Yingke Advances, Opens the World: From Chinese Experience to Global Practice

On December 18, Professor Justin Yifu Lin, Honorary Dean of the National Development Institute of Peking University, former Senior Vice President and Chief Economist of the World Bank, attended the "2013 China Ten "Great Management Practice Forum: Chinese Enterprises' Overseas Expansion" event, delivered a keynote speech and accepted an interview with "CEConline".

A combination of two swords and one advantage

Since 2010, China's economic growth rate has declined significantly, so the voices promoting the "China Collapse Theory" are becoming more and more loud. And Lin Yifu insists that China can achieve the goal of doubling the GDP and per capita income of urban and rural residents in 2020 compared with 2010. Where does his confidence come from?

“China’s reform and opening up began at the end of 1978, and this year is the 35th year. From 1978 to 2012, the average annual economic growth reached 9.8%. In 2012, the economic scale was 24 times that of 1978. In the past 34 years, China's economic development is a miracle that has never happened before in the history of human economy." Justin Yifu Lin believes that making good use of the late-mover advantage is one of the important reasons why China has created this miracle. The so-called latecomer advantage means that when a backward country catches up with a leading country, it can observe the development path of the leader, avoid the uncertainty of innovation and the mistakes of the predecessors, and introduce more advanced technologies and systems at a lower cost. , an advantage gained through learning and imitation.

Justin Yifu Lin explained: "The technology industry in developed countries is at the forefront of the world, so its technological innovation and industrial upgrading must basically rely on its own invention. We know that the probability of successful invention is very low. Of course, a lot of money is profitable, but most of the efforts to invent are unsuccessful, which is what we Chinese often say, 'one success will make a thousand bones'. Because we China is a technological innovation within the world's technological frontier, and within the world's industrial frontier In the process of upgrading, there are actually many paths that others have gone through that can be used as our reference to reduce the costs and risks of our technological innovation and industrial upgrading. If a developing country knows how to use the late-mover advantage as a technological innovation If it is the source of industrial upgrading, its speed can be much faster than that of developed countries.”

The acquisition and exertion of late-mover advantages must be based on the development of certain industries, and the selection of the above-mentioned industries must be based on comparative advantages. Base. Justin Yifu Lin believes that by pulling the seedlings in industrial upgrading and developing advanced industries that are not in line with comparative advantages, enterprises will have no self-sustainability, and can only survive by relying on government protection and subsidies, and the advantages of latecomers will not be able to play. Competitive advantage can be formed only on the basis of comparative advantage, ensuring that an economy obtains a relatively ideal position in the global production division and value creation system. Only the combination of comparative advantage and late-mover advantage can achieve sustained and rapid development. It is precisely because of this that China ranks among the thirteen economies that have continued to develop rapidly after World War II, including Japan, Singapore, South Korea, Taiwan, and Hong Kong, and has written a miraculous Chinese experience.

However, the factor endowments that determine comparative advantage are not static. The rapid rise in labor costs in recent years just revealed the changes in China's factor endowment. Justin Yifu Lin said that 35 years of rapid growth has made China's capital much more abundant than before, changing the total comparison between capital and labor, the two major factors of production, and the comparative advantage of labor has gradually declined. Industrial upgrading and structural transformation provide a basis.

"Transformation, upgrading, and transfer" are the three ways that Justin Yifu Lin pointed out for the development of China's labor-intensive industries: transformation means entering high-end manufacturing industries that are more capital and technology-intensive; upgrading means starting from the present. In some industries, the trough in the middle of the "smile curve" climbs to both ends (upstream R&D and downstream marketing), in pursuit of higher added value; transfer refers to the transfer of labor-intensive links in the middle of the "smile curve" to labor productivity Go somewhere similar but with much lower wages.

Justin Yifu Lin emphasized the experience of history: whether it is an old industrialized country (the United Kingdom, the United States or Japan) or a newly industrialized economy represented by the Four Asian Tigers, in the face of rising local labor prices, both It is to transfer labor-intensive processing industries to places with lower wage levels. In the 1960s, Japan transferred labor-intensive industries to the "Asian Four Tigers", and in the 1980s, when the "Asian Four Tigers" developed from middle-income to high-income, they transferred labor-intensive processing and manufacturing links. to Mainland China. This kind of transfer is not only beneficial for enterprises to create their own second spring by using overseas labor with more comparative advantages, expand overseas orders, and create conditions for the corporate headquarters that stay in China to upgrade to the two ends of the smile curve, but also stimulate domestic additional The demand for intermediate components or machinery and equipment industries with high value and intensive technical capital expands the two other ways of upgrading and transformation.

The best and last stop

Where is China's labor-intensive manufacturing going? In order to answer this question, Justin Yifu Lin first calculated a "big" and a "small" account. "At present, there are about 150 million labor positions in the labor-intensive manufacturing industry in the Mainland, 19 million workers are employed in the footwear industry, and 20 million workers are employed in the textile and garment industries." Justin Yifu Lin's "Macro Account" "Focus on the ability of the investment destination to undertake labor supply." For example, Vietnam's population is 90 million, and its entire manufacturing labor supply is 10 million; Cambodia has a population of 15 million, which can be used in manufacturing at most. Just 2 million people, 6 million people in Laos are at most 1 million people in manufacturing.”

"In 2009, when I studied the overseas transfer of China's footwear industry, the salary in Vietnam was about 1/4 of our level, and now the per capita monthly salary in our domestic related industries is 400— 500 US dollars, Vietnam is 200-250 US dollars, which is already half of ours, so it has risen very quickly. Because the volume of the above-mentioned industries in China is too large, the labor force of Southeast Asian countries cannot bear it at all. Once transferred in, it will quickly trigger local labor force. Prices have risen. Although wages in mainland China have grown very fast in recent years, Vietnam's overall level is lower than ours, but its growth rate is faster than ours."

"Now the world can undertake China's 150 million manufacturing industries. Where is the job transfer? The only place is the African continent. The African continent has a population of 1 billion, which is the same size as when we reformed and opened up in 1978, and the vast majority of them are young laborers with very low wages. It is the level of 50 US dollars. After the labor-intensive industries are transferred, wages will not rise as fast as in the 1980s and 1990s in China for 20 years. There is only one place in the world that is Africa.”

Justin Yifu Lin Starting from the analysis of the cost structure, he calculated a "micro account" for entrepreneurs: "Our labor-intensive foundry industries in the mainland have different costs, but the cost structure is basically the same. The cost of raw materials accounts for about 50%. , the cost of wages is 30%, and the cost of other costs is 20%. This means that for every 10% increase in wages, the total cost increases by 3%, and your profit is eroded by a large chunk. The wage level in Africa is equivalent to 1/1 of ours. 10. When labor-intensive industries are transferred to Africa, wage costs have dropped from 30% to 3%, a saving of 27 percentage points.”

Although the huge potential of Africa's working-age population and the obvious comparative advantage of labor costs constitute a huge attraction for China's industrial transfer, there are still many unfavorable factors. A survey by "CEConline" shows that the factors most worrying companies operating in Africa are, in descending order: political instability, poor trade convenience, weak infrastructure, lack of host country policy support, government and public services Low efficiency and poor labor quality.

Faced with the above-mentioned problems, Justin Yifu Lin said: "According to my more than ten visits to Africa during my work at the World Bank, this is not entirely the case. There are quite a number of countries in Africa that are socially stable and have higher education levels than China. In the 1980s, the level was high, and the infrastructure was better than China's in the 1980s. You can say that the cost of logistics in Africa is relatively high, but the cost of logistics and other costs on our side is nothing more than 2%-3%, even if it is 4 times that in Africa, It’s only 8% to 12%. Think about the huge space for the aforementioned labor cost. If African countries know how to learn from the Chinese government, even if the transportation facilities are poor and the government is inefficient, it doesn’t matter. You can set up an industrial park, and make several connections and levels in the park. , and implement one-stop service to create local favorable conditions, if it can do so, just like China in those days, it can quickly undertake the transfer of labor-intensive industries even when the overall conditions are very poor.”

Apart from being a place of production, Justin Yifu Lin believes that the role of Africa as a place of consumption and export should not be ignored. Nine of the top 20 countries with real GDP growth in 2012 were African countries. With the arrival of the demographic dividend period, a large number of people with certain purchasing power are being formed. This is another market with 1 billion consumers. In addition, 7 African countries have signed free trade agreements with the European Union; 20 African countries enjoy zero tariffs on exports to the United States under the conditions of meeting the "rules of origin". "So, I think Africa is the blue sky and blue sky for the transfer of our labor-intensive industries, and it is the best stop for the current transfer. Moreover, if wages in African countries also generally rise, it will be difficult for the world to find enough labor supply. And where wages are lower, Africa will also be the last stop for the transfer of labor-intensive processing industries,” said Justin Yifu Lin.

Teach them how to fish

In the process of China-aided construction cooperation and industrial transfer, not only capital, technology and management flow to Africa, but also China's development experience and ideas. . Justin Yifu Lin was the driving force behind this process during his tenure as Senior Vice President and Chief Economist at the World Bank. As early as before, he began to pay attention to the confusion and setbacks encountered by developing countries in applying the development theories of developed countries.

After World War II, the "first edition of development economics textbook" provided by developed countries is called structuralism, which advocates that developing countries rely on government leadership to overcome market failures and vigorously develop capital and technology-intensive modern large industries. The products of modern industry were imported before, but now developing countries have to produce their own products, so it is called import substitution strategy. Justin Yifu Lin believes that this is similar to China's strategic trend of giving priority to the development of heavy industry in the 1950s, which is to "supercharge Britain and catch up with the United States". Both hope to develop modern capital-intensive industries with a poor agricultural economic foundation and low income levels. At that time, international institutions (such as the World Bank) also actively promoted such development ideas and provided large-scale assistance, but after achieving rapid growth driven by early investment, they generally encountered economic stagnation and frequent crises, and developed countries generally encountered economic stagnation and frequent crises. Not only has the gap not narrowed, but many countries are actually growing.

Because of the failure of structuralism in policy practice, by the end of the 1970s, the theoretical and policy circles turned to believe that the reason why developing countries' economies are difficult to develop is that there is no market as perfect as developed countries. In the system, the government intervenes too much, and there is a phenomenon of government failure. It also brought the "second edition" of development economics - neoliberalism to developing countries, advocating the use of shock therapy to implement the Washington Consensus, including radical reform measures such as privatization, marketization, and liberalization, to establish a sound market. The economic system believes that without a modern market economic system, resource allocation will be inefficient, and state intervention will also lead to corruption. However, the result of the implementation is that the economic development performance of developing countries further declines. The economic growth rate in the 1980s and 1990s is lower than that in the 1960s and 1970s, and the frequency of crises is also higher than that in the previous period. Some economists have therefore called the 1980s and 1990s the "lost two decades" of developing countries.

Justin Yifu Lin believes that the first two waves of development economics have good intentions. They both hope to help developing countries develop their economies rapidly, solve poverty, and narrow the gap with developed countries, but the results are very poor. The reason is that They all have a common fatal flaw, that is, they all use developed economies as their frame of reference. The successful experience from developing economies is even more worthy of reference. The "Four Asian Tigers" in the 1950s and 1970s pursued an export-oriented strategy rather than an import-substitution strategy. Although it was regarded as a wrong choice by the mainstream development theories at that time, they eventually succeeded in becoming a developed economy. China, Vietnam, Cambodia, and Mauritius started their reforms in the 1980s and 1970s with a gradual dual-track reform, which mainstream theory considers to be worse than the original planned economic system of government intervention, but which has stabilized the economy. and rapid development.

During his tenure at the World Bank, Justin Yifu Lin worked with his colleagues to "work for a world without poverty", and his theoretical thinking continued to deepen with the development of practice. When he resigned from the World Bank in 2012, Justin Yifu Lin brought back a set of development economics theory, which is based on China's experience and East Asia's experience - New Structural Economics. To create conditions to develop industries based on comparative advantages and make full use of late-mover advantages to promote rapid economic development.

Justin Yifu Lin believes that the development of many developing countries, especially African countries, not only lacks capital and technology, but also lacks ideas and confidence. Compared with developed countries, there is a big gap between the infrastructure and other business environments of developing countries. If developing countries can learn from China's experience, they can promote the government to cooperate with enterprises in accordance with the principles of the market, and create a local superiority. surroundings. In this way, on the one hand, we can turn our comparative advantage into a competitive advantage, accumulate resources, and use late-mover advantages in industrial upgrading to achieve sustained and rapid development; on the other hand, we can accumulate confidence and find a way out for our own development. And China's contribution to Africa is not limited to giving them fish, but more about teaching them how to fish.

Knowledge is the beginning of action, action is the success of knowledge

“Many developing countries have made arduous efforts, but their economic development has not been successful until today. The main reason is the use of guiding theories. They are all based on the experience of developed countries. The conditions of developed countries are different from those of developing countries. Therefore, the phenomenon of 'Huainan is orange, Huaibei is orange' and the situation of 'doing bad things with good intentions' will appear. Many developing countries It is relatively close to the conditions before China's economic take-off, so the applicability of China's experience is relatively high." Justin Yifu Lin emphasized: "Not all policies of China are suitable for other developing countries. The significance of China's experience is that it points us to a Possibilities also let us know a basic principle, that is, the development of the industry must be based on comparative advantages. Now your overall environment is not good enough, you can create a local good environment to give play to comparative advantages, form competitive advantages, accumulate resources, expand Victory."

In the book "The Quest for Prosperity", Justin Yifu Lin wrote: "As an intellectual, like Wang Yangming, he should have the ability to think independently and integrate knowledge and action." , more willing to act, in order to help developing countries shorten the gap with developed countries, rushing around and developing their own theories in the process of promoting practice. "As a scholar, the purpose of doing research is to understand the world, and the purpose of knowing the world is to transform the world. 'Doing is the result of knowing', only the kind of knowledge that can transform the world is the knowledge that truly understands the world."

The advent of new structural economics has aroused strong repercussions at home and abroad. There are many Nobel Prize winners in economics among the praisers, and there are also highly influential academic celebrities among the critics. Scholars such as Wei Sen, Yu Yongding, Zhang Jun, and Zhang Shuguang have published articles to comment on their theoretical framework and shortcomings. Lin Yifu also In response, the author launched an academic debate on the nature of modern economic growth, institutional supply and changes, and the role of the government in economic development.

In addition to academic criticism, dynamic developments from the real world challenge the assumptions, claims, and methodologies of NSE. Rapid technological progress will disrupt the linear process of economic development, making empirical trend extrapolation unreliable. The impact of various sudden factors on the global economic system will change the distribution of factor endowments among countries in unexpected ways, and the effectiveness and sustainability of late-mover advantages will also be questioned.

Faced with the above challenges, Justin Yifu Lin said that the theory itself must be continuously deepened based on practical experience. New Structural Economics, as a newly created theory, needs to promote the interactive cycle of the unity of knowledge and action, restart the process of understanding, and constantly supplement, improve and revise development while attracting the attention of more developing countries around the world and providing guidance for it. , to be tested by global practice and judged by history.

"2013 Top Ten Management Practice Forums in China: Chinese Enterprises' Overseas Expansion" has many heavyweight guests from politics, business and academia. Please pay attention to the exchange of opinions and wisdom of investment.