing system, so that the concept of Pratt & Whitney technology can be constantly implemented. Finally, the investigation of scientific and technological research should be stepped up, and whole-process track and feedback for the wellperforming projects or key projects should be conducted so as to strengthen the state’s supervision and management of R&D activities. Sixthly, the reform of scientific and technological reward system should be deepened and the project of cultivating cutting-edge talents should be stepped up. Scientific and technological reward system is the guarantee for the implementation of scientific and technological progress strategy for it can fully mobilize the enthusiasm of researchers, but the current scientific and technological reward system is too one-size-fits-all to distinguish the teams or individuals who are really engaged in scientific research activities, which can be avoided by establishing or improving relevant systems, so that real R&D activities could be rewarded accordingly. First of all, the standard of reward should be raised to reward the teams with outstanding R&D achievements so as to fully mobilize their enthusiasm for future R&D. Secondly, R&D activities should be evaluated objectively and fairly, the corresponding evaluation standard system should be established, and the supervision and management of the whole society should be introduced, so that the teams or individuals that should be rewarded are really rewarded. At the same time, the talent system should be improved to ensure that talent introduction is combined with talent training. For talent introduction, it is necessary to not only strengthen the implementation of this project, but also improve the relevant supporting measures to retain talents so that talent introduction is not temporary, but long-term. For example, special treatment should be given to the hukou system of talents, and full consideration should be given to their medical insurance and education for children, etc. to build a sound system to retain talents. For the cultivation of talents, the cultivation mechanism and system of colleges and universities should be innovated, so that colleges and universities can cultivate talents with international vision, instead of the ones who only focus on theory rather than practice.

11.3.2 Intellectual Property Protection and Patent System As can be seen from the second section of this chapter, the patent system plays an important role in scientific and technological progress. In the process of improving the patent system, the most important thing is the protection of intellectual property rights, which is a work that requires a lot of manpower and material resources. The protection of intellectual property rights in the Western developed countries is quite rigorous, but it started relatively late in China, which leads to the imperfect system of

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intellectual property rights protection in China, and which also reflects that China’s patent system has a lot of room for improvement. Specifically, China’s intellectual property rights protection and the establishment of patent system still need to be improved from the following six aspects. Firstly, publicity must be strengthened to raise the awareness of individuals and enterprises to protect intellectual property rights. If there is no awareness of patent protection in a society, the consequences will be very serious, and there will be theft of scientific research achievements everywhere. In the long run, no individual or enterprise will be willing to engage in R&D activities so that the scientific and technological development of the whole society will stagnate. The government should take active actions to publicize the positive significance of protecting patent intellectual property rights so that individuals and enterprises engaging in R&D can realize the importance of protecting patent intellectual property rights. Besides, the government should also actively publicize the specific steps and processes of patent intellectual property rights protection. Although the knowledge level of enterprise owners is constantly improving at the present stage, some of them still lack the relevant knowledge to apply for patents, hence, the government needs to publicize it accordingly. In the meanwhile, enterprises are supposed to actively conduct the study of patent intellectual property rights protection and then put it into practice so that their R&D achievements can be effectively protected. Secondly, government departments should actively guide enterprises and individuals engaging in scientific research activities to apply for patents. The government not only needs to speed up the construction of the legal system to improve the patent system, but also needs to strengthen publicity to actively guide enterprises or individuals to apply for patents, especially those involving emerging technologies or core technologies, so as to fully protect intellectual property rights. When guiding the application for a patent, the government should make breakthroughs in the following aspects. First of all, the government should give sufficient guidance to enterprises or individuals in their application for patents, informing enterprises of the importance of patent application or intellectual property rights protection, and more importantly, telling enterprises how to make applications for patent or how to protect their intellectual property rights more effectively. In addition, a full explanation of the consequences of not protecting intellectual property rights should be given to enterprises so that they could truly realize the important role of intellectual property rights protection. Secondly, the existing patent system needs to be reformed to make it more easier to apply for patents, so that enterprises would like to apply for patents to protect their intellectual property. Moreover, at present, China’s patents now are too centred on surface design, lacking of R&D and breakthrough of core technology, so the threshold for patent application should be appropriately raised. For the reform of the patent system, the application threshold should be gradually raised but the application process is supposed to be gradually simplified. Finally, the government should seriously deal with the illegal acts against intellectual property rights and establish a sound legal system to avoid them. This kind of sound legal system is not only reflected in the improvement of the legal system, which makes the protection of intellectual property rights lawful, but also the innovation of hearing institutions

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for illegal acts, such as the establishment of specialized intellectual property rights courts to hear these cases. Thirdly, it is necessary to carry out collaborative innovation among universities, enterprises and scientific research institutions to jointly promote the protection of intellectual property rights. First of all, plagiarism of scientific research achievements among the three should be avoided. As an important force of social scientific and technological progress, they should have the awareness of patent protection, so as to promote the formation of a good atmosphere of intellectual property rights protection in the whole society. Secondly, universities, enterprises and research institutions should actively apply for patent. As the main forces of social scientific and technological progress as well as the backbone to promote the implementation of the strategy of scientific and technological progress, there are bound to be a lot of scientific and technological achievements in the three, for which that involve intellectual property rights, patent applications should be made as soon as possible to avoid the imitation and spread of scientific and technological achievements. Furthermore, as to the disputes over intellectual property rights, they should actively resort to law to protect their own rights from infringement. At last, universities, enterprises and research institutions should actively participate in the process of improving the national patent system. Since all three of them have practical experience of intellectual property rights protection and patent application, they have a say in evaluating the patent system implemented in China at the present stage, pointing out its defects, and providing operable policy suggestions for the perfection of China’s patent system. Fourthly, the country should give sufficient protection of intellectual property rights to the scientific and technological achievements of enterprises or individuals. With reference to the experience of the intellectual property rights protection in developed countries such as the United States and Japan, the ownership of the R&D achievements of enterprises or individuals are clearly clarified in these countries, but the country can use the corresponding scientific and technological achievements, provided that a certain amount of royalty must be paid, which fully embodies the value of scientific and technological achievements, and is also conducive to enterprises or individuals for a patent application for an invention. However, judging from China’s approach to enterprise patents, in many cases, the ownership of R&D achievements is not really clarified. The country has absolute ownership of some scientific and technological achievements, including not only the right to use but also the property right. Drawing lessons from foreign experience, the government should give the ownership of scientific and technological achievements back to the R&D researchers, which is not a temporary one and needs to be fully restrained by the legal system. Meanwhile, the government may have the right to use scientific and technological achievements, but a certain amount of loyalty should be paid to the R&D researchers according to the principle of market pricing. Only in this way can the protection of intellectual property rights be truly improved. Fifthly, the government should make full use of the patent system to promote the steady development of the market economy. Patent is the core advantage of an enterprise. When an enterprise owns a patent that cannot be copied by others, it will have a great chance in a competitive market to expand market share and

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even monopolize the market. And so long as an invention is truly patented can the enterprise make huge profits in the market. Thus, the government should make good use of it and establish a sound patent system so that enterprises can compete in the market through intellectual property rights protection, which is not only the competition of market share, but also the competition of science and technology. Only when enterprises can make genuine scientific and technological progress can they gain genuine advantages in the competition. The competition of science and technology can promote the continuous progress of science and technology, giving impetus to the improvement of science and technology in the whole society and achieving the goal of implementing the strategy of scientific and technologica l progress. Sixthly, enterprises should make R&D, application and implementation go hand in hand in the process of intellectual property rights protection. R&D is the most important step to form scientific and technological patents, the application of scientific and technological patent is the most important means to protect the intellectual property rights of scientific and technological achievements, and the implementation of scientific and technological achievements is the most fundamental purpose of R&D. On the surface, the three are interrelated and mutually upstream-downstream, but it is certain that the three should be conducted simultaneously and the speed should be accelerated. This is because the process of R&D has a strong spillover effect, even a little bit of scientific and technological progress can be captured by the competitive enterprises in the same industry and is likely to be used by them, hence the boundary of property rights protection of R&D is very vague. Therefore, only when the three are implemented at the same time can intellectual property rights be fundamentally protected. In addition, in the process of implementation, attention should be paid to the importance of intellectual property rights protection to prevent competitors from knowing what kind of technological breakthrough is employed to achieve the product by studying the specific attributes of them, so as to achieve the purpose of intellectual property rights protection. Comprehensive and effective protection of intellectual property rights can motivate enterprises to carry out R&D activities.

11.3.3 Diversification of Financing Channels and Financial System The scale of the bond market should be enlarged. From a static point of view, the lower yield of the bond market will help the issuer reduce financing costs. From a dynamic point of view, the lower financing cost of the bond market can attract more mediumand high-level issuers to raise funds in the bond market and successfully reduce the financing costs through market-oriented means. The higher loan interest rate of the bank can not attract the medium-and high-level issuers, and the loan interest rate will gradually fall. Therefore, the bank will increase the credit to innovation-oriented

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enterprises, reducing the proportion of innovation-oriented enterprises’ financing from non-standardized means such as trust and reduce their financing costs. The development of bond market can be improved mainly from the following aspects. Firstly, from the supply side, we need to let go of the restrictions of some issue systems on enterprises’ issuing credit bonds and to cancel the restrictions that enterprises’ issuing credit bonds does not exceed 40% of the net assets, which is stipulated in the Securities Law to increase the effective supply of bonds. Secondly, we should further revitalize the stock of social capital and increase the effective demand of the bond market, improve the efficiency of the use of funds and make good use of the existing funds that are idle in banks. The threshold for equity financing in innovation-oriented enterprises should be lowered and equity financing be increased. We should coordinate the development of a multi-level capital market system such as market in the field and over-the-counter (OTC) market, constantly innovate the modes and channels of direct financing, and further open up multi-level financing channels so as to gradually alleviate the capital problems of technology-based enterprises, providing a strong financial foundation for the implementation of the strategy of scientific and technological progress. We will continue to reform the Initial Public Offerings (IPO) registration system, simplify administrative approval procedures for stock market financing, simplify the qualification examination of issuing preferred shares, and open up the issuance of preferred shares to ordinary enterprises, making the issuance of preferred shares become a regular financing channel for innovation-oriented enterprises. We will further deepen the reform of the growth enterprise market (GEM), make the design of GEM access, refinancing and equity incentive etc. conform more closely to the characteristics and requirements of innovative and growth enterprises as soon as possible, further simplify the procedure of M&A (Mergers and Acquisitions) audit, support marketbased pricing and enrich M& A tools. We will actively develop the “New Third Board” and transform the financing structure of the “inverted pyramid” in the current domestic stock market, and give full play to the functions of “incubator” and “reservoir” of OTC listed resources. We will actively promote the internationalization of the securities market, further open up the multi-level equity market of domestic innovative enterprises to qualified overseas investors, promote the development of the wealth management industry, attract social capital to flow into the equity market and provide more capital sources for the equity market of innovative enterprises. Securitization of assets will help banks release more credit resources to the society. It will also help reduce the asset-liability ratio of innovative enterprises and reduce their financing costs. We will promote the development of the market, improve relevant laws and regulations of special purpose vehicle (SPV), clarify the legal status of SPV and the legal basis of relevant businesses, straighten out the internal interests of banks and improve their willingness to participate in such activities; strengthen publicity and support and increase liquidity in the secondary market. We will allow innovation-oriented enterprises to incorporate their securitized assets into the pledge repo pool of stock exchange, facilitate interbank financing, increase the types of investors, and provide a market-maker system, etc.

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The restrictions on credit quotas is supposed to be lifted, the quantitative tools should be gradually replaced by the price tools and the stock of loans is to be revitalized. At present, there is a peculiar phenomenon in many Chinese enterprises, that is, large loans and large deposits are kept in account at the same time, which raises the capital cost of enterprises and occupies the loan resources of the society. The existence of this phenomenon is partly due to the distorted behavior that enterprises take loans in advance in order to occupy credit limit, which is the product under the quotas control. Previously, government’s regulation and control by means of quantitative tools was, to a large extent, to solve the problem of soft budget constraint of the government and relevant departments. With the introduction of the new ideas of debt management of the government, the institutional environment for canceling credit limit control is already available. Therefore, for the selection of monetary policy tools, the quota control on banks should be abolished and the interest rate should be taken as the main tool to guide the flow of credit resources, the price tool should be gradually replaced by the quantity tools, the occupied loan resources should be released, the loan stock should be revitalized, and the problem of difficult loans for innovation-oriented enterprises should be solved. A social credit system which is unified, traceable and cross-departmental should be established. The development of China’s credit system apparently lags behind that of major developed countries, which objectively leads to the failure of commercial banks to effectively evaluate the risks of enterprises when making loan decisions. At present, the credit data of financing subjects are not open, the information is scattered and shielded from each other, and there is a lack of unified national standards in information identification, basic technology and statistical analysis, etc., which eventually leads to the segmentation and lack of credit information. Especially for innovation-oriented enterprises, their historical credit information is very scarce, but their historical industrial and commercial information, tax information, trade information, asset mortgage information, etc. are stored respectively in different functional departments. The above information is an important basis for all financial providers, including banks, to make decisions. It is proposed to speed up the establishment of a unified, traceable and cross-departmental social credit system covering industry and commerce, taxation, public security and customs, etc. The establishment and improvement of such a credit system will restrain the decision-making and behavior of all kinds of financing subjects, make different interest rates of the society return to a reasonable level, and help high-quality innovative enterprises obtain more favorable financing conditions, so as to reduce financing costs.

11.3.4 Fiscal and Taxation Support and Public Fiscal and Taxation System In the process of engaging in scientific and technological activities, enterprises need to overcome the problems of big risks and high investment, etc., by relying on the

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financial and taxation support of the government. Currently, independent innovation has risen as a national strategy. For the implementation of this strategy, the scientific and technological innovation behavior of enterprises as the main force must be strengthened, which should be given the fiscal and taxation support from the government because scientific and technological innovation is risky for common enterprises, once it fails, enterprises will suffer a fatal blow. However, at present, China’s fiscal and taxation support is too focused on government subsidies, which greatly reduces the enthusiasm of enterprises in R&D, and there is no specific assessment for scientific and technological achievements, so that enterprises engage in scientific research and innovation purely for the sake of financial subsidies. Nevertheless, Western developed countries give tax breaks to enterprises by means of ex post facto support, so that enterprises must engage in R&D activities in a down-to-earth manner. Only when having gained certain scientific and technological achievements can they really get tax breaks. In order to support the reform and improvement of the fiscal and taxation system for scientific and technological progress, China should proceed from the following four aspects. Firstly, we must further deepen the supply-side structural reform, reform the current fiscal and taxation system, and improve relevant policies to ensure the implementation of government subsidies, etc. At present, there are many items of funding for R&D projects of enterprises in China, but the funding has been weak, which has led to the excessive decentralization of scientific and technological resources. Some enterprises even make up the numbers to cheat the government of its financial support, which must be put an end to from the source. Therefore, the current funding methods should be changed. The focus is to reduce the number of funded projects, select truly outstanding projects for funding and enhance the amount of funding for these outstanding projects so that scientific and technological resources can be effectively allocated and scientific research funds and scientific research manpower can flow from inefficient enterprises to efficient enterprises, driving the overall technological progress of enterprises. When funding enterprises, we should abandon the one-sizefits-all approach and treat all projects equally no matter they are good or bad, screen out really good projects by strict standards, and concentrate resources to subsidize them. However, it should not be ignored that the reform of fiscal and taxation system should be based on the current economic development and the current scientific and technological progress, introducing reform measures which are conducive to the current scientific and technological progress and avoiding achieving the opposite effect due to blind reform. Secondly, the relevant content in the current fiscal and taxation system has not adapted to the implementation of the strategy of scientific and technological progress. So the specific content of the fiscal and taxation system must be timely and appropriately adjusted on the basis of the implementation direction of the strategy of scientific and technological progress. For example, for the policy of income tax, the original taxation system for high-tech enterprises or projects should be changed and the taxation systems for different objects and projects should be redesigned. However, the reform must be firmly focused on the point that the reform of the fiscal and taxation

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system is always conducive to the technological progress of enterprises and tax subsidies are given to enterprises with good benefits of technological progress. As for the property tax exemption and reduction policies, a corresponding reserve fund system should be established to reduce and exempt the taxes on the profits obtained by the enterprises from high-tech investment and independent innovation, so as to reduce the costs incurred by enterprises’ R&D activities. At the same time, it is necessary to improve the legislation of fiscal and taxation policies, which is the top priority in the whole process of system construction. Fiscal and taxation policies represent government support, which should be guaranteed by laws so as to make government support more timely and standardized. The change of fiscal and taxation laws must go through in-depth argumentation so that we can judge which systems are no longer suitable for the implementation of the strategy of scientific and technological progress, and then modify them through corresponding procedures. Thirdly, the preferential industrial orientation of fiscal and taxation policies should be closely combined with the current economic development. The purpose of supporting the development of related industries through finance and taxation policies is to promote the implementation of the strategy of scientific and technological progress, and improve the overall scientific and technological level of the society. However, with the development of economy, the industrial structure is in constant adjustment. With the progress of science and technology and the change of demand structure, the industries that used to be regarded as high-tech, may gradually become sunset industries and some emerging industries will continuously rise and develop to replace these sunset industries. Fiscal and taxation policies should support those sunrise industries that are truly high-tech at the present stage, and constantly adjust the objects and channels of support according to the changes of industrial development. Since the development of emerging industries requires a large amount of scientific and technological R&D, which requires a large amount of funds, ensure that emerging industries get enough scientific research funds through the reform of fiscal and taxation system is bound to promote the development of emerging industries quickly and well so as to improve the industrial structure and ensure the overall technological progress level of society. Under the current situation, the development of advanced manufacturing industry has become the major trend, so the layout of fiscal and taxation system reform should be inclined to high-end manufacturing industry. Meanwhile, attention should also be paid to the development of modern service industry, which can not only improve the industrial structure of national economy, but also interact with manufacturing industry to promote its rapid development. Therefore, the development of modern service industry should be strongly supported in the process of fiscal and taxation system reform. Fourthly, fiscal and taxation policies should further reflect fairness and efficiency, which does not mean that all enterprises, no matter whether they are with good or bad performance, can get the same subsidy as well as the same tax preference, but means that so long as the enterprises in different industries and regions have really good projects, the government should provide financial subsidies for them without any discrimination. Industries which accord with China’s independent innovation strategy should be given the maximum support. In the current stage of development,

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in order to improve the efficiency of economic development, attention should be paid to the development of modern service industry, particularly the scientific and technological progress in producer service industry, which is the most fundamental factor to promote the transformation of economic development mode. Meanwhile, fairness is also reflected in the equitable distribution of the labor income of technology practitioners. The state should establish a consistent reward system to reward the practitioners who have made great contributions to science and technology no matter what region and industry they are from, so as to mobilize their enthusiasm for R&D.

Chapter 12

Mode Selection for Technological-Progress-Driven Development Mode Transformation

12.1 Innovation Mode Driven by Global Allocation of R&D R&D Internationalization of transnational corporations is a new phenomenon in recent years. It has been only about ten years since the concept of R&D internationalization is clarified and the academic research on it is still ongoing. As transnational corporations cross national boundaries through international division of labor within companies, they make full use of imperfect markets in various countries, and “internalize” imperfect markets by means of strict hierarchy organizations, and integrate monopoly advantages, geographical advantages and internalized advantages. As far as R&D is concerned, technology represents the knowledge stock and production know-how of an organization, which can not be packaged and sold, and many of them can not be recorded. In particular, when technology is regarded as the core competitive ability of an organization, any organization is more inclined to internalize technology transfer through direct investment in order to maximize the overall profits of the company. This process avoids and eliminates all kinds of risks of trading with people outside the company, reduces the intervention of the host government, and bypasses various barriers of trade protection so that technology is less accessible to outsiders, which restricts people’s systematic and comprehensive research on it.

12.1.1 Linkage Between Introduction and Innovation A large number of technologies, many of which are advanced ones, are being transferred from one country to another. On the one hand, it provides a good opportunity for China’s technological progress to utilize external technological resources to develop new industries and promote industrial upgrading. On the other hand, the global allocation of technological factors has also brought unprecedented pressure to China, where the previous strategy of “exchanging market for technology” does not work very effectively and at the same time and it is facing more and more © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_12

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competition. In this book, it is suggested that currently the strategy of “the linkage between technology and market” should be adopted to realize the benign interaction and mutual promotion between technology introduction and independent innovation. To be specific, on the one hand, international investment in R&D of transnational corporations should be absorbed at the cost of market transfer, and allow them to set up corresponding R&D institutions in China to exchange China’s market for the cutting-edge technology of developed countries. On the other hand, we should carry out “secondary innovation” of cutting-edge technologies by learning, absorbing, imitating, improving and innovating, etc. and then transfer these technologies to the home country or the international market so as to achieve “technology catch-up” in the real sense. The strategy of “linkage between technology and market” is fundamentally different from the strategy of “exchanging market for technology”. In order to better understand the difference between the two, it is necessary to recognize the reasons for the development of R&D internationalization of transnational corporations and to analyze the reasons why the “market-for-technology” strategy does not work effectively. On the one hand, the emergence of R&D internationalization is not the development mode designed in advance by transnational corporations of developed countries based on the desire to maximize their own interests. On the contrary, the reason is that the rapid change of global technological development and pattern of industrial division of labor and the continuous improvement of the investment environment in the developing host countries pose a serious challenge for the profit-making model of transnational corporations in developed countries in the past years, forcing them to make strategic adjustments. That is, they are forced to transfer technology and manufacturing capacity from one country to another. First, modern science and technology, represented by information technology, has been applied to industrial upgrading, which has greatly accelerated technology upgrading to shorten the life cycle of products constantly and many products have competed with each other when they are developed, which has forced transnational corporations to seek to use and even transfer technology synchronously around the world in order to recoup huge investments in the shortest possible time. Secondly, the development of information technology provides the possibility for synchronous global R&D. Information technology enables R&D institutions of transnational corporations in different countries to work simultaneously for one and the same project and it is even possible for them to work for 24 h on end in Europe, the United States and Asia, thus improving the speed and efficiency of R&D. On the other hand, there are many reasons for the poor performance of the “market-for-technology” strategy. Firstly, the relevant policies in China are not perfect, there are some practices which focus on hardware rather than software in order to achieve quick success and instant benefits, and there is also a lack of information communication and coordination mechanism, resulting in the repeated introduction which leads to vicious internal competition. Secondly, unless there are some other constraints, the profit-seeking essence of transnational corporations determines that they will not transfer the most advanced technologies to China subjectively. Thirdly, the asymmetry of strength of both parties determines the effect of “market-for-technology” because this itself is

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a process of game between two parties and the comparison of the strength of both parties has a significant impact on the final result. The reason why the “technology-and-market linkage” strategy is proposed is that the current environment is quite different from the original background when the “market-for-technology” strategy was implemented. With China’s joining the World Trade Organization, China has begun to integrate into the global market, and the establishment of R&D institutions by transnational corporations in China is not only aimed at the Chinese market, but also has become an important way for China to utilize external technological resources and accumulate technological capabilities by attracting R&D investment of transnational corporations. Although many Chinese enterprises have not yet have the ability to master the R&D of core technologies, they still show strong competitiveness and growth by virtue of their advantages in professional manufacturing. In the past, when transnational corporations had both R&D and manufacturing capabilities, only the obsolete and low-profit products that they themselves were not willing to manufacture in their countries were transferred to developing countries. At present, the pattern of international division of labor is undergoing changes. Quite a number of industries are unable to participate in market competition due to the high cost of multinationals’ local manufacturing, so they transfer many high-tech products to China for manufacturing. This is actually a mutual win-win and mutual constraint relationship between transnational corporations with the capability of R&D and core technologies and those host countries with the capabilities of large-scale manufacturing and cost control. We should be aware of the internal and external cycle in the process of implementing the strategy of “technology-and-market linkage”. To be specific, the internal cycle means that after being introduced, the technology is digested and absorbed at home, and meanwhile new technologies are created through imitation and then put into domestic production to achieve the purpose of technology diffusion so as to improve domestic technological level, promote economy growth and reintroduce new technologies. External cycle means that after being introduced, the technology is absorbed and decoded so as to achieve the purpose of domestic technological innovation, on the basis of which it is put into production, but the products are exported to foreign countries to obtain more foreign exchange, providing financial support for the next-round technology introduction. These two cycles are complementary, interpenetrative and cross-dynamic. However, the fundamental purpose of these two processes is to promote the level of domestic technological progress. It can be found from the process of the two cycles that the three links that play a decisive role are the following: technology introduction, technology innovation and technology diffusion. (1) Technology introduction lays a fundamental foundation for achieving a virtuous circle. In the process of technology introduction, the primary problem is what kind of technology is most conducive to the overall progress of China’s technological level, and how much profit the introduction can bring about is also a problem that must be considered. Besides, it is necessary to consider whether the technology introduced is compatible with the existing technology and whether these technologies can adapt to China’s external background conditions such as

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resources and environment, so that the technology introduced can be truly localized. Moreover, it is necessary to introduce both hard equipment and soft power such as organizational management, production and marketing techniques etc. so as to improve the production efficiency and management level of enterprises, so that enterprises can truly achieve streamline intelligent production. (2) Technological innovation is the core in the process of both the outward cycle and the inward cycle, both of which introduce technology for the purpose of technological innovation. The technology introduction can be a virtuous cycle, or a secondary cycle. The most important link is technological innovation. Only by making “a secondary innovation” of the introduced technology can we have sufficient foundation to introduce more advanced technologies. At the same time, it must be realized that the fundamental purpose of technological innovation is to meet the increasingly diversified market demand, and technological innovation can bring a lot of excess profits for enterprises to enhance the competitiveness of enterprises. This requires that innovators must take market demand as the fundamental starting point of technological innovation, acquire knowledge from the market, position new products and carry out technological innovation. At the same time, technological progress can drive new demands. As a result, people’s demands become increasingly diversified to achieve the purpose of developing the market, which is also the driving force for the reintroduction of technology, thus making the technology cycle enter a virtuous cycle. (3) Technology diffusion is both the necessary way to realize the virtuous circle and the fundamental value of technological cycle. Whether it is technology introduction or technology innovation, the most fundamental purpose is to promote the overall technical level of China through technology diffusion so as to truly achieve the purpose of leapfrog change in China’s technological progress. Technology diffusion can not only bring certain benefits to enterprises, but also produce scale effect. Especially in high-tech industrial parks, the effect of technology diffusion is very obvious, and the speed of technology diffusion is very fast. In the market-oriented innovation system, enterprises are the main force of independent innovation. Enterprises should actively invest their scientific and technological resources in R&D activities, and conduct technology diffusion of scientific and technological achievements within the region to improve the overall level of technological innovation within the region and drive the comprehensive transformation and upgrading of economic development mode. The key to the success of China’s economic transformation and upgrading lies in China’s technical foundation, and the core lies in the capability of technological innovation and technology diffusion. Therefore, technology introduction should be encouraged in China, but what is more important is to encourage independent innovation. Instead of relying too much on foreign technology for secondary innovation, we should focus on the capability of domestic independent innovation. In the early stage of technological progress, we may rely on the introduction of foreign technology for secondary innovation to improve the technological level, but with technological progress, this mode should be changed to reduce

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the dependence on foreign technology and improve China’s technological level through independent R&D activities, so that China’s economic development mode can be really transformed and upgraded.

12.1.2 Precession of Imitation and Innovation To study the interaction between independent innovation strategy and imitative innovation strategy, the most fundamental thing is to analyze whether the two strategies can serve as the fundamental path of enterprises’ technological innovation. Under the background of the R&D internationalization of transnational corporations, how do China’s local enterprises choose technological innovation strategies that accord with their own conditions? As a micro-level problem, it will be introduced in the next section, “Transformation between Independent Innovation and Imitative Innovation”. In terms of the two innovative means, although both are important means of technological innovation of enterprises, each has its own characteristics. Imitative innovation only relies on the existing technology to analyze the deep changes of technology so as to carry out corresponding innovation of technology, which can be said to be an innovation based on existing achievements. While independent innovation refers to that enterprises could develop their own core technology or make a conceptual breakthrough through their own scientific research, meanwhile, the technology can be truly applied to production, and it also has the effect of strong technology diffusion. The fundamental purpose of independent innovation is not only to enable enterprises to have their own core technology, but also to bring huge benefits to enterprises. Attention should be paid to the connection and difference between independent innovation and independent R&D. Independent innovation is a strategy, which means that an enterprise could produce new technologies through its own efforts, own the intellectual property rights of the technology and could apply the technology to production to improve the profits of the enterprise. However, independent R&D is a relatively narrow concept, which is only one way of independent innovation to obtain core technologies through development, usually for a specific project. The achievements of independent innovation may include the patent right of others cited, but its overall system has the characteristics of independent innovation achievements, that is, it has its own intellectual property rights and core technologies. Imitative innovation strategy refers to the “secondary innovation” activities of an enterprise, which master the core secrets of the technology through the legal means such as technology introduction and technology decoding, etc. to improve or innovate the technology so as to develop more competitive new technologies. In the initial stage of enterprise development, imitative innovation strategy was the most important means to promote scientific and technological progress. Many powerful countries including Japan, improved their scientific and technological level by adopting this method in the early stage of economic development. Imitative innovation is not to copy completely, but to select the essence and discard the dregs. The implementation of imitative innovation projects still needs a lot of R&D, which is mainly through

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the following two steps. Firstly, we need to decode the research achievements of the predecessors and make an in-depth analysis of the intrinsic mechanism of scientific and technological achievements. Next we need to improve the research achievements of the predecessors, find the defects of these achievements during the process of decomposition and then overcome and improve them. Therefore, imitative innovation is not equivalent to pure imitation, but the gradual innovation on the basis of imitation. Imitative innovation is tracking technological innovation, instead of the leader of technological innovation, which is to actively follow advanced science and technology and to decipher and expand them so as to improve its own technological level. Both of the above two innovation strategies are the strategic options for technological innovation of enterprises. Enterprises should comprehensively consider which strategy to choose according to their own characteristics, their own innovation ability and cost, etc. They can not simply think that independent innovation is better than imitation innovation. From the perspective of society, if each enterprise is engaged in independent innovation, because the technical strength of various enterprises are different, the output of some enterprises will be very low, resulting in the waste of resources throughout the society, which also means that the R&D cost of the whole market is very high, but the technological progress may not be fast. Transnational corporations are always in the forefront of independent innovation due to their leading technology strategy. Meanwhile, their R&D achievements have technology spillover effect, which provides competitors with opportunities to learn and imitate. Competitors can also improve their own technical level through imitative innovative strategy to realize the two-way precession of the technical level of the whole society through independent innovation and imitative innovation.

12.1.3 Transformation from Imitation to Innovation Many technical strategists have made an in-depth and detailed analysis of how enterprises choose independent innovation strategy, imitative innovation strategy and cooperative innovation strategy. In fact, from the perspective of a single enterprise, it often adopts a hybrid strategy for technological innovation instead of a single one. From a microscopic perspective, a single enterprise can choose either independent innovation strategy or imitation innovation strategy at any time. An enterprise is bound to choose the best strategy by analyzing the cost-benefit of independent innovation and imitative innovation. At the same time, there is a relationship of mutual transformation between the two strategies, so the choice of enterprises’ innovative strategy is dynamic and automatically achieves a stable structure.

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12.2 Transformation from Traditional Industry to High-Tech Industry 12.2.1 The Core Idea of High-Tech Industry Development In the near future, the development direction, development mode, spatial layout, factor agglomeration and policy guidance of high-tech industry will be as follows. Firstly, in terms of development direction, we should adhere to the principle “do something, and leave something undone” to form “local strength” and “overall superiority” in the field of attacker industry so as to make major strategic breakthroughs. On the one hand, we must be clear and try to build up the commanding heights in the new round of industrial development, develop the strategic pillar industry that supports future economic development, actively follow and grasp the development trend of the world’s high-tech industries, and choose the high-tech industries which comply with technological development, conform to consumption upgrading and meet the requirements of economic development transformation, which will be taken as a new economic growth point and cultivated with a high starting point and a high requirement. On the other hand, we should vigorously promote the transformation from traditional industry to high-tech industry, transform and upgrade traditional industry by means of advanced and practical technologies, and at the same time, pay attention to the coupling development of high-tech and producer services, and cultivate and develop a number of high-tech services that could provide strong support for advanced manufacturing industries and are closely related to urbanization. Secondly, in terms of development mode, we will break away from the dependence on industrial development paths, promote the transformation of imitative innovation to integrated innovation and independent innovation to make major breakthroughs in the mode of development. The promotion of independent innovative capability should be taken as an important part and core target of hi-tech industry development, we should get rid of the dependence of high-tech industry development on low-level paths, break the trap of homogenization competition, guide the transformation of high-tech industry from low-end manufacturing to high-end manufacturing, from production manufacturing to independent creation based on science and technology, and from the output-driven mode to the innovation-driven mode. Thirdly, in terms of spatial layout, optimization should be combined with extension to actively create a big platform for industrial development, so as to make a major breakthrough in industrial development space. On the one hand, it is necessary to give play to the basic advantages of hightech industrial parks and characteristic industrial bases, and further enhance their development level and agglomeration level so as to create a core development zone for high-tech industries. On the other hand, in the Yangtze River Economic Zone, the Bohai Economic Circle, the Haixi Economic Circle, etc., we will focus on building large industrial development platforms such as characteristic industrial parks by

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making use of rich coastal resources, strive to form a number of new development areas to cultivate the development zone of high-tech industry. Fourthly, in terms of high-end factor agglomeration, we should promote mechanism innovation with an open horizon, break through the bottleneck of regional factor resources and make a major breakthrough in factor integration. On the one hand, we should adhere to the idea of open development, build a mechanism for cultivating and introducing high-end talents and innovative teams, and make active use of high-end global resources. On the other hand, we should pay full attention to the importance of financial service system, actively carry out financial innovation, create a favorable financial environment, effectively mobilize and centralize social capital and provide financial support for high-tech industry development. Fifthly, in terms of policy guidance, we should break the support path of “decentralization” and turn to system guidance and team support to make a major breakthrough in the way of guidance. On the one hand, we should break away from the previous guidance mode that mainly supports decentralized projects and turn to the creation and introduction of innovative teams. On the other hand, the main body of R&D should be transformed from the laboratory of scientific research institutes to university scientific research institutes and enterprises taken as the main body, that jointly carry out R&D activities. We should pay attention to the cultivation and establishment of a new system of innovative cooperation with the rapid development of key industrial technologies and technology groups as the goal, innovation teams as the main body, leading enterprises as the leading force and famous universities as the support.

12.2.2 The Main Path of High-Tech Industry Development In the near future, based on the great strategic significance and the status quo of the high-tech industry development, we will accelerate the development of China’s high-tech industry to realize the leapfrog development of high-tech industry through cultivating innovative enterprises, building industry clusters, gathering high-level talents and innovating investment and financing systems.

12.2.2.1

Cultivating Innovative Enterprises to Highlight the Main Role of Enterprises

The development of high-tech industries can not be separated from a number of highly competitive high-tech enterprises. We will speed up the cultivation and development of a number of key national high-tech enterprises, and actively cultivate a number of innovative pilot demonstration enterprises and build a rational echelon of industrial organizations.

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On the one hand, it is necessary to make full use of the relevant supporting policies of the state and introduce corresponding safeguard measures for the development of high-tech enterprises, so as to accelerate the transformation and upgrading of high-tech enterprises. Enterprises should earnestly study the national standards for the identification of high-tech enterprises and carry out self-reform and upgrading according to the standards, increase the corresponding R&D input and talent introduction, vigorously develop high-tech products, enhance the level of intellectual property rights protection and the ability of patent certification, so that more enterprises can meet the standards of high-tech enterprises, to help promote the transformation and upgrading of enterprises. Qualified enterprises should be encouraged to purchase and merge local and foreign high-tech enterprises to continuously expand their market competitiveness. We will vigorously introduce high-tech enterprises and projects to attract a number of high-tech leading enterprises that can form an “industrial chain” to invest and start businesses. On the other hand, it is necessary to further strengthen the systematic planning and classification guidance of the pilot demonstration work of innovative enterprises, formulate and improve the evaluation index system of innovative enterprises so that there is a criteria for the identification of innovative enterprises. In this process, it is important to focus on the development of small and medium-sized enterprises and cultivate a number of small and medium-sized enterprises with strong innovation ability. Cities and counties are encouraged to implement the identification standards for high-tech enterprises so as to select enterprises with strong innovation capability as the typical example of innovative enterprise development to drive the overall development. We should guide innovative enterprises to grasp the characteristics of regional development, recognize the status quo of enterprise development, increase investment in R&D, actively attract cutting-edge talents, strengthen and expand the enterprise brand, so that they become large comprehensive enterprises integrating R&D, design, production and sales, etc. We will support innovative small and medium-sized enterprises to set up various service platforms, and encourage innovative pilot demonstration enterprises to carry out various economic and technological cooperation with leading high-tech enterprises so as to form a relatively stable cooperative relationship between supply, production and sales.

12.2.2.2

Building Industry Clusters to form a Good Industrial Atmosphere

Taking high-tech development zones, industry clusters and innovation parks at all levels as the important carriers, we will make overall plans for the rational utilization of scientific and technological resources and platforms, systematically promote the optimization of spatial layout and the integration and upgrading of the parks and build a large platform for the development of high-tech industry. First of all, we should speed up the expansion and upgrading of the existing high-tech development zones. Based on the industrial reality of the hi-tech zone, we will further integrate the resources of all parties to promote the development of

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hi-tech industry clusters in the hi-tech zone. Secondly, it is necessary to speed up the construction of characteristic industrial bases. Relying on key advantageous industries, we should actively develop various types of characteristic industrial bases at all levels. Finally, we should actively create a good industrial atmosphere. It is necessary to accelerate the construction of a cooperation system based on regional clusters, leading enterprises and professional facilities, to create a good industrial atmosphere. We will accelerate the construction of a service system focusing on financing, credit guarantee, management consulting, information service, market expanding, talent training, brand management and creative industry. We will actively cultivate all kinds of public service centers in the industry clusters, including technology R&D center, product testing center, talent training center and information center, etc. In combination with the development of industry clusters, we will promote the construction and improvement of professional markets, cultivate and form a national product market center, and establish regional logistics parks, logistics centers and distribution centers.

12.2.2.3

Gathering High-Level Talents to Strengthen High-End Intellectual Support

We should establish the notion that “talent is the first resource”, and implement the “three batches” project. That is, we should actively cultivate a batch of applied talents in the field of high-tech industry, strive to introduce a batch of leading innovative talents with strong scientific research strength, and cultivate a batch of high-tech entrepreneurs who are good at operation and management to build a strong support for the development of high-tech industry. Firstly, we should actively cultivate a batch of top applied talents and accelerate the cultivation of leading figures in high-tech industry through vocational education and so on. In the process of cultivating talents, we should attach great importance to vocational education, train industrial technical workers, especially senior technical workers, through specialized training, and speed up the training of scarce intermediate professional technical personnel and a large number of industrial workers who are suitable for the development of high-tech industries. Relying on key universities, training institutions and enterprise, we will actively increase the training of applied talents in the field of high-tech to build a trinity of application-oriented talents training system. In terms of personnel training system, we should also pay attention to the role of the market, training personnel according to the market demand, and at the same time, we should carry out the training mode that balances theory and skills so that a future talent will be a compound talent, who is competent to both technical and management work. Secondly, efforts should be made to introduce a batch of leading innovative talents with strong scientific research strength. Relying on a series of national policies on talent introduction and taking the opportunity that talent introduction is attached great importance to, we will further introduce a large number of leading figures who have

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made fruitful achievements in various fields to form a more competitive innovation team. Thirdly, we will focus on cultivating a group of high and new technology entrepreneurs who are good at operation and management. We will implement various preferential policies for talents at the national, provincial and municipal levels, strengthen the training of management personnel and focus on training a group of entrepreneurs who are familiar with strategic decision and operation, master the rules of the international market and have the courage to explore and innovate. We should actively carry out training for high and new technology entrepreneurs so that they can systematically understand relevant national and local industrial policies, science and technology policies, laws and regulations on science, technology and economy to improve their ability to organize modern large-scale production and expand domestic and foreign markets, and further improve their ability to manage their businesses and run their capital, as well as their scientific and technological quality and management capability by means of seminars, forums, investigation and so on.

12.2.2.4

Innovating Investment and Financing System to Strengthen the Guarantee of Industrial Capital

Alleviating the capital requirements of high and new technology enterprises is the important guarantee for accelerating the development of high-tech industry. We should actively learn from experience at home and abroad, speed up the improvement and application of high-tech venture capital investment mechanism, cultivate and develop diversified guarantee agencies, focus on promoting banks’ financial support for key high-tech projects and enterprises’ listing and financing to build a multi-channel financing system. Firstly, we should accelerate the improvement and application of venture capital investment mechanism, actively develop the subject of venture capital, strive to improve the environment for entrepreneurship and development, accelerate the formation of a venture capital system with private capital as the main body and with a sound mechanism for capital input, operation and withdrawal. We will give full play to the role of industrial transformation and upgrading’s guiding funds and venture capital investment’s guiding funds in guiding, demonstrating and leveraging venture investment institutions, guide enterprises to invest in hi-tech industries. We will appropriately relax regional financial access and improve the environment for the issuance and operation of investment funds, and increase the size and strength of industrial investment funds. Secondly, we will actively cultivate and develop diversified guarantee institutions and actively develop various types of guarantee entities at all levels to build a diversified guarantee system for government, private capital and enterprises to jointly guarantee their capital. The guarantee institutions funded mainly by the government should constantly innovate guarantee forms and provide guarantee for small and medium-sized enterprises to expand the scope of the existing guarantee, improve

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efficiency and simplify guarantee procedures, so that guarantee institutions can better solve financial problems for the development of high-tech enterprises. We will guide private capital into the financial market, encourage private capital to establish guarantee institutions and support private guarantee institutions in entering the high-tech industries. We will actively develop loan guarantee funds and support high-tech enterprises in carrying out counter-guarantee with patents, non-patented technologies and trademarks. Thirdly, we will focus on promoting the bank’s financial support for high-tech projects and listing and financing, actively build the bridges between banks and enterprises, focus on building a docking platform for banks and enterprises, actively recommend key project libraries to banks and encourage financial institutions to increase financial support for key construction projects such as major industrialization projects and technological transformation projects implemented by high-tech enterprises. We will expand direct financing channels, lower the threshold for listing, encourage high-tech enterprises to finance in the domestic and foreign securities market, identify a number of qualified high-tech enterprises each year to give key support to their listing and financing. We should recommend and assist qualified high-tech enterprises to apply to the state for the issuance of enterprise bonds to raise funds, and suggest that the government guarantee their bonds.

12.3 Mode of Developing Strategic Emerging Industries 12.3.1 Development of Emerging Industries and Changes of Traditional Models The development of strategic emerging industries is an important way for China to transform its mode of economic development and promote the upgrading of its industrial structure. However, the development of strategic emerging industries must be based on the core strengths of China, and be systematically and scientifically planed according to China’s economic development. We will strengthen its top-level design, strengthen the effectiveness of policies and effects of regulation, improve and integrate support channels, and give better play to the guiding role of the government through a comprehensive use of a variety of means. Early in 2010, the State Council has already issued the State Council’s Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries, planning the development of China’s strategic emerging industries, and taking the seven key industries such as energy conservation and environmental protection, a new generation of information technology, biology, high-end equipment manufacturing, new energy, new materials and new energy vehicles as the focus of the strategic emerging industry development in China. These industries cover not only the four kinds of high-tech industries defined by OECD, such as electronic communication, aerospace, pharmaceutical manufacturing and scientific instruments, but also the key

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high-tech industries defined by China, including electronics and microelectronics, aerospace and optomechatronics integration, etc. The division of these industries can ensure China’s targeted development of strategic emerging industries, but because they involve too many industries and the industry span is too large, the concept of real strategic emerging industries become blurred, and it is impossible to distinguish the strategic emerging industries from hightech industries, which not only makes it difficult for local governments to define the two different kinds of industrial support policies but also makes policy management disordered. According to the general understanding, strategic emerging industries should belong to both high-tech industries and basic industries, which are important industries that can truly promote the transformation and upgrading of the national economy. Only by clearly defining strategic emerging industries can policies and measures which are conducive to the development of strategic emerging industries be introduced. After having studied the strategic emerging industries in China, it is not difficult to find that many of the strategic emerging industries at the present stage still follow the “investment-driven” development mode to promote the development of strategic emerging industries through capital investment or large-scale introduction of advanced foreign technologies, for which only the relatively weak factors such as land resources, talent resources and so on are provided at home. Under such circumstances, China does not have much autonomy in the development of strategic emerging industries. Many of its core technologies are from other countries, and their international competitiveness is relatively weak. Moreover, the over-dependence of technological progress on foreign countries will also lead to the fact that China’s technology is making progress on the whole but it has not really achieved the purpose of technological progress. In order to solve this problem, we should not work behind closed doors to keep out of touch with the world. Instead, we should constantly learn the core knowledge of advanced technology and then improve it in the process of introducing technology. Of course, this is only the initial method. When the technological progress reaches a certain level, real independent innovation must be implemented. Only through innovation-driven approaches can China’s strategic emerging industries be truly promoted for rapid development. It is worth pointing out that the layout of China’s strategic emerging industries still needs to be re-considered. Firstly, the strategic emerging industries need to be further clearly divided. It is worth discussing that the high-tech industry should be simply regarded as a strategic emerging industry. The strategic emerging industry should be divided into two parts, and the real core industry or the high-tech industry which is the foundation of national economic development should be regarded as a strategic emerging industry. In addition, this division also needs to pay attention to the development trend of international science and technology. For example, under the current new science and technology revolution, new materials, new energy, information technology and bioengineering, and so on should be included as strategic emerging industries. Secondly, Redundant construction in different places should be avoided. For the development of strategic emerging industries, sufficient top-level

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design should be carried out, and corresponding measures should not be simply introduced to let local governments run their own affairs. Otherwise, the waste of resources in scientific and technological innovation will be very serious, and there will be no unified framework or layout for the development of strategic emerging industries. At present, there are many problems for the development of strategic emerging industries in various countries. The main problem is the lack of supporting products and services. The development of strategic emerging industries involves not only manufacturing industry, but also service industry, especially the modern service industry, and a large part of modern service industry belongs to strategic emerging industry, so the linkage between service industry and manufacturing industry is essential for the development of strategic emerging industries. At the same time, the high cost and imperfect service system of the service industry are also important bottlenecks that restricts the development of strategic emerging industries. At present, the layout of China’s strategic emerging industry development is too one-sided and lacks of overall layout and thinking. The decisions made are too much focused on the core links of the development of strategic emerging industries, but there are few considerations on the whole industrial system and ecosystem and there is no systematic arrangements. For example, China needs to vigorously develop new energy sources such as solar energy, which should be developed in combination with local advantages, instead of being planned in all regions of the country. Repeated construction and regional layout in different regions having not been considered in combination with local advantages, have led to serious overcapacity in solar energy and other new energy resources and scientific and technological resources have not been effectively allocated. All in all, that strategic emerging industries are interrelated with each other requires unified layout and coordinated development in the process of development, and relevant policies and measures should be formulated and implemented from the perspective of industrial ecology.

12.3.2 Strategic Thinking on the Development of Emerging Industries The development of strategic emerging industries does not happen overnight, but requires extensive mobilization of the whole society and unified layout and planning. To develop strategic emerging industries, the following four important tasks need to be grasped. Firstly, it is necessary to pay enough attention to talent strategy. Talent strategy is the fundamental factor to ensure the development of strategic emerging industries. The talents referred to here are not ordinary talents, but the strategic talents who play a prominent role in the development of strategic emerging industries. The introduction of these talents should be strengthened, which is not only from the perspective of talents themselves, but also provides all-round services for them. At the same time,

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it is also necessary to strengthen the independent cultivation of talents in China. Too much dependence on talent introduction will show certain effects in the short term, but in the long run, it will make China’s strategic emerging industries lack of momentum for development, so the independent cultivation of talents also needs to be paid more attention to. Secondly, the existing incentive policies need to be further improved. It is necessary to not only establish a sound evaluation system but also increase the incentive intensity. Meanwhile, it is necessary to redesign the incentive system from the perspectives of both R&D and industry. In the process of R&D, appropriate standards should be determined to fully evaluate the relevant benefits of R&D so as to truly select the science and technology projects that are suitable for the current strategic emerging industries to be rewarded. At the same time, the amount of reward should be further improved. If the reward is too low to meet the cost paid, it will discourage the enthusiasm of science and technology practitioners, thus slowing down the trend of technological progress. However, the rewards still need to be controlled within a certain range. Excessive rewards make technology competition too fierce, which is not conducive to the improvement of the overall technology market. As for the rewards at the industrial level, it is necessary to distinguish strategic emerging industries from high-tech industries in the first place, so as to formulate the reward system suitable for the development of strategic emerging industries. Moreover, different systems should be adopted for different regions to prevent each region from developing a single strategic emerging industry, which is inconsistent with the characteristics of local resources and the current situation of economic development. The incentives for the development of strategic emerging industries should be shifted from ex-ante financial subsidies to ex post tax subsidies, so that the government can supervise the whole process of R&D while rewarding, and improve the efficiency of R&D. Thirdly, to promote the development of strategic emerging industries, technological innovation, institutional innovation and financial innovation should be combined. Technological innovation refers to promoting the development of strategic emerging industries through technological imitation and independent innovation, so as to truly master the core technologies of industrial development. There are two main paths of technological innovation, that is, technology tracking and technology catch-up. Technology tracking refers to the re-innovation of enterprises through the introduction of advanced foreign technologies, so as to keep consistent with the technological level of developed countries. Technology catch-up refers to technology leapfrog made through independent innovation so as to catch up with the technological level of developed countries. For China, in the early stage of development, technology tracking should be focused on so that China’s technology level can keep up with that of developed countries. However, when the economy develops to a higher stage, China must encourage independent innovation and improve the technological level through innovation-driven strategy so as to truly achieve technology catch-up. Although the government is paying more and more attention to innovation-driven strategy at the present stage, it still needs the active cooperation of enterprises and even the whole society to develop strategic emerging industries through innovation.

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Institutional innovation mainly refers to the improvement of market mechanism and the development of strategic emerging industries through market leadership. The government only provides escort for the development of strategic emerging industries, rather than determining the direction of the development of strategic emerging industries. The development of strategic emerging industries is the focus of the government’s work, but the existing mechanisms and systems have failed to fully activate the market. Government departments should further streamline administration and delegate power. Administrative examination and approval of strategic emerging industries should be relaxed. However, the threshold for the identification of strategic emerging industries should be further raised, so as to provide a good market for the development of strategic emerging industries and realize the combination of market leadership and government guidance. Financial innovation refers to that financial institutions constantly innovate business models to provide financial guarantee for the scientific and technological innovation of enterprises so as to alleviate the financial problems in the process of the development of strategic emerging industries. The development of strategic emerging industries requires a large amount of capital investment, while technology-based enterprises need financial support in the process of scientific research activities. To solve these problems, the innovation of financial system is reflected in the following two aspects. Firstly, financial institutions such as banks and credit companies should constantly innovate their business models, improve the credit systems and simplify the credit procedures so that enterprises can obtain loans to develop strategic emerging industries. Secondly, the government should accelerate the reform of financial system, give full play to the role of folk capital to ease the financial strain. Along with economic growth, folk capital keeps increasing. A large part of it belongs to idle capital. How to make good use of them is of great significance to the development of strategic emerging industries. However, folk capital is profit-oriented and risky, so it is necessary for the government to set up corresponding platforms and formulate corresponding policies and regulations to regulate the entry of folk capital into the financial field, so as to provide a good financial foundation for the development of strategic emerging industries. Fourthly, we need to coordinate all kinds of resources, and focus on the following four relationships. The first one is the relationship between technology introduction and independent innovation. The two modes complement each other, and are necessary steps for technological progress or economic progress. In the early stage of development, research in a certain field can only be truly started by introducing foreign technologies. However, after the technology is mature, independent innovation must be realized by relying on one’s own strength, so as to truly master core technologies, create one’s own brand, and transform from “made in China” to “intelligent manufacturing in China”. Dependence on foreign technology should be kept below a certain range, and independent innovation should take the lead when conditions permit. Secondly, the relationship between government guidance and market leadership should be well handled. Government and market are closely related with each other. For strategic emerging industries, the coordination and unity between the two should be achieved. The market should play a leading role in determining the direction of the development of strategic emerging industries. With the increase

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of China’s economic openness, China’s demand for strategic emerging industries is increasing, which is the driving force to promote the development of strategic emerging industries. At the same time, the government also provides a good foundation for market development and ensures the smooth operation of market mechanism by improving the system and so on, thus providing escort for the development of strategic emerging industries. However, for the government, the development of strategic emerging industries involving core technologies should be led by the government, and these core industries should be developed through the power of the government. Thirdly, the relationship between traditional industries and emerging industries should be properly handled. The two should coexist in harmony. Traditional industries should not be abandoned because of strategic emerging industries, which have laid a foundation for economic development, so that the development of emerging industries can better promote economic take-off at the present stage. Traditional industries with high pollution and high energy consumption should be eliminated, but the industries that can absorb employment and contribute to the national economy still need to be encouraged to develop. Finally, the relationship between long-term interests and short-term interests should be properly handled. Although both are interests, the effects are not the same. Long-term interests pay more attention to future benefits, while short-term interests are more concerned with practical benefits. It is impossible to predict the future benefits of the development of strategic emerging industries, so the investment on it must take some risks. Both long-term interests and short-term interests should be considered so as to formulate a more reasonable strategy for the development of strategic emerging industries.

12.3.3 Mode Selection for Emerging-Industry-Driven Development Mode Transformation China has adopted a special plan for the development of strategic emerging industries, which has taken into account the needs of industrial system construction and drawn up the road map for industrial development. However, due to the wide range of selected industries and the constraints of planning time and resource input, the plan has failed to provide more operational schemes for the construction of key industrial ecosystems. It is suggested that a number of important areas of the seven strategic emerging industries need to be selected in the process of the implementation of the plan. The industrial chain, value chain and innovation chain should be systematically analyzed, and the plan for the construction of industrial ecosystem system in these industries should be formulated according to the global industrial division of labor and value sharing framework. It is necessary to make a reasonable and unified deployment of R&D and design, product competition, and supporting facilities for producer services of strategic emerging industries, and break down the work tasks into various departments. At the same time, it is necessary to make annual follow-up evaluation

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on the implementation of the plan, innovation performance, industrial development performance, policy incentive performance and so on in such a framework and timely adjust the implementation of the plan according to the results of follow-up evaluation and new trends and characteristics of industrial development at home and abroad. Focusing on the development of new technological revolution and new industrial revolution, the three key areas of information, renewable energy and biology should be given prominence to in the implementation of the plan for the development of strategic emerging industries. The deployment of the plan for the development of strategic emerging industries is comprehensive and systematic, which also brings about too wide industrial development boundaries and makes it difficult to optimize the allocation of resources and related support measures. It is suggested in this book that in the process of the implementation of the plan, we should pay full attention to the impact of the new scientific and technological revolution and the new industrial revolution, comprehensively study the development trend of strategic emerging industries worldwide and further highlight the key areas in view of China’s existing industrial base and comparative advantage. Judging from the current trend of the development of emerging industries in the world, the integration of the new generation of electronic information and renewable energy industry have brought about changes in the mode of production and consumption of society, and led to changes of other industrial organization modes and may eventually trigger a new industrial revolution. Breakthroughs have been made in biotechnology such as transgenic breeding and stem cell therapy, etc. Bioengineering and new pharmaceutical industry will become the pillar and leading industries in the future. The development strategies and investment priorities of developed countries such as Europe, the United States and Japan, etc. and the newly industrialized countries such as South Korea, etc. as well as large developing countries such as India and Brazil, etc. also focus on a new generation of information technology, new energy and biological industries. Therefore, it is suggested in this book that in the process of the implementation of China’s strategic emerging industry plan, we should focus on the above three key industrial areas, concentrate superior resources and make key breakthroughs. A diversified and multi-level investment and risk sharing mechanism should be established. Strategic emerging industries are mostly at the early stage of development, and their technological routes and mainstream products have not yet been formed. The global competition of different technical routes brings investors both huge profits and tremendous risks. It is due to the consideration of risk aversion that most of the investors and enterprises in China will choose solar and wind power generation and new energy vehicles in the period of rapid growth and maturity of industrial development. The advantage of doing so is that it is conducive to avoiding risks and winning relatively stable benefits, and the disadvantage lies in the path dependence of technology and industrial development. In order to encourage investors and enterprises to participate in the competition of technology and industrial development earlier in the initial stage of industrial development, it is necessary to establish a multi-level investment and risk sharing mechanism that is coordinated by the government, financial institutions and guarantee institutions, etc. This kind of investment and risk sharing mechanism mainly includes

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the government’s continuous investment mechanism in the development and application of high-risk frontier technologies, the government’s continuous investment in the innovation activities of various technological routes and the insurance companies’ risk guarantee mechanism for the trial of new products and new equipment. Through such a diversified and multi-level investment and risk sharing mechanism, social resources will be guided to gather at the forefront of industrial technological innovation. In combination with major innovation development projects and application demonstration projects, a globally competitive technology system and production system will be built on the basis of independent innovation as soon as possible. Firstly, the management of industrial chain innovation should be carried out in the three major fields of information, renewable energy and biology. The focus is to systematically analyze the industrial chain, value chain and global division of labor of these key industries. Based on this and relying on the major innovative development projects for the strategic emerging industry development plan and the scientific and technological innovation projects for the national science and technology development plan, adopting the engineering organization mode, and building an internationally competitive industrial chain as the guidance, we will carry out interdisciplinary joint technology research. We will guide innovation factors to accumulate in enterprises, strengthen their capacity for technological innovation, and enable China’s strategic emerging industries to successfully break through a number of key groupbased technologies as soon as possible so as to build a relatively complete technical system. The development system of strategic emerging industries will be improved by initiating market demand through the implementation of major application demonstration projects. In this process, the change of consumer demand plays a very important role in the change of industrial structure, and vice versa. In terms of technology and resource allocation it is not feasible to build the infrastructure and service system required by the consumption market of emerging industries across the country, start market demand and improve the industrial system. The rational choice is to carry out the major application demonstration projects in provinces and cities with a solid foundation, gradually explore policies and measures for starting up the consumer market, explore market-oriented and large-scale industrial development mode to constantly improve the industrial system. It is suggested in this book starting with a batch of major application demonstration projects of the strategic emerging industry development plan and guided by large-scale demonstration applications, we should promote the construction and improvement of industrial infrastructure in provinces and cities with a solid foundation, and explore new business modes that can be popularized on a large scale, establish and improve industrial technological standard system, and improve the market access system, etc.

Chapter 13

Policy Suggestions for the Transformation of Economic Development Mode Driven by Scientific and Technological Progress

13.1 The Direction of Development Mode Transformation Driven by Scientific and Technological Progress Since the Reform and Opening-up, China’s economy has been developing rapidly for more than 30 years, which is mainly based on factor inputs and through trade and investment, but this kind of economic development mode is indeed unsustainable under the new background. At present, the economic development mode should be transformed to improve the efficiency of economic growth at all levels, and shift from quantity orientation to quality orientation to build a “new normal” of economic development. To be specific, economic development mode should be transformed towards intensification, greenization, optimization of industrial structure, market leadership and innovation-driven. Therefore, economic development mode needs to be transformed from the following six aspects. Firstly, economic development mode should be transformed from extensification to intensification. At the present stage, China’s economic development mode is dominated by extensification, and a large amount of manpower and capital factors are invested to promote economic development. The industrial structure is relatively low-end, the products are mainly labor-intensive and resource-intensive ones, and the industrial structure is dominated by industry, while the industrial structure is dominated by low-end industry. Such a development mode is bound to lead to insufficient economic development, environmental pollution and resource waste, etc. Therefore, Chinese government should make it clear that the transformation of economic development mode should be aimed at intensification. The intensive economic development mode is dominated by scientific and technological progress, which improves the quality and efficiency of economic development through the effective allocation of resources. Meanwhile, the intensive economic development mode should be green and can coexist harmoniously with the environment. To achieve such a goal, China needs to constantly improve the rate of scientific and technological progress, strengthen the allocation of resources and implement innovation-driven policies, and focus on the formation of a circular economy system. © People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4_13

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Secondly, economic development should pay more attention to quality, not just quantity. Quantitative growth is of great significance to economic development, especially the rate of economic growth. The higher the rate of economic growth, the faster the economic development will be. However, blind pursuit of high-speed development may not synchronously improve the quality of economic development. The improvement of economic development quality requires not only that economic development can promote the optimization of industrial structure, but also that economic development can coexist harmoniously with the environment, economize resources and realize intensive development. In the process of China’s economic development, the economic development after the Reform and Opening Up is mainly focused on quantity growth, with the growth of GDP as the goal, and through a large number of factor inputs. To some extent, this kind of mode has promoted economic development and improved people’s living standards. However, we must also be soberly aware of the problems brought about by the one-sided pursuit of economic growth such as environmental pollution, waste of resources, income inequality, and excessive urban-rural gap. To solve these problems, we must fully realize that economic development requires not only quantity growth but also quality improvement. Quality growth requires the government to take the initiative (actively implement) to implement supply-side structural reforms, close down outdated production facilities and “zombie enterprises” so as to achieve green and beautiful development. Thirdly, economic development mode needs to be transformed from non-structural optimization to structural optimization. At the present stage, although the service industry occupies a dominant position in China’s industrial structure, compared with developed countries, the proportion of service industry in China is still low, and the proportion of modern service industry in the service industry is lower. It can not be denied that China’s manufacturing structure is also low-end. Therefore, the adjustment of the industrial structure is of great significance to the transformation of China’s economic development mode. First of all, it is necessary to adjust the proportion of industries, and vigorously develop service industry, especially modern service industry or producer service industry. Studies by foreign scholars have shown that the change of industrial structure is from primary industry to tertiary industry. At present, the proportion of the tertiary industry in China’s GDP has reached more than 50%, accounting for half of it, while the proportion of the tertiary industry in developed countries is 60%–70%. Meanwhile, China’s service industry is dominated by low-end service industry, while the service industry in developed countries is dominated by modern service industries such as finance, medical treatment and education, etc. At present, China should pay attention to the development of service industry, especially the development of modern service industry, and promote the development of modern service industry through scientific and technological progress. At the same time, the linkage between modern service industry and advanced manufacturing industry should be accelerated so as to generate diversified producer services, provide a guarantee for the better development of manufacturing industry and transform manufacturing industry from high-pollution and high-energy consumption to green manufacturing. Secondly, the proportion of science and technology industry

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in the modern service industry should be increased. The development of high-tech industries is an important factor to promote the transformation of China’s economic development mode. The “13th Five-Year Plan” period is a crucial period for China to transform its economic development mode. It is also an important period for the development of strategic emerging industries to achieve the important transformation from investment-driven to innovation-driven. China should speed up the development of high-tech industries and carry out original technological innovation through the advantages of industrial clusters, so that the scientific and technological content of China’s industrial structure will keep rising. Thirdly, economic development should be transformed from investment-driven to consumption-driven. Insufficient domestic demand is an important constraint to China’s economic development, so in the process of expanding external demand driven by “Belt and Road Initiative”, we should also focus on domestic demand and guide the direction of scientific and technological progress through domestic demand. To solve this problem, it is necessary to start with the following two aspects. One is to expand domestic demand, and stimulate domestic demand through various policies and improve the consumption level of people so as to drive the change of industrial structure and optimize the industrial structure. The other is to expand the scope of consumption, constantly extend the modern service industry, promote the development of high-end service industries such as medical treatment, education, leisure, tourism and so on, and constantly increase the consumption choices of residents so that domestic demand will increase to drive the transformation of economic development mode. Fourthly, in order to realize the transformation of economic development mode, the relationship between the market and the government should be properly handled. The government can not take the place of the market to dominate the transformation of the economic development mode, but the transformation of the market-oriented economic development mode cannot be separated from the guidance and support of the government. The government and the market should complement and cooperate with each other in order to ensure the transformation of the economic development mode. The most essential thing is to reform the existing institutional mechanism, give full play to the institutional dividends from streamlining administration and delegating power, and build an environment for fair competition in society. To be specific, the following two points should be properly handled. One is that the transformation of economic development mode should be market-driven and market-based, only the market can truly guide the economic development mode to conform to the changes of people’s life. The other is that the transformation of economic development mode needs the guidance and coordination of the government, and the government should make efforts to actively intervene in the relevant problems under market failure. In the meantime, for the allocation of some scarce resources, the power of the government should be used for the effective allocation of resources. Fifthly, the economic development mode should focus on the strategy of innovation-driven development, while the factor-driven development mode should be abandoned. At the present stage, China’s economic development mode is typically factor-driven, with too high energy consumption per unit of GDP, too much factor input, and heavy environmental pollution. At the same time, the scientific and

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technological content of products is not high, and the enterprises lack both the ability of independent innovation and their own brand. China is known as the “factory of the world”, which is only a place where industrial products are processed. It lacks real R&D and design, the ability of independent innovation and industrial products “intelligently made by China”. In particular, OEM production accounts for the majority of China’s foreign trade, and the main export commodities are concentrated in labor-intensive products such as textiles and household appliances. To change this situation, the economic development mode should be transformed from factor-input to innovation-driven. Only by truly improving the innovation-driven capability in the process of China’s economic development can the high-quality development of China’s economy be guaranteed. China is not only a world processing plant but also a real R&D center, a design center and a manufacturing center. At present, a large number of measures for innovation-driven development have been issued in China. It is necessary to strengthen the infrastructure construction in all aspects to ensure the implementation of these measures, and get timely feedback and correction, so that China can become a truly innovative country. Sixthly, the transformation of economic development mode should take sustainable development as the ultimate goal, rather than unsustainable development. Unsustainable development means that the development at the present stage does not take into account future interests, focusing only on the current one. On the contrary, sustainable development means that the development of the current stage should focus on long-term interests and should not be at the expense of the living environment of future generations. China’s current development has paid too much attention to the quantity of economic development instead of its quality, which has led to environmental destruction, waste of resources, conflicts between man and nature, and sociopolitical contradictions, etc., which will inevitably lead to stagnation of economic development in the long run. Therefore, it is necessary to transform the current development mode and adhere to sustainable development, pay attention to environmental protection while developing the economy, and realize the harmony between man and nature. The transition from unsustainable development to sustainable development is the only way for the transformation of the economic development mode, and it is also a problem that must be solved for the transformation of the economic development mode. Only when sustainable development is truly achieved can it be proved that the transformation of the economic development mode is successful.

13.2 Measures to Break Through the Five Bottlenecks in the Transformation of the Development Mode From the perspective of production efficiency improvement, this book studies the mechanism and practice that scientific and technological progress promotes the transformation of economic development mode, and holds that scientific and technological progress is the core driving force for the transformation of economic development

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mode. In terms of the transformation of agricultural development mode, scientific and technological progress is beneficial to the improvement of agricultural production efficiency, promoting the intensive development of agriculture. In terms of the transformation of industrial development mode, scientific and technological progress is conducive to the innovation of production technology and the development of new chemical industry. In terms of the transformation of the development mode of service industry, scientific and technological progress is conducive to accelerating the development of advanced service industry and promoting the modernization of service industry. Meanwhile, scientific and technological progress can also promote the linkage between modern service industry and advanced manufacturing industry. The above suggestions expound how scientific and technological progress speeds up the transformation of economic development mode from the perspective of path. In this section, corresponding safeguard countermeasures for how to implement the strategy of scientific and technological progress and the scientific outlook on development will be put forward. The Third Plenary Session of the 18th CPC Central Committee made important arrangements for scientific and technological progress, emphasizing the implementation of the innovation-driven strategy and the importance of scientific and technological progress as a support for improving social productivity. The Fourth Plenary Session of the 18th CPC Central Committee also pointed out the need to rule the country by law so that economic development and legal construction are combined to promote the transformation of economic development mode through scientific and technological progress. Although great importance has been attached to the transformation of economic development mode driven by scientific and technological progress at the national level, it is still necessary to break through the following five major bottlenecks in order to achieve the transformation of economic development mode.

13.2.1 The Bottleneck of Core Ideas: In-depth Implementation of the Scientific Outlook on Development The transformation of economic development mode is not determined or led by a single factor, but rather a systematic project under the joint influence of multiple factors, which requires the collaborative innovation of the government, enterprises and markets, etc. In this process, the bottleneck of core ideas should be broken through first, and the scientific outlook on development should be firmly grasped. Ideological bottleneck is a major obstacle to the transformation of economic development mode. If we remain in the traditional development mode, it will not only be difficult to maintain sustainable economic development, but also lead to environmental damage, waste of resources and so on, that is, our development is at the expense of future development. To break through the ideological bottleneck, we must adhere to the implementation of the scientific outlook on development, and

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promote all-round transformation of economic development mode through scientific and technological progress and innovation. Specifically, in the process of breaking through the bottleneck of core ideas, we need to adhere to the following points: First of all, it is indisputable that we must firmly focus on economic construction. Although the traditional economic development mode has brought a variety of problems, economic construction is still the focus of government work. At the present stage China is in the initial stage of socialist development. The most fundamental task is to vigorously develop the productive forces to promote the improvement of people’s living standards. We must focus on economic construction to ensure both the rapid growth and the quality of economic development. Secondly, we must pay enough attention to the major balance issues in the development process to promote coordinated economic development. The most important thing is to adhere to the harmonious development of society, which requires us to pay full attention to environmental pollution and waste of resources, etc. in the course of economic construction. We must rely on scientific and technological progress to promote the transformation of economic development mode from extensification to intensification, and the continuous construction of circular economy and green economy, making the development speed and environmental protection, etc. coordinated and unified. At the same time, attention should be paid to the coordinated development between urban and rural areas as well as regional development. At present, China’s economic development is obviously unbalanced, with urban development faster than rural development and eastern development better than western development. With the deepening of economic development, the gap between urban and rural areas and the gap between eastern and western regions should be gradually eliminated so that a balanced economic development can truly be achieved instead of the serious polarization in the process of economic development. Thirdly, expanding domestic demand and accelerating the opening up should be well balanced. Accelerating the opening up is conducive to foreign trade and capital introduction, but excessive opening up will lead to too much dependence on foreign economy, which is not beneficial to the sustainable development of China’s economy. On the basis of moderate opening up, we should focus on expanding domestic demand and promote the transformation of economic development mode through the combination of domestic demand and foreign demand. Finally, reform needs to be deepened, which must be people-oriented. The ultimate goal of the transformation of economic development mode is to improve people’s living standards. Therefore, the people-oriented principle must be emphasized when breaking through the bottleneck of the core ideology. No matter what kind of measures are taken and no matter what kind of reforms are carried out, they are all aimed at improving people’s living standards and embodying the important people-oriented thought, which must be given more prominence to in the process of future economic construction. To sum up, we must abandon the original old ideas, firmly establish the scientific outlook on development, and persist in promoting the transformation of economic development mode through innovation-driven strategy. It is necessary to further accelerate economic restructuring, speed up the building of an environment-friendly

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and resource-saving society, develop a knowledge-based economy and promote independent innovation. Only in this way can sound, rapid and comprehensive development be achieved.

13.2.2 The Bottleneck of the Economic Structure: Accelerating the Transformation and Upgrading of the Service Industry with the Help of FTZ (Free Trade Zone) Although the proportion of service industry in China’s economic structure has risen at present, compared with developed countries, the proportion of service industry in China’s GDP is still too low. In addition, the internal industrial structure of the service industry has also been low-end. The service industry is mostly labor-intensive, rather than technology-intensive and capital-intensive. To break through the bottleneck of economic structure, it is necessary to vigorously develop modern service industry, especially producer service industry, to promote the transformation of development mode. This book argues that the transformation and upgrading of the service industry should take the opportunity of the establishment of Shanghai Free Trade Zone, etc. to take the initiative to open up the service industry and realize the transformation of the development mode of the service industry by “promoting reform through opening up”. In this process, the science and technology service industry can serve as the first batch of open fields to foreign capital, realizing the effective flow of global R&D capital and providing channels for international R&D capital to enter China through FDI, capital goods trade, direct establishment of R&D bases and so on, so as to improve the overall level of science and technology in China. Meanwhile, opening up the service industry will also provide an effective and open market environment for scientific and technological progress to promote the transformation of economic development mode, which will greatly promote the efficiency of scientific and technological innovation. First of all, the threshold should be lowered so that foreign capital can invest in the service industry to promote the overall level of China’s service industry development. At present, there are still some restrictions on the access of foreign capital in China, particularly for some service industries. Although China’s service industry has become the largest industry attracting foreign investment in 2011, most of the foreign-funded industries are low-end, and the foreign capital attracted by high-end service industries is obviously insufficient. The service industry should learn from the manufacturing industry, give full play to the role of the market, take the opportunity of streamlining administration and delegating power at the current stage, lower the corresponding threshold for the introduction of foreign capital into the service industry, so that the service industry can not only make use of foreign capital, but also share advanced experience in foreign management systems. More importantly, the introduction of foreign investment in the service industry should focus on high-end

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service industries, instead of the cooperation between domestic funds and foreign investment in the lower-end service industries. Secondly, it is necessary to vigorously cultivate innovative enterprises in the service sector, especially those in producer services. Enterprises play the most fundamental role in technological progress’s promoting the transformation of service industry development mode. As the frontier area of opening-up, the FTA should actively attract foreign high-tech service enterprises to enter the country. At the same time, we should pay more attention to the cultivation of local service enterprises, especially productive service enterprises. By means of policy support, fiscal subsidies, tax incentives and so on, key enterprises in the service industry should be cultivated, especially the development of producer service enterprises should be supported to better promote the linkage between the service industry and the manufacturing industry, and to improve the comprehensive strength of the service enterprises. Finally, the free trade area should be open to both the domestic service industry and foreign service industry, the core of which is to break the monopoly in the development process of the service industry at the present stage, improve the competition in the service market and promote the enterprises in service industry to strengthen scientific and technological innovation, innovate the development mode of the service industry, and promote the development of modern service industry. At the same time, it is necessary to further improve China’s legal system and intellectual property protection, and actively undertake offshore outsourcing and vigorously develop onshore outsourcing.

13.2.3 The Bottleneck of Factor Structure: Improving the Mechanism for Factor Price and Allocating Scientific and Technological Resources Effectively At present, China’s factor input is dominated by labor factor and resource factor, but with the transformation of economic development mode, the traditional factor input will be bound to fail to meet the future economic development. Therefore, it is necessary to improve the pricing mechanism of factors, and promote the reform of factor price system in the years to come, aiming at such factor price as financial price (interest rate, exchange rate), land price (land transfer) and resource price (mineral, water and electricity). At the same time, in the scientific and technological innovation activities, the pricing of scientific and technological resources must also be marketoriented so as to promote the effective allocation of scientific and technological resources in the market. As far as the science and technology market is concerned, the major bottleneck that needs to be broken through to improve the scientific and technological factor market is to promote the commercialization of scientific and technological achievements. At the present stage, the basic framework of policies and regulations has been established in the science and technology market, but there is a lack of market players and trading players that are related to scientific and technological factors.

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That is to say, the scientific and technological achievements at the present stage have not been truly commercialized. The main problem involved is that the value of scientific and technological commodities is difficult to be measured, and there is a strong spillover effect of scientific and technological commodities so that the protection of intellectual property rights of scientific and technological commodities becomes the man problem that needs to be solved in the scientific and technological market. At the same time, the establishment and improvement of China’s science and technology factor market are based on breaking the original planned economy system. Therefore, the current science and technology market has the characteristics of both market economy and planned economy, which to some extent restricts technological innovation and development in China. The most fundamental way to improve the science and technology market is to clarify the pricing mechanism for scientific and technological achievements so that the scientific and technological achievements can be commercialized to build a market for trading scientific and technological achievements. On this basis, a sound science and technology intermediary market should be established so that the supply and demand of science and technology can be effectively connected. For the establishment of science and technology intermediary market, the government needs to not only step up efforts to introduce corresponding laws and regulations, but also ensure the implementation of legal norms. As far as the financial market is concerned, the most important function of financial factors is to solve the capital problem in the process of scientific and technological innovation of enterprises. Therefore, the pricing of financial factors should not only take into account the conditions of enterprises themselves, but also innovate the business model so that financial factors can be truly popularized. At the present stage, China’s major financial institutions have taken active actions to innovate business models and simplify business procedures. In particular, a lot of innovation has been made in the business model of financing for small and medium-sized enterprises, which has an important impact on promoting technological innovation of enterprises. However, these innovations are only innovations based on business models, which are not fundamentally related to the reform of China’s financial system. There is still a long way to go for the improvement of financial factor market. In the meantime, for the improvement of the financial factor market, the opportunity should be seized to lower the threshold, and enterprises should be encouraged to develop channels for direct financing, so that the unification and mutual integration between direct financing and indirect financing in the financial factor market.can be truly achieved. For the establishment of financial factor market, it is also necessary to pay attention to the development of Internet finance. With the rise of Internet technology, finance is more closely integrated with the Internet. How to evaluate the development of Internet finance and how to better promote Internet finance become a major and important work for the establishment of financial factor market. As far as the land market is concerned, the system construction of land transfer should be accelerated, the premise of which is that the land property right is more clear. At the present stage, the land property right system still follows the household contract responsibility system in the early stage of reform and opening-up, which greatly improved labor productivity at that time. However, with the development

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of economy, it has been very difficult for this system to play its due role. Only by reforming this system can the land factor market be improved. Moreover, the household contract responsibility system is go-it-alone, which is not conducive to the formation of scale economy in agricultural development. Therefore, to transform the agricultural development mode from extensification to intensification, it is necessary to accelerate the improvement of land transfer system, clarify land property rights, innovate land use models, and improve land factor market.

13.2.4 The Bottleneck of Organizational Structure: Breaking Monopoly and Promoting the Transformation of Private Enterprises into Service Economy To a large extent, China’s economic development is driven by the government, but with the continuous improvement of the market economy system and the growing influence of the organizational structure on the economic development, it is necessary to break through the bottleneck of the organizational structure through reform in all aspects in order to accelerate the transformation of the economic development mode. First of all, this book does not deny the important influence of government guidance on economic development, but the government should change its organizational structure to guide the transformation of economic development mode. For example, a leading group for comprehensively deepening reform needs to be established to comprehensively carry out the reform of organizational structure and regulate the transformation of economic development mode; we will accelerate the decentralization of government and decentralization of administrative examination and approval authority, and downsize government bodies to motivate the development of the market economy and improve administrative efficiency of the government; We should build a service-oriented government to clarify its responsibilities, or clarify its authority through a negative list to improve its service awareness, and build a government agency that can truly serve enterprises. Secondly, the reform of state-owned enterprises (soes) should be promoted, and soes with poor performance should be eliminated resolutely. We will accelerate the development of private economy, the positive role of which will be used to promote the transformation of economic development mode. Especially in the eastern region of China, a great deal of private capital has been accumulated after the reform and opening-up. How to make good use of this part of private capital plays an important role in accelerating economic construction. What is essential is to lower the industrial threshold, open up some fields and stimulate the vitality of the market, so that private economy can participate in the building of important core industries to promote the transformation of economic development mode through the reform of the organizational structure of enterprises. Next, it is necessary to relax market restrictions and improve the mechanism for market access and exit. At the present stage, China has set higher entry barriers for

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some important industries, which has led to the monopoly within the industry and an inability to promote industrial upgrading through market competition, so as to achieve the transformation of economic development mode. The entry threshold of these industries should be relaxed and powerful enterprises should be encouraged to enter these industries so as to improve the level of competition in these industries. At the same time, the monopoly of some industries should be broken to build a sound market system to develop these monopoly industries. Finally, a system for assessing the efficiency of technological innovation in stateowned enterprises should be improved, taking the multi-level examination system as the breakthrough. Judging from the current assessment system of technological innovation, it emphasizes more on the quantity of innovations while ignoring the quality of innovation, and more on the achievements of innovation while ignoring the input-output efficiency of innovation. State-owned enterprises play the role of longterm policy guidance in technological innovation. They tend to focus on long-term technology with the support of the government, and invest insufficiently in immediate technology, resulting in the lack of the most effective allocation of limited innovation resources. In the future reform, it is necessary to change the current single assessment system, and effectively combine innovation efficiency, short-term performance and long-term performance to promote the rational allocation of innovative resources.

13.2.5 Bottleneck of Management Mode: Improving the Efficiency of Government Decision-Making and the Science and Technology Management System The improvement of the management system plays an important role in promoting scientific and technological progress. The science and technology management system implemented in China in 1998 is still in use at the present stage. With the progress of science and technology, the original science and technology management system can not meet the requirements of science and technology at the present stage. Therefore, it is necessary to reform the management mode so as to improve the efficiency of government’s science and technology management. To solve this problem, the government should establish a sound science and technology management system, and promulgate corresponding laws and regulations to provide legal guarantee for the construction of science and technology management system. To be specific, the government needs to start from the following three aspects to improve administrative efficiency and science and technology management system. Firstly, a reasonable science and technology management system provides a good institutional guarantee for enterprises to engage in scientific and technological R&D, and can promote the continuous development of scientific and technological innovation. Therefore, China needs to establish a reasonable science and technology management system. On the contrary, an irrational science and technology management system can make scientific research institutions “free-riding”,

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which will inevitably lead to the lack of independent innovation capacity in the long run. What is more serious is that irrational science and technology management system will lead to the confusion of scientific research in various scientific research institutions such as the confusion of achievements and funds, which will even affect the development of scientific and technological innovation of the whole society. The establishment of a reasonable and sound science and technology management system first needs to increase ideological propaganda, so that the reform of science and technology management system is widely supported. Secondly, importance should be attached to the protection of intellectual property rights. Intellectual property right protection is an important part of science and technology management, which can improve the enthusiasm of scientific and technological researchers. Finally, it is also necessary to establish a supervision mechanism for scientific research achievements to track the whole process of scientific and technological R&D activities, so that scientific and technological support can be truly applied to innovation activities. Secondly, it is necessary to accelerate the reform of the scientific and technological system and establish the mechanism for the national macro-control scientific and technological management. The most important aspect of the national macro-control scientific and technological management is to be able to control the allocation of resources so that scientific and technological resources can be reasonably distributed. At the present stage, there exists the problem of unbalanced allocation of scientific and technological resources in the process of scientific and technological R&D in China, which directly leads to the unsustainable development of scientific and technological R&D activities. Therefore, the rational use of resources can be promoted through the allocation of scientific and technological resources at the national level. The national macro-control should start from the following three aspects: Above all, scientific and technological resources can be reasonably allocated, which refers to not only how the state specifies the distribute but also how to set up a scientific and technological evaluation system to screen out the universities or enterprises really engaged in scientific and technological R&D and distribute scientific and technological resources to these research institutions to promote them to engage in R&D and innovation, so as to improve the overall level of science and technology of the society. Next, the allocated scientific research resources should be comprehensively tracked. A major part of the national macro-control is to monitor the utilization of scientific research resources, especially whether there is any abuse or misappropriation of scientific research funds. Only in this way can the efficient allocation of scientific and technological resources be ensured. Finally, an appropriate system should be established for the evaluation of scientific and technological achievements, which requires both objective evaluation and subjective evaluation. Objective evaluation is to set up the corresponding scoring standards according to the requirements of the project, and score the scientific research achievements so as to evaluate the implementation of scientific and technological projects. For subjective evaluation, a expert database should be established, from which experts are randomly selected for anonymous evaluation of the project. Only through the above three ways, can it be ensured that scientific and technological resources can be reasonably allocated by the national macro-control.

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Thirdly, different supporting methods and evaluation systems for different fields of scientific and technological R&D should be constructed so as to make an objective and comprehensive evaluation of scientific and technological achievements. First of all, the core issues of scientific and technological progress in different fields should be clarified, on the basis of which can the scientific and technological achievements be evaluated and the necessity of introducing competition mechanism be concluded. Secondly, and most importantly, the evaluation index system for scientific and technological achievements in different fields should be constructed, and the ability of scientific and technological progress should be evaluated through index scoring, etc. This kind of evaluation is measured by the index, without the subjectivity of evaluators, which can be said to be relatively objective. In summary, the improvement of government management efficiency has an important effect on scientific and technological progress. In particular, the government should establish a sound scientific and technological management system, reform the existing management system, establish a macroeconomic regulation and control mechanism at the national level, and at the same time a sound evaluation system should be established to objectively and comprehensively evaluate the scientific and technological progress in different fields, thus providing guarantee for the transformation of economic development mode.

13.3 “Trinity” Countermeasures for the Transformation of Economic Development Mode At present, China’s economy is facing a new round of scientific and technological revolution and global competition. China’s economic growth is gradually slowing down and its development mode is increasingly sustainable. China’s economic development has entered the “new normal”. Under such a broad background, the goal of the transformation of China’s economic development mode is to rely on one or more sources that provide a motive force for the long-term, sustained and stable development of China’s economy. Through a new round of reform, we will thoroughly implement the scientific outlook on development and eventually establish a socialist market economic system that is dynamic, innovation-oriented, inclusive, orderly and guaranteed by the rule of law, which will also enable China’s economy to continue to maintain its healthy, sustainable, stable and relatively fast growth. The realization of the above goals requires the collaborative innovation of market leading, government guidance, and enterprise reform, etc. Special attention should be paid to the reform of scientific and technological innovation system, government functional structure and enterprise innovation mechanism, that is, the “trinity” reform proposed in this book. The key to improving the scientific and technological innovation system is to accept and face the influence of innovation heterogeneity on the technological innovation behavior of enterprises, formulate a more complete system for encouraging scientific and technological innovation, deepen the reform of the

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price system for innovative factors so that the market will play a fundamental role in allocating resources on a larger scale and in a more effective way in the technological innovation of enterprises, the development and transformation of enterprises, and the transformation of national economic development mode. The key to the transformation of government function structure is to reform the current assessment method that only emphasizes the innovation achievements such as patents and papers, incorporate innovation efficiency into the comprehensive framework for innovation capability assessment, and reduce the direct intervention in the innovation activities of enterprises and the indirect intervention in market innovation through state-owned enterprises, and straighten out the division of labor and the rights of local governments, state-owned enterprises and the central government in (making) major policies on scientific and technological innovation and application, so that the government can better provide public products. The key to reforming the enterprise innovation system is to provide a good competitive environment for enterprises, constantly lower the threshold, and improve the mechanism for access and exit, so that enterprises can compete fairly in the free market. At the same time, the integration of external resources of enterprises and the display of “combination boxing” will enable enterprises to realize the light upgrade of regional economic development mode in the form of “Bao tuan”. The most important thing of the above-mentioned “trinity” reform is that the relationship between the government and the market should be properly handled, among which who dominates and who guides must be clarified. Firstly, it must be emphasized that the economic system reform is the focus of deepening reform comprehensively, which should be dialectical. We must be good at seizing the breakthrough of the reform. The reason why economic system reform is the focus of deepening the reform comprehensively is that China is still in the primary stage of socialism and will remain so for a long time to come. Therefore, the fundamental task of raising and liberating the productive forces remains unchanged, and the economic system reform needs to be accelerated. Meanwhile, the contradiction between the ever-growing material and cultural needs of the Chinese people and the backward productive forces has not been solved. China is still a developing country, so developing economy is still the fundamental task of China. Problems such as medical care, education, housing and social security, etc. which are strongly reflected in the current society are all related to the insufficient economic development. Development is still the key to solving all problems in China, and the economic system reform still plays an important role in the overall layout of comprehensively deepening reform. It can be said that comprehensively deepening reform with the focus on the economic system reform is an inevitable choice based on the basic national conditions. At the same time, Only by firmly grasping the reform of the economic system reform and promoting the economic development through the “reform dividend” can the contradictions of various fields be fundamentally solved, so as to deepen the reform in the areas of finance, taxation and land, etc., form a strong force for reform and comprehensively advance the cause of socialism with Chinese characteristics. Secondly, the core issue of economic system reform is to properly handle the relationship between the government and the market. Over the past 30 years of reform and opening-up,

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China’s economic development has fully demonstrated the superiority of the socialist market economy system has great advantages, which is suitable for China’s development, and has also achieved the miracle of China’s economic development. At the same time, it should be noted that there is still a long way to go for the reform of China’s market economy system. On one hand, China’s market is in the process of continuous improvement, but the market order is still chaotic, the market rules are not “normalized” and the market competition has not really played a role. On the other hand, the government has too much power, too much direct intervention in the micro-economy and insufficient market supervision. Only by properly handling the relationship between the government and the market can the socialist market economic system be improved and finalized. Thirdly, we should give full play to the guiding role of the market so that it can effectively allocate resources. With the improvement of market economy system, the market should play a “decisive” role in improving the efficiency of resource allocation through the automatic regulation of the market. Economic development is a systematic project, but the fundamental core lies in the effective and reasonable allocation of labor, capital, resources and so on. Historical experience shows that only through the automatic regulation of the market can the effective allocation of resources be realized. In other words, the market is the most effective way to allocate resources. Ludwig Von Mises, an economist, asserts that without market prices, people would not know how scarce resources are, nor how to allocate resources to maximize their utility. At present, the prices of most of the consumer goods and means of production in China are determined by the market, but the prices of resource products and some public utilities are mainly set by the government, and the pricing mechanism is not yet perfect. Generally speaking, China’s market economy has achieved good development at the present stage, but, the role of the market has not been fully played, and the market has not been able to fully played its due role in the effective allocation of resources. The Third Plenary Session of the 18th CPC Central Committee fully affirmed the role of the market, and clearly defined that the market plays a decisive role in the allocation of resources, so the construction of the socialist market system requires comprehensively deepening the reform so that the core bottleneck in the transformation of China’s economic development mode can be truly broken through.

13.4 Supply Platform Promoting the Transformation of Economic Development Mode 13.4.1 Building “Industrial Generic Technology Platform” on the Basis of Multiple Collaborative Innovation Modes In the current development trend, the transformation of economic development mode cannot be separated from the promotion of scientific and technological progress,

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which is also based on economic development. Scientific and technological progress and economic development are inextricably linked. It is necessary to integrate multiple collaborative innovation modes and integrate major innovation elements so that innovation-driven economy becomes the real driving force for the transformation of economic development mode. At the same time, we should take the opportunity of streamlining administration and delegating power to energize the market and give full play to the role of “reform dividends” in economic development. It is worth pointing out that along with the progress of science and technology, agricultural intensification, new industrialization, modernization of service industry, and the linkage between modern service industry and advanced manufacturing industry is accelerating. The linkage effect among the three major industries is constantly reflected, and it is urgent to build a collaborative innovation “industrial generic technology platform”, which is to build the guarantee foundation for scientific and technological progress to promote the transformation of the development mode of various industries as well as the linkage among various industries. With the improvement of the speed, quality and efficiency of China’s economic development, the transformation of economic development mode requires the active linkage of the three industries. To a large extent, the transformation of economic development mode requires the change of the industrial structure, which is based on technological progress. Therefore, it is necessary for the governments at all levels to pay special attention to the construction of “industrial generic technology platform”. With the help of the government and the major breakthroughs in information technology such as Internet technology at the present stage, various resources and modes of collaborative innovation are integrated to build a platform for industrial interaction and symbiosis, so as to promote the adjustment of China’s industrial structure and accelerate the transformation of economic development mode. However, in this regard, there are still three deficiencies in China’s current practices. Firstly, the ability of independent innovation is seriously insufficient, resulting in the lack of core technology with Chinese characteristics in the construction of industrial generic technology platforms. Secondly, the threshold of industrial access is too high and the ordinary enterprises can not enter the relevant fields at all, which leads to the monopoly among industries, weak market competition, and slow adjustment of China’s industrial structure. Thirdly, the quality of the established industrial generic technology platforms is not high, and the degree of marketization is low. The establishment of these platforms is mostly promoted by the government, lacking of symbiotic platform formed by independent association to achieve the scientific and technological progress within the region. Moreover, these platforms lack of market-orientation in the process of operation, and they are developed by adopting a process-based approach, which greatly restricts the improvement of production efficiency. To overcome the above problems, it is necessary to increase investment in science and technology, strengthen independent innovation, and accelerate the transformation of scientific and technological achievements so as to establish an industrial generic technology platform with core competitiveness, and promote the transformation of economic development mode.

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13.4.2 Fully Introducing and Absorbing the Concept of Big Data to Launch “Cloud Platform” Nowadays, the society is in the era of information explosion. Information update has not only a short cycle but also a large quantity. The environment for economic development is becoming more and more complicated. To unblock information channels and extract core information through scientific and technological progress, we must rely on the establishment of big data “cloud platform”. We will establish cloud computing industry technology platform, research and develop industry generic technologies, restructure the industrial chain, and provide overall cloud computing solutions and services. In accordance with the principle of “demand-driven, innovationdriven, joint cooperation, and solid progress”, information integration on the cuttingedge technologies in the development of various industries should be carried out, cloud computing mode with core competitiveness should be explored, and a big data “cloud platform”, where such information can be shared, should be built by relying on the development of information technology. The establishment of these cloud platforms makes it possible for people to share information in the process of scientific and technological progress,which can effectively promote scientific and technological progress. Expanding the social service function of “cloud platform” should be carried out from the following three aspects. First of all, “cloud platform” service enterprises should be developed to help enterprises in the “cloud platform” better connect supply and demand, so that enterprises can obtain customized scientific and technological services through the “cloud platform”. Secondly, intermediary service agencies of big data “cloud platform” should be developed, which requires a lot of information to be summarized and sorted out. The emergence of cloud technology provides a good solution to this problem. By establishing a “cloud platform”, resources at the current stage can be efficiently and cheaply integrated, and information can be shared so as to promote the efficient and sound development of scientific and technological intermediary services. Finally, a “cloud platform” to serve the government needs to be built. The efficient operation of the government requires unimpeded information exchange and sharing among various departments. The development of cloud technology provides a strong foundation for government departments to achieve information symmetry and “paperless” operations. The establishment of the “cloud platform” enables the daily routine work of the administrative departments to be handled through the “cloud platform”, greatly improving the administrative efficiency. In the meantime, the government can establish enterprise management database and conduct tracking management for enterprises by relying on the “cloud platform” so as to grasp the development trend of enterprise and provide micro-level reference for policy decisions.

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13.4.3 Building “Export-Oriented Technology Innovation Platform” by Opening up the Service Industry With the acceleration of world economic integration, the transformation of economic development mode is increasingly affected by the world economic situation, and scientific and technological progress is also increasingly “international”. To speed up the “external introduction and internal cultivation” of scientific and technological progress requires making full use of the opening up of the free trade zone, whose role as a bridgehead for the opening up of the service industry should be given full play to. In the short term, the opening up of the service industry in the FTZ is a unilateral liberalization measure with the key word being “deregulation”. By lowering the barriers to entry in the fields of financial services, professional services, cultural services and social services, and implementing “limited market opening” to foreign capital, the production factors of the service industry such as capital and talent can flow freely, thus improving the market competitiveness of the service industry. That a large number of foreign capital pours into the liberalized service industry will have a strong impact on domestic service enterprises, but we must recognize that foreign companies’ entry in domestic enterprises is of strong competition, which can in turn force domestic enterprises to strengthen scientific and technological innovation so as to achieve transformation and upgrading, so we should have a positive and optimistic attitude towards the impact. Moreover, it should also be realized that the entry of foreign capital can not only provide the capital needed for the development of the service industry and promote its development, but also may drive the overall development of China’s service industry through the spillover effect of technology and improve the overall competitiveness of China’s service industry. Domestic service industry should seize this opportunity, improve efficiency, enhance competitiveness, and actively participate in the international service industry chain. For instance, by taking advantage of the effective combination of information technology and service products, we should actively undertake the offshore service outsourcing business of developed countries, especially the outsourcing business in producer services, such as IT services and information services, e-commerce services, professional services, shipping services and construction services to ultimately accumulate experience and mode that can be copied and used for reference for the development of the service industry and the economic transformation of China. In the long run, the establishment of the free trade zones has the significance of reshaping the development of the service industry and the rules of service trade with the key word being “effective regulation”, which indicates that China is actively responding to the rules of international trade with the new trend of shifting from the pre-event regulation to the regulation in the event and post-event regulation. In recent years, developed countries have attempted to form and dominate the international trade rules which are more in line with their interests through new trade agreements such as TTP (Trans-Pacific Partnership) and TTIP (Transatlantic Trade and Investment Partnership), especially to strengthen their advantages in service trade. China should take the construction of free trade zone as

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the entry point and take the initiative to respond to the establishment of these new rules and systems. China should take the opportunity of establishing the free trade zone and implementing the strategy of “The Belt and Road Initiative” to comprehensively connect the service industry with the overseas market and realize the reform of the economic system through the opening of the service industry and the development of foreign economy. We will also accelerate economic restructuring, improve the role of the market in resource allocation and build a platform to attract high-end production factors from all over the world. We should integrate international resources, open up external markets, form an international production network, enhance the international influence of China’s economy, and form new advantages in international competition. In addition, we will creatively build the “export-oriented technology innovation platform”, through which overseas R&D capital and R&D personnel are allowed to enter the market of China’s technology innovation factor, and are attracted to retain their investment and support for China’s technology innovation, in order to realize the effective allocation of technology innovation resources around the world, and to provide an open platform for scientific and technological progress to promote the transformation of economic development mode. At the same time, guided by the scientific outlook on development, we will increase investment in R&D as well as fiscal expenditure to guarantee independent innovation so that both “technology introduction” and “technology innovation” can be truly achieved.

Postscript

This book is the final result of the major project of the National Social Science Fund of China—“Thoroughly Implementing the Scientific Outlook on Development to Accelerate the Transformation of Economic Development Mode—A Study from the Perspective of Scientific and Technological Progress” (NO: 10ZD&003), for which the author is responsible. At the beginning of the project, the major topics were designed to follow the “integration” path of “status quo evaluation— mechanism exploration—empirical analysis—monographic research—countermeasure guarantee ”, and subdivided industries into agriculture, industry and service industries, etc. to carry out “diversification” research. This book was published on the basis of the general report written by the project leader, while the sub-project reports were published respectively by the sub-project leaders such as Professor Shiyuan Pan, Professor Jianqin Li, Professor Chun Ding, Professor Changyuan Luo, Professor Chengliang Lin and Associate Professor Zhangyong He. Starting from the three aspects such as micro-enterprise, meso-industry and macro-economy, the book explores the mechanism of the impact of scientific and technological progress on the transformation of economic development mode, makes the monographic research on the influence of scientific and technological progress on intensified agriculture, new type industrialization, service industry modernization and the linkage between advanced manufacturing and modern service industry, and puts forward the guarantee basis and mode selection that scientific and technological progress promotes the transformation of economic development mode. The policy suggestions proposed in this book have been approved by the Executive Vice Governor and Vice Governor of Zhejiang Province, etc. and have been actively implemented by the the functional departments such as the Provincial Development and Reform Commission, etc. It is worth mentioning that this book was selected into the “National Achievements Library of Philosophy and Social Sciences” in 2016, which is undoubtedly a great affirmation of the academic value and practical significance of the book. In the process of completing the manuscript, we have received strong support and active cooperation from all walks of life. The author would like to express her special thanks to the National Social Science Fund Committee for its support and funding,

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4

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which ensured the successful completion of the book. Thanks a lot to the Development Research Center of the State Council of the People’s Republic of China, China Council for the Promotion of International Trade, the Development Research Center of Shanghai Municipal People’s Government, Suzhou Municipal People’s Government, Guangzhou Municipal People’s Government and Zhejiang Provincial Office of Political Research, Zhejiang Provincial Development and Reform Commission, Zhejiang Provincial Science and Technology Department, Zhejiang Provincial Bureau of Statistics, Ningbo Municipal People’s Government, etc. for their support, the detailed information provided and the thorough investigation arranged, which laid a solid foundation for the completion of the manuscript. Thanks a lot to Professor Changhong Pei, Director of the Institute of Economics at Chinese Academy of Social Sciences, Professor Jun Zhang, Professor Zhigang Yuan, and Professor Xuebin Chen of Fudan University, Professor Ping Pei of Business School at Nanjing University, Yuanlong Wang, a Researcher at the Head Office of Bank of China, Dr. Yongchang Wang, Vice Chairman of the CPPCC of Zhejiang Province, Shijhao Sheng, Deputy Director of Zhejiang Provincial Office of Political Research, Professor Manhong Shen, President of Ningbo University, Professor Weidong Luo, Vice President of Zhejiang University, Professor Zuhui Huang, Professor Jinchuan Shi, Professor Xiangrong Jin, Professor Wei Zhao, Professor Xianhai Huang, Professor Guoda Gu of Zhejiang University, etc. and Professor Friedman of Harvard University, USA, Professor Abrams and Professor Gilbert of University of California, Berkeley, Professor Buckley as well as other team members of the University of Leeds, UK, etc. for your information. Your affirmation of the manuscript has brought more confidence and encouragement to the research team. Your valuable opinions, broad thinking and unique ideas have played an irreplaceable role in improving the book. Thanks a lot to Zhejiang Volkslift Gmbh, Wuxi Software Park, HiSoft, Taizhou ERA, etc. for their support for the research team, whose detailed data paved the way for the case analysis and empirical study of the manuscript. Special thanks go to Dr. Gaobeng Lin for participating in the part of mechanism exploration, Dr. Jiadong Pan for participating in the part of international experience, and Dr. Minghai Zhou, Dr. Ping Wang, Dr. Zhaoxi Tang, Dr. Wenjing Fan, Dr. Baoqing Yin, Dr. Junzhi Zhou, Dr. Jiangang Jiang and Dr. Wenwu Xie, and Dr. Tianhang Xue, etc. for data collection and field investigation. This book is a comprehensive and in-depth study of the practical experience and intrinsic mechanism of scientific and technological progress and the transformation of China’s economic development mode and it explores how scientific and technological progress promotes agricultural intensification, new-type industrialization, service industry modernization, and the linkage between modern service Industry and advanced manufacturing industry in the form of monographic research, and finally puts forward some suggestions for the mode selection and policy of scientific and technological progress to promote the transformation of economic development mode, which can provide policy implications for the sustainable development of China’s economy under the new normal. However, at present, China’s economy has entered a period of rapid transformation, with its economic growth slowing down and entering a period of “shifting gears”, the profound adjustment of industrial structure

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entering a period of “pains”, and the early stimulus policies playing a role and entering a period of “digestion”. Recent economic transformation such as this requires Chinese government to stimulate economic growth in both “foreign” and “domestic” markets. In China, supply-side structural reform plays a leading role, including the innovationdriven strategy to promote the increasing cultivation of the core dynamical mechanism, the strategy of “Internet +” to change the mode of production and circulation, and the “Made in China 2025” strategy to develop advanced manufacturing industry and so on, but this does not mean that demand-side management is not needed, the demand-side management of consumption, investment and export, the “troika”, still needs to be carried out, and the economic growth should shift from government investment to household consumption. From the perspective of foreign markets, the most important thing is to accelerate export and investment through the “Belt And Road Initiative” strategy to achieve the goal of exporting excess production capacity and conducting infrastructure cooperation. Since the final draft of this book has been completed, it has failed to get involved in the above new phenomena, new problems, new modes and new strategies. My colleagues in academia and practice circles are welcome to submit their valuable suggestions so that the author can further improve the existing research. Wen Xiao Written in Truth Seeking Garden in December 2015

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Index

A Advanced manufacturing, 27–29, 73–77, 86, 97, 99, 101, 246, 253, 257, 293, 295, 297, 298, 304–311, 344, 353, 368, 371, 382

C Chenery, 271, 281, 299

D Domar, 16, 20

E Economic development, 3–6, 9, 16, 17, 19, 21–25, 27–29, 32, 54, 55, 57–62, 66, 70, 81–86, 88–91, 93–95, 97, 98, 100, 162, 181, 191, 201, 210, 226, 227, 232, 246, 257, 258, 260, 269, 270, 276, 279–283, 288, 296, 299, 300, 303–305, 311, 315, 316, 320– 323, 325, 327, 330, 335, 343–345, 350, 351, 353, 358, 359, 361, 363, 367–374, 376, 377, 379–385, 387, 388 Economic growth, 3–7, 9–13, 16–25, 28, 32, 46, 51, 82, 83, 85, 87, 88, 91–93, 97, 99, 108, 123, 124, 160, 177, 183, 214, 217, 223, 225–227, 231, 238– 240, 246, 255, 270, 279, 281, 296, 304, 316, 323, 353, 362, 367, 368, 379, 388, 389 Economic structure, 57–59, 61, 62, 83, 85, 86, 92, 93, 316, 373

F Factor market, 23, 374–376, 385

G Government support, 90, 127, 128, 130–138, 143–146, 148, 151, 155, 200, 204, 248, 333, 344

H Harrod, 16, 20 Helpman, 11, 17, 19 Hicks, 12–13 High-tech industry, 74, 359, 369

I Independent innovation, 26, 60, 72, 104– 105, 245, 328, 329, 333, 335, 343, 344, 348, 350–352, 359–363, 370, 373, 378, 382, 385 Innovation-driven, 60, 62, 100, 245, 253, 316, 326, 335, 353, 359, 361, 367, 369–372, 382, 383 Innovation efficiency, 31–33, 36–39, 47, 48, 50, 51, 108, 115, 119–122, 124, 125, 132–134, 137, 139, 141, 143, 144, 146, 151–158, 160, 166–173, 377, 380 Innovation heterogeneity, 31, 32, 35, 47, 48, 50, 51, 127, 131–134, 136, 137, 139, 140, 166, 379 Intensified agriculture, 23–25, 29, 54, 179, 199, 212, 214, 371, 382

© People’s Publishing House and Springer Nature Singapore Pte Ltd. 2020 W. Xiao, Technological Progress and the Transformation of China’s Economic Development Mode, https://doi.org/10.1007/978-981-15-7281-4

401

402 K Koopmans, 16

M Modernization of service industry, 23, 27, 29, 63–71, 73, 255–257, 270–272, 275, 276, 279–283, 371, 382

N New type industrialization, 25, 29, 62, 217, 244, 388

P Principal Component Analysis (PCA), 103, 198

R Resource allocation, 23, 26, 65, 91, 135, 142, 247, 248, 250, 293, 295, 302, 335, 336, 364, 365, 367, 369, 374, 377, 378, 380, 381, 385 Ricardo, David, 16, 315 Romer, 5, 10, 17, 19 Rosenberger, 5, 13–15

S Schumpeter, 4, 5, 7–11, 14, 16, 18, 28, 70, 104, 141, 158 Scientific and technological progress, 3, 4, 11, 12, 16–18, 23–29, 53–69, 73–77, 81, 84–86, 88–91, 93–98, 100, 103, 127, 140, 177, 204, 217, 238, 244, 245, 255, 270, 276, 283, 293–296,

Index 299, 303, 308, 309, 321, 325–330, 332–337, 339–341, 343–345, 351, 367–373, 377, 379, 381–385, 387, 388 Signal transmission, 127, 131–134, 138 Smith, Adam, 15–17 Solow, 5, 18, 108, 112–115, 117, 124, 191 Stochastic frontier approach, 114 Strategic emerging industries, 59, 62, 97, 100, 101, 327, 358–365, 369 Supply-side structural reform, 22, 23, 343, 368 Swan, 16

T Technological innovation, 5–10, 11–16, 26, 31–32, 36–39, 44, 47, 48, 50–51, 60, 65, 71, 100, 104–105, 120–122, 159– 166, 166, 167, 169–174, 222, 237, 247–252, 294, 306–311, 316, 329– 336, 349–352, 360–362, 365, 369, 373–377, 380, 384 Technological progress, 5–6, 10–11, 15–23, 27, 32, 33, 36–38, 47–58, 63, 65– 77, 81, 83–98, 100, 101, 103, 127, 134, 140, 159, 167, 173, 177–179, 181–184, 191, 192, 197–208, 210– 214, 217, 218, 221, 222, 225–227, 229, 230, 234, 236, 238–240, 243– 247, 249, 251–253, 270, 271, 274– 276, 280, 281, 283, 284, 288, 291, 293–299, 302–308, 311, 315–317, 320–330, 332–337, 339–341, 343– 345, 347, 349–352, 359, 361, 362, 367–374, 377, 379, 381–385, 387, 388 Total Factor Productivity (TFP), 226