By Gao Shiji & Zhang Yongwei, Department of Development Strategy and Regional Economy of DRC

Research Report No. 175, 2008

I. Stimulating Consumption and Structural Upgrading Requires Stronger Support for the Leading Industries that Can Play "Double Stimulation" Roles

At a time when China's economy is showing a downturn, we must intensify all types of investments to stabilize the economy and identify new areas of economic growth to stimulate consumption and the upgrading of the industrial structure. Some traditional industrial sectors, now under the dual pressure from reduced external demand and rising domestic cost, can hardly reverse the trend of shrinking and adjustment. Unless the state provides necessary support for their upgrading, these industries can hardly assume the "double stimulation" responsibility of stimulating the domestic consumption and upgrading the industrial structure. In order to achieve the "double stimulation" goal, the state should provide greater support to some leading industries. Accordingly, these industries should meet three basic conditions. First, they must have certain industrial scale and leading power. Second, they can stimulate personal consumption and become new sectors of consumption. Third, they must relatively adequate conditions for industrial development and become leading industries in the world through putting in more effort. If active support is given to the development of these leading industries in this round of economic growth stimulation, we shall be in a position to combine the short-term targets of economic growth with the long-term structural and technological upgrading and accelerate industrial restructuring and the change in the mode of development.

II. Electronic Information Industry Can Become a Leading Industry to Play "Double Stimulation" Roles

China's electronic information industry, with a huge scale and a long domestic industrial chain, has met the demand of the previous round of explosive growth in consumer electronic and communications products. Overall, while China's electronic information industry is still relatively weak at the key links of the industrial chain and the added value of its products is not high, it has a sound industrial basis and major technological breakthroughs in some important areas. If China can seize the new round of development opportunities related to the global information industry, its own electronic information industry will be able to reach a new level and join the ranks of the world leading industries.

First, China's electronic information industry is large in scale but its overall technological level is not high and the added value of its products is low.

The electronic information industry is a huge industrial cluster that includes computers, communications, consumer electronics and other various software and hardware products and various types of services. In 2007, China's electronic information industry realized an annual sales revenue of 5.6 trillion yuan or 12% of the country's total industrial sales revenue. Its added value was 1.3 trillion yuan or 5.27% of the country's GDP, and its export accounted for 37.7% of the country's total export. By September 2008, China's television possession exceeded 470 million sets, its mobile phone users exceeded 620 million people, its fixed phone users exceeded 350 million people, its Internet users exceeded 200 million people and its broadband users totaled 80.8 million people. China boasts of the world's largest television network, the fixed communications network and the mobile communications network, and ranked first in the world in terms of 10 end-products including mobile phones, notebook computers, color television sets, digital program-controlled switchboards and digital cameras and in terms of the production of color picture tubes, capacities, resistors, printed circuits, and other components and materials. In 2007, the export of these products exceeded 450 billion U.S. dollars, ranking first in the world.

But most of the products made by China's electronic information industry are assembled and processed products with low added value. For years, over 80% of the export products have been processed with imported or supplied materials. In the fields of basic software products such as the core electronic components, the high-end general chips and the operating systems and in the field of super-large integrated circuit manufacturing equipment and complete technologies, China has failed to make technological breakthroughs for many years and therefore has been subject to the technological and industrial control of other countries. While China's electronic information industry has a long industrial chain, it is relatively weak at the major links of the chain.

Second, China's electronic information industry has relatively good industrial and technological basis in the field of some system products and is facing a major historic opportunity to make upgrading breakthrough and enter the ranks of the world leading industries. China has a batch of outstanding and internationally competitive enterprises either in the field of producing and making communications equipment, consumer electronics, computers and other products or in the field of communications operation, Internet services and other information services. In the fields of system products and network services, in particular, China's technological capacities are rising rapidly and are facing major breakthroughs in industrial development. The digital/high-resolution television earth standard technology independently developed by China is advanced in the world, and China has a complete industrial chain from chip design to production and from transmitters to receiving and display products. These products have wide-spread commercial applications in Hong Kong. In the evaluations of the digital/high-resolution television standards held in South America in 2008, compared with the evaluations given to Europe, the United States and Japan, many of China's standards were rated the best and the overall scores were far higher than others. They are very likely to be used by countries from South America. In the field of the third-generation mobile communications, the 3G system technology, TD-SCDMA, independently developed by China can be mass used after nearly one year of trial commercial application. Furthermore, China's communications equipment enterprises have become the main equipment providers of the three major 3G standards around the world. China's mobile phone television standards are globally advanced in technological indicators with an adequate and efficient industrial chain. The next-generation Internet independently developed by China has been developing rapidly. So far, China has built the world's largest second-generation Internet connecting over 30 cities and having over 1 million users, and will popularize this Internet to the ordinary users by 2012. China's successful development of the "dragon chip" products indicates that the country has made a leapfrog development in the field of generic CPUs, which have been preliminarily used in the fields related to state security and defense security.

By taking advantage of these world advanced technologies, China can become a technological leader and exporter in these fields and elevate its electronic information industry to a new height.

Third, the electronic information industry can rapidly become the major sector for a new round of investment and consumption. Globally, the electronic information industry is facing a new development opportunity of digital, mobile, broadband and integrated applications. The United States will stop the analog television broadcasting on February 17, 2009, and other developed countries will also completely switch from analog television to digital television in the next few years. The 3G users around the globe have totaled over 600 million, and the related services have also developed rapidly. If China launches these industries as early as possible, they will bring about huge investment and stimulate consumption.

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