Moving up the Value Chain: Upgrading China’s Manufacturing Sector

The document analyzes the 'Made in China' phenomenon, noting a shift from light industry to technology-intensive sectors like electronics, while highlighting that most firms remain in low-end, low-added-value links. It argues that traditional cost advantages are fading due to rising wages and land costs, and that the dominance of foreign-funded enterprises creates an 'enclave economy' with limited spillover to native firms. The authors recommend a 'clean' upgrading strategy inspired by the German coordinated market economy model, emphasizing long-term employment relationships, incremental innovation, and stringent environmental regulations to ensure sustainable growth.

• China's manufacturing structure has shifted toward higher technological intensity, with the proportion of high-tech products in exports rising from 14.9 per cent in 2000 to 29.1 per cent in 2006.
• The traditional competitive advantage of low-cost labour is diminishing as nominal wages in eastern coastal regions have risen at double-digit average annual rates since 2005.
• Foreign-funded enterprises dominate the processing trade, creating an 'enclave economy' that limits the integration of native Chinese firms into global value chains; for example, foreign-funded enterprises account for 98 per cent of the processing trade in Shenzhen.
• China's industrial growth is constrained by severe resource inefficiency; for every US$1 increase in GDP, China consumes three times as much energy as the world average and 11.5 times as much as Japan.
• The electronic and communications equipment industry faces a critical shortage of high-calibre talent, with China possessing only 20,000 integrated circuit designers compared to 500,000 in the United States.
• The textile and apparel industry is struggling with a lack of independent innovation, with R&D investments accounting for only 0.287 per cent of sales proceeds, far below the 5 per cent average in developed countries.
• State-owned enterprises (SOEs) exhibit lower motivation for innovation than private firms, often engaging in R&D for 'prize evaluation' rather than market rewards.
• The authors propose adopting a 'coordinated market economy' (CME) model, similar to Germany's, which prioritizes long-term employment contracts and incremental innovation over the 'winner-takes-all' approach of liberal market economies.
• A sustainable trade strategy for China requires a four-point reform agenda: promoting technical innovation, ensuring 'clean' industrial upgrading, localizing the processing trade, and steadily promoting overseas investment.

APA

Yue, P., & Evenett, S. J. (2010). Moving up the Value Chain: Upgrading China’s Manufacturing Sector. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/sts_3_moving_up_the_value_chain.pdf

Chicago

Yue, Pan, and Simon J. Evenett. Moving up the Value Chain: Upgrading China’s Manufacturing Sector. International Institute for Sustainable Development, 2010. https://www.iisd.org/system/files/publications/sts_3_moving_up_the_value_chain.pdf.

Wikipedia

{{cite report |last1=Yue |first1=Pan |last2=Evenett |first2=Simon J. |title=Moving up the Value Chain: Upgrading China’s Manufacturing Sector |publisher=International Institute for Sustainable Development |date=July 2010 |url=https://www.iisd.org/system/files/publications/sts_3_moving_up_the_value_chain.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{yue2010moving, author = {Yue, Pan and Evenett, Simon J.}, title = {{Moving up the Value Chain: Upgrading China’s Manufacturing Sector}}, institution = {International Institute for Sustainable Development}, year = {2010}, month = jul, url = {https://www.iisd.org/system/files/publications/sts_3_moving_up_the_value_chain.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }