Upgrade by integrating into global value chain

Chinese enterprises' "going global" process is still in its infancy.

At present, the world economic paradigm is experiencing a profound shift, as the international division of labor becomes increasingly diverse, while global R&D becomes a salient trend. This is a rare opportunity.

From the macroeconomic point of view, the scale of China's trade in goods, foreign direct investment, foreign-exchange reserves and the household savings rate lay a solid foundation for China's global capital exports.

Chinese enterprises have developed a growing taste for "going global". In 2015, the scale of China's outbound direct investment is likely to exceed the scale of FDI.

To foster new competitive advantages in the GVC remodeling, the key is to enhance the capability of independent innovation. The lack of independent innovation ability is the main factor hindering the upgrading of the industrial structure and enhancing the role in the global division of labor.

However, there are several misunderstandings surrounding "independent innovation".

First, "independent innovation" does not equate to "innovation on one's own". The emergence of the GVC made it impossible to allocate all the three main sectors of the global value chain－R&D, manufacturing and assembling, and marketing service－within one country. If we overemphasize "innovation on one's own", instead of "innovation in the GVC", we exclude the chance of cooperating with leading international firms and the chance of cooperative innovations in an open environment.

Second, "Chinese brands" do not equal to "Chinese enterprises building brands from scratch". International brands were constructed in various ways. These include relying on one's own efforts to create one's own brand, cooperating with other enterprises to create a new brand or obtaining internationally famous brands through acquisitions.

Unfortunately, some people have narrowly interpreted the concept of "independent innovation". This in a way has delayed the buildup of "independent Chinese brands".

The two mistakes are at odds with the "laws" of the GVC. We should upgrade our value chains on the basis of integrating into the GVC and absorbing the best resources. So we must develop our enterprises and industries in accordance with the laws of the GVC as soon as possible.

The author is a senior researcher at the Chinese Academy of International Trade and Economic Cooperation.

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