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An examination of China’s evolution in manufacturing and innovation since 1978

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  1. Abstract
  2. Introduction
  3. Research methods
  4. A brief history of Chinese manufacturing evolution
    1. Development since 1978
    2. Background
    3. Developmental processes
  5. System innovation in enterprises
  6. Technological innovation activities
  7. Production system innovation
    1. Product series phase, based on industry clustering
    2. Firms' division of labor and manufacturing industry integration phase
    3. Industry modularization phase based on global product production and transaction
    4. Industry network connection phase based on globalization and modern technologies
  8. Summary and recommendations for future research
  9. Conclusions
  10. References

Since 1978, Chinese manufacturing industries have experienced remarkable growth and dramatic change. China is now the third largest manufacturing country in the world. Moreover, China is becoming more increasingly innovative with its own products and services. Yet, there is much to learn about China's economic and industrial transformation. The purpose of our paper is to examine China's historical changes from having a highly-centralized, planned economy to having a market-based system. We also offer several insights regarding the ongoing evolution of Chinese manufacturing, as this transformation process continues. In addition, we shed new light on innovation theory and practice as China becomes increasingly capable as an innovator in our emerging global economy. Innovation is at the center of the industrial evolutionary process. It is vital for industry success and sustainability (Nevens, Summe and Uttal, 1990; Zahra, Nash and Bickford, 1994; Sadowski and Ruth, 1999). The link between innovation and industrial evolution has been analyzed from several perspectives (Rothwell, 1992; Smeds and Boer, 2004; Brenner, 2005; Scott, 2006; Muscio, 2006). One lens focuses on the interrelation of market structure and/or firm size and technological change (Audretsch, 1995; Guihon, 2001). Key words: Chinese manufacturing industry; system innovation; technology innovation; production-trading organization systems

[...] As the Chinese market becomes a significant part of the world market, it turns into an alternative for Chinese manufacturing industry to leverage international technology resources to boost its development and competency advance Developmental Processes Based on market competition status and the innovation behavior of enterprises, Chinese manufacturing industry development can be divided into three stages since China began to reform and open up to the world: manufacturing production restructuring, and primary product producing and processing; rapid development of manufacturing industry, and corporations' governance establishment; and the product innovation and upgrading of the manufacturing industries. [...]


[...] The lessons drawn from China's experiences can contribute to the empirical support for innovation theory and innovation practice in manufacturing development in an emerging global economy Research Methods Given the fact that little research has been done on the complex innovation processes of Chinese manufacturing, coupled with the uniqueness of development, reform and openness to the world economy during its transition since 1978, our exploratory research is mainly based on qualitative methodology, with results from government documents and/or statistic year books, official Chinese databases, Internet sites, personal observation, along with extensive interviews. [...]


[...] Table 1 System Innovation of State-owned Enterprises in Chinese Manufacturing Industries: Events, Contents and Implications & Practice Events Contents Expansion of the management authority of Chinese enterprises Implementing the responsibility system in industrial economy Implications & Practice Enterprises could draw some profits and individual employees could gain certain premiums Implementation of the production and management systems combining responsibilities with interests and rights, mainly through three types: keep part profits, assume sole responsibility for its own profits or losses or pay tax replacing handing-in profits, and assuming sole responsibility for its profits or losses After levied state taxes and local tax on profits, a firm could re-distribute after-tax profits between the state and the enterprise Technological innovation became a performance appraisal index; Enterprises made independent management decisions, became responsible for results, and their competitive capabilities of enterprises were enhanced 1978-1980 1981-1982 The Third Plenary Session of the 11th CPC Central Committee decided to make economic development its central mission Suggestions for Implementing the Responsibility System of the Industrial Economy issued by State Economic Commission and Office of the State Council for System Reform in 1981 1983-1984 Proposed Measures for Tax Replacing Profits in State-owned Enterprises issued by the State Council Enforcement of Patent Law in 1985; SOEs' required investment changes to borrow from banks (prior to 1985, the government allocated funds to SOEs); Large and medium-sized state-owned industrial enterprises implemented the contract system while small & medium-sized ones implemented leasing system; Proposed stock company Tax in lieu of profits, adjustment of the interest distribution relationship between enterprises and the state Innovations are protected by law; Separation of ownership from management rights so that enterprises became relatively independent business entities 1985-1993 (Cont'd) Establishment of corporate property rights and governance structure with diversified investors; Separation government functions from enterprise activities with firms operating independently; Change of bank loans into the stocks of State-Owned-Assets Operating Companies; Non-state-owned capital became able to enter more industry fields Acceleration of large and 2001? China entered the WTO in 2001; Establishment of an independent medium-sized manufacturing innovation nation proclaimed at enterprises' transformation into the National Conference on stock company; Science & Technology in 2006 More Chinese firms emerge as global competitors; More enterprises set up R&D centers or engineering technology centers; Patent-applying enterprises rose 85% in 2003; Invention patent applications were equal to utility patent applications, and domestic invention patent applications exceeded overseas' invention patent applications in 2003? Source: China Economy Yearbook Publishing Press. [...]

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