Pivotal position preserver

By seizing the opportunities of the digital and green transformations, China can cultivate new competitive advantages

Amid the more complex and austere external environment for its development, China should seize the strategic opportunities arising from the green and digital transformations.

China's reform and opening-up process coincided with the sweeping advancement of globalization, making the country both a participant and beneficiary of and a contributor to economic globalization. However, since 2008, globalization has entered a new era defined by in-depth adjustments, a result of some countries' anti-globalization or counter-globalization sentiment and their corresponding protectionist trade and investment policies.

The combined impacts of the COVID-19 pandemic and the Russia-Ukraine conflict have catalyzed a change of focus with regard to global industry chains－from focusing on efficiency to emphasizing security and resilience. This is a major change in the fundamentals of the international environment.

Moreover, China is faced with intensified major-country competition. As the gap in economic strength between China and the United States narrows, the US, taking China as its most important competitor, has been unscrupulously containing and suppressing China's rise to maintain its hegemonic status.

The digital revolution and green transformation－the two major trends of the times－provide China with strategic opportunities. Historically, latecomer countries are able to move up the development ladder and successfully play catchup by seizing the strategic opportunities brought by technological progress. China can do the same by seizing the new opportunities arising out of digital and green transformations.

But Chinese industries are confronted with severe competition in the international market, with their market share squeezed by both the upper and lower ends. Accelerating industrial upgrading and enhancing competitiveness is the only way out. Therefore, China needs to cultivate new competitive advantages in global competition and cooperation at an accelerated pace.

Globalization is currently in an adjustment phase, with new changes and challenges over the horizon. In particular, the US policies toward China have made China's external environment increasingly complex and austere. Therefore, China needs to make more efforts to create a favorable external environment for development. China has grown from a small trading nation－whose capabilities were the detecting and capturing of opportunities in the international environment－to become a major trading nation, which can wield its influence to shape the external environment.

China is both a major trading nation and a political power in the global arena, which has the capability to shape the external environment. It should make strenuous efforts to stabilize its relationship with major trade partners, and take the initiative to participate in and promote the regional industrial division.

Some people view latecomer developing nations such as Vietnam and India as China's competitors, as they are the destinations for China's industrial transfer. That's one way to look at this phenomenon. More importantly, China should view these countries' development as a great opportunity for advancing its own industrial upgrading, in particular, an important opportunity for ascending the value chain in the regional industrial division. Vietnam has become an increasingly important export destination for China, as Vietnamese companies purchase upper-stream components and parts from China following the transfer of lower-end labor-intensive assembly activities from China to Vietnam.

As a matter of fact, countries that have experienced industrial transfer either end up with deindustrialization or a successful structural upgrading of exported goods following the transfer of lower-end industries and an ensuing vertical industrial division system with countries receiving the industrial transfer.

The most representative case for the latter kind is the Republic of Korea. Over the past 20-plus years, the country has transferred a large amount of lower-end processing and manufacturing activities to China and therefore successfully increased its upper-stream industries' exports to China. In 2016, the ROK's direct investment in China amounted to around $100 billion and its trade surplus with China was also nearly $100 billion.

In a nutshell, to boost regional cooperation, China should attach greater significance to further deepening industrial cooperation with countries receiving its industrial transfer, through better regional trade arrangements or bilateral trade cooperation mechanisms. This would enhance China's competitiveness in upper-stream capital－and technology-intensive intermediate input products, therefore helping to create a vertical industrial division system.

Domestically, efforts should be made in the following three aspects.

To start with, China should further improve its business environment to enhance the attraction for high-end industries. From the perspective of its economic fundamentals, China has the world's second-largest market and comprehensive low-cost manufacturing capability, making it appealing to investors on both the supply and demand sides. China should give full play to its advantages in economic fundamentals and at the same time, pay high attention to continuously improving the soft environment for investment－such as further strengthening its intellectual property rights protection and maintaining a level playing field for domestic and foreign enterprises－so as to further increase the transparency and predictability of policies to attract high-end industries.

Second, China should seize the opportunities stemming from the country's digital and green transformation, by beefing up technological innovation and blazing new trails in industrial development. China has already secured international competitiveness in digital-green converging industries such as new energy vehicles and solar photovoltaic, with plenty of room for further development. This is the strategic opportunity for China to realize "the latecomers surpassing the old-timers".

Last but not least, China should nurture more Chinese multinational enterprises with international competitiveness. They should seek the optimal allocation of resources in both the domestic and international markets, make full use of both markets and their resources to explore new opportunities, and further consolidate and enhance China's pivotal position in the global industrial and supply chains.

The author is vice-president of the Development Research Center of the State Council. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn