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Tales from the Development Frontier
and services. A major policy address by Wang Yang (2012), a Central Committee member and party secretary of Guangdong Province, emphasized the importance of “accelerating the transformation and upgrading of the economy.” His plan for low-end manufacturing is clear: Only by changing the economic structure with an excessive share of low value added industries can we continue to raise workers’ incomes, effectively increase domestic demand, and promote continued development of the economy. . . . [W]e must heavily emphasize the transformation and upgrading of traditional manufacturing industries and develop laborintensive sectors with substantial technical and knowledge components. Strengthen brands, standards, patents.
Secretary Wang offered an explicit roster of desirable manufacturing sectors (automotive, shipbuilding, equipment for rail and air transportation, petrochemicals, steel, large-scale equipment) and services (finance, invention, research, design, logistics, and network services). In an article describing economic policy statements by Guangdong Governor Zhu Xiaodan, China Daily quoted a local economist’s suggestion that the province “should retain some low-end but not heavily polluting industries … and promote innovative products” (W. Li 2012, 13). Similar priorities are evident at the local level. Administrators of economic development zones in Jiangmen, in the Pearl River Delta, explain how to upgrade stronger firms and accelerate the closure of weaker ones using preferential electricity allocations: Power supply has not increased as rapidly as the demand. … In peak seasons, power is in shortage. In that case, we prefer to serve enterprises with the best social and economic returns or higher productivity. If an enterprise is making losses or is of low productivity, we may advise it to stop production and distribute less power to it. (July 2012 interview)
This policy environment is reminiscent of Singapore’s risky, but successful effort to transform its industrial structure during the 1980s (Leggett 2005). Government officials there took steps to drive up manufacturing wages, anticipating that rising labor costs would hasten the exit of low-end industries and that the high quality of Singapore’s workforce, infrastructure, and governance would attract a new generation of more sophisticated, high–value added manufacturers regardless of the rise in labor costs.