New Ideas for Global Economic Governance within an Open Vision：Transformation， Upgrading and Innovative Development in Chongqing

Fu Hu， Party School of CPC Chongqing Municipal Committee

New Ideas for Global Economic Governance within an Open Vision：Transformation， Upgrading and Innovative Development in Chongqing

Fu Hu， Party School of CPC Chongqing Municipal Committee

The “spillover effect” has come into being thanks to the increasingly close contact between China's economy and world economy： the influence of Chinese road and China's leading role is worthy of reference for global economic governance. In particular， the industrial development experience of Chongqing， an inland and emerging city， is much more universal and replicable，which also means contribution to the theories of traditional development economics and global economic governance.“Chongqing Experience” has reflected the transformation and upgrading path with comparative advantage by “reconstructing the industrial division of labor”， the innovation-driven practice with growing endogenous capacity by “centering around emerging industries” and the layout of opening to the outside world with assimilation into the global value chain by “fostering outbound channels”， etc. The above practices are of reference values for global economic governance and the theories of development economics： the first transformation is from “transferring the production capacity” to “remodeling the industrial chain”， the second one is from “spontaneous innovation” to “autonomous innovation”， and the third， from “closed internal circulation” to an“open and collaborative pattern”.

global economic governance； comparative advantage；endogenous endowment； industrial transition

I. Introduction

China has transformed from “the passive reactive” to “the active cooperative” in global economic governance since the beginning of the new century， and further upgraded itself into a major participator in global economic governance （Barro， 1999）. In the context of globalization， China is both a “benefi ted interest” and a“benefi cial party” of the global economic governance. During this process， China has fostered a rapid economic development path with its own characteristics. By the end of 2015， China's GDP accounted for 15.01% of that of the world （the USA accounted for 24.53%）. In PPP terms， China's GDP accounted for 17.08% of the world GDP， exceeding that of the United States （15.81%）， and has ranked the fi rst in the world. China's total trade output accounted for 11.9% of the world total （the total was 3.6% in 2000）， and has become the biggest trading partner of 128 countries in the world，far more than those of the USA （with 76 partners）. At the same time， the developed economies in the world are hovering at an economic growth rate lower than 3%， faced up with issues like the lack of growth impetus in resource-based economies and the unsustainability of extensive industrial structure （McDonough，2015）. From isolation to “spillover”， China's nearly 40 years of reform and opening up does make the world economy complete. And the increasingly close contact with the world economy and the subsequent “spillover effect” will keep growing， which is particularly refl ected as the reference and enlightenment provided by the influence and guiding role of Chinese road for global economic governance system.

Based on the contrast and the reality， the world should pay more attention to China in economic growth. This also explains why China has been selected as the host and the host place of the eleventh summit of G20 in 2016 and a series of meetings. China has provided lots of successful experience in economic development and transformation for reference in the world， such as the experience in transformation and upgrading innovation and development， open layout and other aspects of economic governance. Advancing economic innovation and development by virtue of open economic transformation and upgrading has become an important developing feature of China. According to the existing international experience， especially the developing experience of the emerging countries and regions after the Second World War， failure prevails. Many developing countries have difficulties in simply imitating the transformation and development path and model in open economy， due to the diversities in history， culture， geography and economic factors. However， the locational advantage （the intersection of international trade channel）， industrial base （with existing FDI investment stock）， and the international geopolitical pattern （with preferentialsupport from developed countries） of the internationally recognized transformation models， such as Japan， South Korea， Singapore，etc， are not pervasive. That is why the Development Economics repeatedly emphasizes on and points out that there are always traps for developing countries to catch up with and imitate the developed one. In contrast， the transformation and upgrading，innovation and development， open layout and other practices and experience of China， especially Chongqing as the representative of the inland emerging economy， deserves more attention. The merits of Chongqing deserving attention are as follows. Firstly， how did Chongqing achieve its industrial transformation and upgrading without prominent locational advantage and access to the industrial division of labor？ Second， given the low level of science and technology and weak economic demand in a hinterland，how did Chongqing realize its innovation-driven development and create its new economy and new economic pattern？ Third，how did Chongqing foster its globalized open economic network and pattern based on the conditions of its inland location and regional market？ The keys to the above questions will fully echo to the development paradigm， pathway and mode transition in the theories of Development Economics and provide guidelines and reference for the developing countries participating in global economic governance. In view of this， this paper will take the practice of Chongqing， as a member of developing countries（regions） in leaping “the trap of catching up with and imitating the developed countries” （Mathews， 2002） ， in its transformation and upgrading， innovation and development and open pattern as an example， and make use of the theories of comparative advantage，endogenous capability and industry transition in Development Economics to uncover the specific practices and its economic value. It will try to incorporate its experience into the self-consistent theories of Development Economics to provide new proofs for global economic governance.

II. Transformation and Upgrading: Remodeling the Industrial Division of Labor and Creating Comparative Advantage

As an emerging economy， Chongqing is also confronted with the problems of single industrial structure， low energy level， lack of cooperative network， non-access to globalized economy pattern and others at the beginning of being directly under the central government， especially the problems of slow development， weak external demand and limited market hinterland faced by the economic structure dominated by heavy industry， etc. Chongqing needs to find out solutions to further enhance its industrial energy level and achieve the transformation from backward industries to the emerging industries in the foreign economic structure. The traditional Development Economics theories emphasize the undertaking of transfer in production capacity， foreign direct investment （FDI）， and the docking and undertaking of external division of labor. However， Chongqing is faced with the constraints of supporting cost， logistics cost and transaction cost due to its heavy dependence on logistics cost， production base， and the threshold of investment. Therefore， Chongqing，together with most developing countries， needs to create its own comparative advantage without a prominent locational advantage and easy access to the industrial division of labor because of its unavailability to investment return， industry agglomeration and capacity input.

Chongqing has tried and explored new ideas for transformation and upgrading by mainly “constructing endogenous industrial clusters” on the basis of traditional Development Economic theories. In concrete terms， Chongqing will depend on agglomerating of all links， main bodies and all kinds of elements on the industrial chain rather than the division of labor on the foreign industrial chain， to effectively get rid of its constraints in supporting cost， logistics cost and transaction cost. The idea emphasizing the “endogenous growth”， which is realized through remodeling the industrial chain， fostering complete industrial base and the endogenous division of labor on it， and establishing the industrial energy level with catalytic effect of modern service industry and high added value， is remarkably distinctive from the traditional economic paradigm emphasizing the “circular causation cycle”. The following parts will further elaborate on the industrial cluster development of Chongqing.

Chongqing has achieved the industrial division of labor by virtue of three kinds of agglomeration in the process of forming new supply capacity through developing industrial clusters. The first one is the agglomeration of the whole industry chain， namely industrial chain clusters covering raw materials， spare parts，research and development， integrated manufacturing， logistics and transport， sales， fi nance and settlement in key industries， such as chemicals， electronics， automotive and other key industries. Activities of industrial organization， division and coordination in short distance are able to be realized with Chongqing as the base and effectively reduce the transaction cost. The second kind is the agglomeration realized by the core role of the leading enterprises in agglomerating similar enterprises， for example， the automobile industry cluster in Chongqing. Eleven clusters in Chongqing have been formed with Changan as the leader and Ford， GM，Hyundai， Isuzu， SAIC and other companies co-existing at the same time. This cluster also encourages the entering of a series of professional enterprises centering on the design， parts production and assembly on the upstream of auto industry， and effectively reduces the cost of supporting. The third is to energetically develop productive service industry cluster to provide services for logistics，fi nance and trade in order to occupy both ends of the “smile curve”and achieve high-end development of the value chain and theindustrial chain.

The transformation and upgrading of Chongqing guided by“remodeling the industrial division of labor” is conducive to both the formation of “circular drive” and creation of comparative advantages in the world. The effective transformation of automobile and electronic industrial clusters in Chongqing is a good example. Chongqing's car production capacity of 3，060，000 vehicles in 2015 ranked first in China and occupied 11% of the global share， while the sales of notebook computer were 60 million， accounting for 1/3 of the world total. The electronic industry output value of Chongqing has increased by 11 times since 2012，and the car production has increased by 4 times. All these data have reflected the value of remodeling the industrial division of labor and the potential release. The above practice has vividly illustrated the effect of industrial transformation and upgrading and is also a practical contribution to Development Economic theories.

III. Innovative Development: Focus on Emerging Industries and Development of Endogenous Capacity

Chongqing， as a developing economy， is disadvantaged in science and technology personnel， the number of patents， scientific research teams， applied research reserves and other factors compared with the coastal areas， and thus are confronted with few numbers of innovation elements， low degree of agglomeration and backward evolution stage. The less developed economies are also facing diffi culties in innovation-driven development. In the framework of the traditional Development Economics， innovation is simply considered as “collection of market forces” （Porter， 2002）. According to the theory， innovation activity does not need the support of government； however， it fails to point out “the source of innovation”， which means “Cold Boot” due to the lack of innovative elements. Therefore， Chongqing must rely on innovation to improve all-factor productivity and push forward the supply-side structural reform owing to its less prominent resources and low ecological carrying capacity. Faced with the above difficulties and based on the real needs， Chongqing has tried out a new independent innovative and innovation-driven path.

Chongqing has been giving priority to the innovative development and coordinating innovation in all aspects， especially the technological innovation since 2013. A series of documents，such as the “Opinions on Developing Popular Entrepreneurship to Promote Public Entrepreneurship and Popular Innovation Implementation”， “Opinions on Deepening Reform， Further Opening up and Accelerating Innovation-driven Development Strategy （2015-2020）”， and “Plan of Chongqing on Further Opening up and Accelerating Innovation-driven Development Strategy”， are issued to promote the innovation， further optimize innovative ecology， stimulate the innovation and creativity of the whole society， and enhance the innovative capability. As a result，a number of innovative enterprises with new technologies， new products， new formats and greater infl uence are emerging.

The aim of Chongqing in fostering strategic emerging industries is to promote multi-pole development of industrial economy and resolve the potential risks brought by economic cycle. Chongqing has analyzed and compared the 50 top import-volume commodities into China in every year from the perspective of technical prospect， industrial base， talent reserve， innovation difficulty and other dimensions， and it ultimately determined to develop ten strategic emerging industries. For example， as to the integrated circuits and LCD panel， two kinds of processed products enjoying the highest imports in China， Chongqing has adopted the thought of “fi nding out the domestic demand from the import substitution” in order to achieve the innovative development path of supply-side upgrading by virtue of the government's leading role in the gathering of innovative elements. With the BOE 8.5 LCD panel line being successfully put into operation in Chongqing in 2015， the import substitution has been achieved. At the same time，the electronic information industry in Chongqing also succeeds in expanding its scope into the production of integrated circuits and other core parts， and its electronic production is beginning to cover intelligent display， smart phones， wearable devices and other multiterminal systems. Moreover， the introduced innovative talent team at the forefront of the basic research from the Chinese Academy of Science has fi rstly developed the 15-inch single grapheme sheet， successfully produced the fi rst batch of phones with grapheme screen and completed the exploitation of a variety of applications in intelligent terminals and new energy fi elds.

Chongqing has transformed the “spontaneous innovation” into the“autonomous innovation” with its focus on the development of the emerging industries. The practice has refl ected the government's leading value therein， especially in the recruitment of innovative talents， the preparation of funds （venture capital）， land supply and other facilities. Such an innovative development idea rejects enterprises' spontaneity and entrepreneur independence emphasized by the Development Economics. According to it， all kinds of innovative subjects are put in place to make breakthrough in the “cold boot” bottleneck of innovation activities and achieve innovative development in inland areas based on the government，which consolidates all types of innovative elements and builds a platform for innovation.

VI. Open Pattern: Nurturing External Channels and Incorporating into GVC

Chongqing， as an inland economy， is confronted with regional restrictions in developing and opening. It has diffi culty in openingand connecting river channels， unable to make full use of the Yangtze golden waterway with limited density of aviation，highway and railway network. In Development Economics， the location is considered as an innate factor， and the accessibility in the coastal and border areas and the cultivation of economic elements therein are emphasized. The theory fails to address economic development in inland areas， leaving them to rely only on the transition of the industrial echelon transfer. Faced up with the above constraints， Chongqing has taken the initiative to nurture external channels and made breakthroughs in the global value chain from the height， breadth， depth and other aspects of opening up.

Firstly， as for the opening height， Chongqing has built intelligent ports and promoted the formation of a complete open system and a multimodal transport market system covering transports of railways， highways， waterways and aviation， greatly improving the effi ciency and convenience of logistics operation. Success in promoting the normal operation of “Chongqing-Xinjiang-Europe Railway” has advanced the development of riverside industries，airport industries， channel economy and tourism economy and effectively upgraded the opening level of Chongqing. Secondly，as for the opening width， Chongqing will further consolidate and expand the support of Chongqing processing trade industry for highland construction in the opening in-lands on the basis of opening pattern with the metropolitan area as the core and expansion to urban development areas. Centering on better coordinating the industry planning， development layout， logistics support， policy coordination， Chongqing will support the counties to carry out a wide range of processing trade and make greater use of the resources and markets in the foregoing two areas. At last， as to the opening depth， Chongqing will support the transformation from simple processing in processing trade to research and development trade， and from low value-added industries to high value-added ones.

V. Enlightenment and Reference of Chongqing Experience for Global Economic Governance

The experience of Chongqing in development has fully reflected the value of the transformation from factor drive to innovation drive， from traditional industry to industrial cluster development， and from closed economy to open pattern. It can provide suffi cient references for the inland and emerging economies and less developed areas. Meanwhile， it can help to contribute something new to the traditional Development Economic theories.

Firstly， the emerging areas should transform itself from the role of a passive participant to an active constructor in global value chain with the current division mode of global factors.

The globalization has entered a new open two-way stage. Thus， the less developed economies need to devote efforts to making full use of advanced local production factors， making breakthrough in promoting their own R & D capability， further advancing technological progress and upgrading their own industrial structures. The process of Chongqing to “remodel its value chain” is actually a process of “going out” to make full use of capital， technology， products， brands and other ties to build industry clusters and extend the value chain to the international market， so as to gradually get involved in the global value chain.

Second， under the context of international knowledge flow，the inland areas should change themselves from an “imitating follower” to an “independent innovator”. Winning the support of the government， they should gather global high-end production factors， and realize strategic phased conversion，the high degree of industrialization and other goals of economic transformation. Meanwhile， they should speed up the implementation of talent internationalization by changing their reliance on “demographic dividend” to that on “talent dividend”. As far as the innovative development of Chongqing is concerned， the government's leading role is highlighted. With the help of government， various elements are introduced into key areas and frontier leading industries with platforms for innovation built， and factors for innovation prepared. On such a basis， a natural external environment conducive to “subversive innovation” and “disruptive innovation” （Schumpeter， 1942）has been fostered in Chongqing.

Third， a new open economy system needs to be built to provide institutional support for the transformation and upgrading owing to the increasing fl owing of global capital. Institutional innovation remains as the long-term guarantee for the transformation and development of an open economy， and is also the common feature of the evolution of the international economic pattern，including that of Chongqing. The practices and achievements of Chongqing have indicated that a long-term stable system is required to provide guarantees on the basis of remodeling the value chain and carrying out independent innovation. The construction of inland open highland in Chongqing， “The Belt and Road Initiative”， the inter-governmental cooperation projects between China and Singapore and other opening carriers are practices to help Chongqing to be integrated with the world economic environment and create a stable institutional economy. The inland economies need to draw on the experience of Chongqing， clarifying the relations between the government，the market and society， giving full play to the role of a serviceoriented government and the decisive role of the market， and providing better guarantee for the transformation， upgrading and innovative development of their economy.