Specialization and Growth within China: The Tailors of Cixi
Article by: Sid Mewara [Managing Director Saks Gloweli Consulting]
Regional specializations have always existed in China as they have everywhere. Tailors from the city of Cixi, for instance, have been renowned for their skills for hundreds of years and controlled clothing manufacturing in Beijing from the 1680s to the 1930s. Advanced industrial clusters are a fairly recent phenomenon, however. One factor that held back their development was the Maoist tradition of encouraging local self-sufficiency — an idea that brought industrial production almost down to the village level.
Beginning in 1958 and continuing on into the 1960s, Mao’s Great Leap Forward campaign amounted to a great leap backward. The small-scale, low-technology industry he advocated as the way to develop the country actually reduced industrial production by 30%. One result: Many Chinese industries, such as cement-making, are fragmented, and operate with sub-scale and out of date methods — a good counter-example to why Chinese authorities in many regions now see clusters as the new way to make an economic leap.
In some areas, such as the Zhejiang sub-province of Ningbo, where the old tailoring center of Cixi is located, policymakers looked to their roots to find that special advantage. Ningbo decided, literally, to stick to its knitting. It began by converting factories that had made military uniforms into factories for more fashionable garments, at the same time allowing smaller entrepreneurs to form more specialized companies. Today, the sub-province has more than 2,000 apparel companies, which together produce about 5% of the nation’s textile output.
Other examples, unconnected to some past industrial glory, include the many factories in the city of Dongguan on the Pearl River delta, which manufacture nearly a third of the world’s magnetic recording heads so integral to computer hard drives, and some 16% of all computer keyboards. Additional notable centers include the Nanhai district’s Dali township, which produces some 40% of the nation’s aluminum products; Zhejiang province’s Zhili township, which specializes in children’s’ clothing; and Datang in Sichuan province, with thousands of manufacturers turning out some six billion pairs of socks each year. All told, more than 1,000 clusters are devoted to exports.
The Zhuhai Yacht Industrial Zone on the south coast, meanwhile, hosts some 20 boat makers and rose up in part with the help of government incentives available to many manufacturing clusters. Such incentives have often proved especially important for the development of new high-tech industries like biotechnology, where the government has played a more direct role in providing advantages to business. China is very good at developing the infrastructure that really enables a city to attract a cluster, they’re good at building roads, ports and bridges, but they’re also good at building institutes and training facilities.
The growth of biotechnology clusters in Beijing, Shanghai and Shenzen/Guangdong, for example, results from several government policies going back to the 1970s. The first major policy change allowed more than 200,000 students to earn post-graduate science degrees abroad. Then in 1986, the government made plans to train hundreds of thousands of postgraduates in biotechnology. Next, they encouraged biotechnology professionals who had been working abroad to return home. Many did, and founded companies, drawing on the managerial and scientific expertise gained in their careers in the U.S. and elsewhere.
In biotechnology and in other clusters, company formation tends to proceed a little differently than in most Western market economies. Essentially, the Chinese authorities argue that entrepreneurship is less a function of spotting a profitable opportunity than it is an ability to form alliances with those who hold key assets.
The entrepreneur’s social connections with government officials, for example, are often far more important than in the West. At the same time, working these connections is not simply a matter of gaining approvals by passing some envelopes under the table. Unlike arrangements in other emerging markets, analysts say that local governments in China today often add real value to local clusters by championing industry more generally rather than picking winners and losers among individual companies, as in the past. In Ningbo, for instance, the government began as a shareholder in some local firms, but now more often organizes trade and fashion shows, or coordinates local development.
When this broader approach at coordination with industry works, as it seems to have in textiles and biotechnology, it adds effective state support to the initiative and energy of entrepreneurs. Some observers even argue that one key reason China is so much further ahead economically than Russia is that Chinese local officials tend to view business more as a source of long-term growth than a short-term revenue opportunity.