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Value Chains in Chengdu: An Economic Protection Strategy

by | September 3, 2019

Value Chains in Chengdu: An Economic Protection Strategy

September 3, 2019

Due to the continued pressure facing China’s business environment, the country now needs to ensure that it has a stronger immunity to external pressures. Here, we will address strategic approach China can take for prolonged resilience with successful examples based from the capital of Sichuan Province, Chengdu. China should therefore copy the value chains in Chengdu of key growth sectors. By focusing on industry optimisations, addressing weakened links it will subsequently upgrade the health of the economy.  

 

Value Chains in Chengdu: Amplify the science and technology industry 

Currently these value and supply chains have been impacted negatively from external forces. Through certain restrictions it has reduced development and impaired the effectiveness to both production and services. The impact creates underutilised sector clusters slowing the industrial upgrade. 

Value Chains in ChengduIn response, China needs to amplify its science and technology industry as it is a catalyst for upgrading all sectors. The outputs can connect multiple sectors together yielding synergies. As an example, High Tech Zone in Chengdu has created the “Science and Technology Finance Strategic Cooperation Framework Agreement” which actively connects technology and finance as an opportunity to expand the financial services business segment. The collaborative framework actively intervenes in banking, securities, financials and other business areas.  This makes this sector a potential profit centre for those involved and it alleviates the financing difficulties of SMEs. 

 

Value Chains in Chengdu: Liberalise the policies and support its facilitation 

Chengdu has also responded to global pressures with recent liberalisations of market entry policies in sectors including science and technologyThis is an alignment towards its national strength on innovation and prioritising pilot free trade zones. To fully strengthen the value chains and increase protection from global pressure, it will need to be supported by other policies which involves attracting top tier talent to develop in house technology, optimise the incubation network system, expand the innovative enterprise clusters using 5G and Artificial Intelligence. 

 

Value Chains in Chengdu: Focus on moving up the global value chain 

China has gradually seen diminishing returns in areas of the global value chain, notably relating to labour costs. Neighbouring countries such as Myanmar have been competing for business with a degree of success. China could therefore respond with higher industrial efficiencies to move higher up the global value chain. As aforementioned, investing internally and promoting technological innovation would be crucial to compete globally and grow. Ambitious sights have already been set for emerging industries to reach 15% of China’s GDP by 2020, but this will likely to be more successful with the opening up of markets and international cooperation.  

This approach is proven in value chains in Chengdu as in the case of Tianfu International Bio-City which cooperated with French Company Sanofi.  With an investment of €66 million, it supported the clinical research and development of innovative drugs by focusing on the management of global multi-centre clinical trials data and files. Bringing together global data and analysis, the collaboration has accelerated the availability of trial results, from Phase I to Phase IV. The collaboration will take advantage of local talents to further strengthen digital capabilities.  

Dr Zhang Ji, Ph.D., Senior Vice President, Global Head of Sanofi R&D Operations states “Our goal is to link China’s innovative achievements with the global ecosystem and develop innovative drugs in China that could benefit patients around the world.”1 Since 2018, it has realized an output value of 40 billion yuan and national-level new drugs  

 

Value Chains in Chengdu: Focus on local advantages 

In the second quarter of 2019, the financial sector saw supply-side structural reforms which was ultimately removing inefficiencies and reprioritising to drive the economy forward sustainablyUndoubtedly each province is aware of its own comparative strengths. By undertaking continuous Global Value Chain research on their local strengths, it will aid in understanding where, how, and by whom economic, social and environmental value is created and distributed. The process of identifying potential leverage points and bottlenecks in the chain, industrial policies and strategic plans can be devised to maximise output. 

As an example, the natural advantage in Sichuan is the abundance in minerals which has been cultivated and optimised continuously to create materials from green building supplies to new energy products. These have formed a cluster of high-performance fibre and composite materials led by companies such as Yulong ChemicalSubsequentlyincreased connectivitylabour cross over, R&D spillover enabled the formation of a new battery energy sub cluster. Overall, creating an 18% increase in industry output in 2018 year on year. This is an example of the multiplier effect in value chains so by capitalising on comparative advantages it is more effective in creating industry insulation 

 

Value Chains in Chengdu: The Belt and Road Market 

It is known China has its own vast market and also has the benefit of the Belt and Road Initiative (BRI), which has deep roots in Chengdu among several other economic development strategies.  This has many advantages such as trade cooperation’s, cross-border industrial clusters and free trade zones all enhancing the economic health. 


Many of the BRI countries are emerging markets and by 2025 these economies will be consuming about two-thirds of global manufactured goods. But that doesn’t necessarily mean its beneficial to China as Vietnam has been winning over China on production due to cheaper labour costs.
To remain competitive, China should upgrade its free trade agreements with other countries, expand the global network of free trade zones and improve connectivity with neighbouring economies. 

In September of 2018, five countries – Italy, France, the Netherlands, Israel and Moldova – located their national commodity pavilions at the Chengdu International Railway Port in Qingbaijiang, part of the China (Sichuan) Pilot Free Trade Zone. Officials said these pavilions will serve as comprehensive exchange platforms to integrate various services covering the economy, culture, education, tourism, exhibition and investment. 

 

Value Chains in Chengdu: In conclusion 

To enhance its resistance from global contractions, China would be better off developing its industrial upgrade by paying attention to the value chains in Chengdu and other high profile sectors. The industrial upgrades will optimise processes, ensure global competitiveness whilst creating higher quality products to the vast market it has built strong relations with. 

Many foreign SME’s will find that when value chains develop, it improves the international business landscape sustainably. Often subsidiaries can entice companies to arrive and seek benefit from the Chinese local market, but it is in fact the distribution networks, the suppliers and supporting industries that allow them to flourish. As value chains improve, it enhances efficiencies, intra competition and promotes development creating a stronger economy and subsequently better for those businesses within it. 

To discuss opportunities in Chengdu, please feel free to get in touch Ali Sheikh, General Manager of the Chengdu Office. 

  • Email alisheikh@1421.consulting 
  • Telephone: +86 136 8153 1019 
  • Wechat: alisheikh00 

What happened in the year 1421?

From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.

Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.