Evo­lu­tion of Tech­nol­ogy Con­tent in China’s Ex­ports and In­ter­na­tional Com­par­i­son

NiHongfu(倪红福)

China Economist - - Contents - Ni Hongfu (倪红福) In­sti­tute of In­dus­trial Eco­nom­ics (IIE), Chi­nese Academy of So­cial Sci­ences (CASS), Beijing, China

Ab­stract: Un­der the global value chain, a coun­try ex­ten­sively em­ploys for­eign in­ter­me­di­ate in­puts in man­u­fac­tur­ing its ex­port prod­ucts, which may not em­ploy en­tirely lo­cal tech­nol­ogy. Sci­ence-based mea­sure­ment of tech­nol­ogy con­tent in and struc­ture of ex­ports should be con­ducted us­ing pro­duc­tion process data. Us­ing world in­put-out­put ta­bles (WIOTs) of 1995-2011, this paper de­vel­oped a new method for mea­sur­ing the ex­port tech­nol­ogy con­tent of China and other ma­jor coun­tries. Our re­search find­ings sug­gest that, since 1995, there has been some tech­nol­ogy up­grade of Chi­nese ex­ports. China’s over­all and sec­tor-spe­cific tech­nol­ogy con­tents, and do­mes­tic tech­nol­ogy con­tents and in­dexes all in­creased and demon­strated a weak con­ver­gence to­wards the av­er­age level of de­vel­oped coun­tries. Judg­ing by the rel­a­tive rank­ings of sec­tor-spe­cific tech­nol­ogy lev­els, China is al­most locked at the low­est level in the world, and can­not chal­lenge the tech­no­log­i­cal su­pe­ri­or­ity of de­vel­oped coun­tries like the U.S. and Ja­pan.

Key­words: do­mes­tic tech­nol­ogy con­tent, global value chain, prod­uct tech­nol­ogy so­phis­ti­ca­tion, world in­put-out­put

JEL Clas­si­fi­ca­tion Codes: F14

DOI:1 0.19602/j .chi­nae­conomist.2018.11.0519602/ j .chi­nae­conomist.2018.09.02

1. In­tro­duc­tion

Since the 1990s, the size and struc­ture of Chi­nese ex­ports have been trans­formed. Chi­nese ex­ports in goods in­creased from 148.78 bil­lion US dol­lars in 1995 to 2.209 tril­lion US dol­lars in 2013, up 13.8 times. Based on tra­di­tional gross value trade data, high-tech goods ac­counted for a grow­ing share of Chi­nese ex­ports - a sign of tech­nol­ogy up­grade. As a re­sult, China’s tech­no­log­i­cal so­phis­ti­ca­tion of ex­ports ex­ceeded its in­come level (Ro­drik, 2006). One key ar­gu­ment of the “China threat” the­ory is that China com­petes with both de­vel­op­ing and de­vel­oped coun­tries in tech­nol­ogy. In the re­port to the U.S.-China Eco­nomic and Se­cu­rity Re­view Com­mis­sion, Scott (2005) said to the ef­fect that, “We all be­lieved that we only lost la­bor-in­ten­sive jobs like tex­tiles jobs but were able to keep and grow jobs in cap­i­tal- and tech-in­ten­sive sec­tors. How­ever, data shows that we were deceived by such com­mon­sense: a grow­ing share of Chi­nese ex­ports are from tech-in­ten­sive sec­tors like au­to­mo­bile and avi­a­tion.” China’s ex­port tech­nol­ogy and up­grade have al­ways been a topic of great in­ter­est and con­tro­versy. Sci­en­tific and rea­son­able mea­sure­ment of tech­nol­ogy con­tent is key to an­swer­ing this ques­tion.

Over the past decade or so, deep­en­ing spe­cial­iza­tion un­der the global value chain and in­creas­ingly

scat­tered and frag­mented pro­duc­tion pro­cesses have given rise to in­tra-prod­uct trade on an un­prece­dented

1 scale. Prod­ucts ex­ported by a coun­try (re­gion) may not be en­tirely man­u­fac­tured by it­self. A coun­try’s over­all ex­port tech­nol­ogy con­tent is not equal to the ac­tual con­tri­bu­tion of tech­nol­ogy by the ex­port­ing coun­try. In fact, it also con­tains the tech­nol­ogy con­tri­bu­tions of for­eign in­ter­me­di­ate in­puts. Based on in­ter-in­dus­try trade the­ory and the as­sump­tion of prod­uct ho­mo­gene­ity, the two meth­ods for prod­uct (sec­tor) clas­si­fi­ca­tion and tech­nol­ogy so­phis­ti­ca­tion ac­cord­ing to fac­tor (tech­nol­ogy) in­ten­sity may have sig­nif­i­cant er­rors and cause an il­lu­sion. For in­stance, both the United States and China may ex­port lap­top com­put­ers, but China needs to im­port core com­po­nents like In­tel’s cen­tral pro­cess­ing units (CPUs) for man­u­fac­tur­ing such com­put­ers. De­spite its spe­cial­iza­tion in low-value ac­tiv­i­ties like as­sem­bly, China is mis­tak­enly re­garded as an ex­porter of high-tech lap­tops un­der tra­di­tional gross value trade ac­count­ing. Such cal­cu­la­tion over­es­ti­mates its ex­port tech­nol­ogy con­tent. In ad­di­tion, tech­nol­ogy so­phis­ti­ca­tion weighted by per capita in­come also has many de­fi­cien­cies, such as the as­sump­tion of prod­uct ho­mo­gene­ity and the dis­tor­tion by per capita in­come dis­tri­bu­tion of var­i­ous coun­tries. Even if prod­ucts from dif­fer­ent coun­tries are of the same cat­e­gory, their tech­nol­ogy lev­els may dif­fer. Lall et al. (2006) noted that, “Tech­nol­ogy so­phis­ti­ca­tion is sub­ject to var­i­ous non-tech fac­tors rather than spe­cific mea­sure­ments.” In par­tic­u­lar, Lall et al. (2006) also stated that “Mea­sur­ing ex­port tech­nol­ogy con­tent re­quires pro­duc­tion process data rather than prod­uct data, but pro­duc­tion pro­cesses data is dif­fi­cult to ac­quire.” In other words, the tech­nol­ogy con­tent of a coun­try’s prod­ucts should be mea­sured based on the tasks of spe­cific pro­duc­tion stages, i.e. the pro­duc­tion process.

For China, the ques­tions are: Whether did its ac­tive par­tic­i­pa­tion in the global value chain, the in­ter­na­tional in­tra-prod­uct di­vi­sion of la­bor and ex­port-re­lated in­dus­trial de­vel­op­ment help achieve tech­nol­ogy im­prove­ment and up­grade? What are the fea­tures of China’s ex­port tech­nol­ogy changes in com­par­i­son with other coun­tries? What is China’s cur­rent po­si­tion? Did China evolve from a large ex­porter into a more com­pet­i­tive one? Is there any tran­si­tion from “made in China” to “de­signed in China”? Does the “China threat” the­ory hold true from a tech­nol­ogy per­spec­tive? In or­der to an­swer these ques­tions, we should take into full con­sid­er­a­tion the in­flu­ence of the trade model un­der the global value chain, and adopt a more sci­en­tific method for mea­sur­ing tech­nol­ogy con­tent.

For this rea­son, this paper de­vel­oped a new method for mea­sur­ing tech­nol­ogy con­tent based on pro­duc­tion pro­cesses. This paper has the fol­low­ing in­no­va­tions: ( 1) For the first time, prod­uct tech­nol­ogy con­tent is mea­sured from a pro­duc­tion process per­spec­tive. Over­all tech­nol­ogy con­tent com­prises fi­nal pro­duc­tion and in­ter­me­di­ate in­puts on a weighted ba­sis. (2) Prod­uct tech­nol­ogy con­tent is mea­sured from a world in­put-out­put model per­spec­tive. This paper uses an in­ter­na­tional in­put-out­put model to mea­sure ex­port tech­nol­ogy con­tent, as well as the con­cept of do­mes­tic tech­nol­ogy con­tent. In this paper, do­mes­tic tech­nol­ogy con­tent in­cludes do­mes­tic tech­nol­ogy con­tent re­turned from the im­port of in­ter­me­di­ate in­puts, which can­not be cap­tured by a sin­gle-coun­try in­put-out­put model. (3) Tech­nol­ogy con­tents of the same prod­ucts vary across coun­tries, and such het­ero­gene­ity is re­flected in this paper. This paper em­ploys la­bor pro­duc­tiv­ity to sub­sti­tute the tech­nol­ogy con­tents of the fi­nal pro­duc­tion process, and ob­tains tech­nol­ogy con­tents of sec­tors in var­i­ous coun­tries. In cal­cu­lat­ing prod­uct tech­nol­ogy so­phis­ti­ca­tion, the het­ero­gene­ity of the same prod­ucts from dif­fer­ent coun­tries can­not be re­flected us­ing weighted per capita in­come as a sub­sti­tute for tech­nol­ogy con­tent. (4) Un­der the ex­ist­ing in­put-out­put ac­count­ing frame­work, our new method also ap­plies to the sta­tis­ti­cal ac­count­ing of prod­uct tech­nol­ogy con­tent and struc­ture, and may be­come a new es­ti­ma­tion method that re­flects how val­ueadded from the global value chain cre­ates ef­fi­ciency.

The rest of this paper is struc­tured as fol­lows: Part 2 Lit­er­a­ture Re­view elab­o­rates de­fi­cien­cies of tra­di­tional meth­ods for mea­sur­ing tech­nol­ogy con­tent. Part 3 in­tro­duces a new method for mea­sur­ing

tech­nol­ogy con­tent based on the pro­duc­tion process. Part 4 es­ti­mates the ex­port tech­nol­ogy con­tents of China and other coun­tries, and ex­am­ines their changes. Part 5 of­fers con­clu­sions and fur­ther dis­cus­sions.

2. Lit­er­a­ture Re­view

Tra­di­tion­ally, ei­ther of the fol­low­ing two ap­proaches is em­ployed for the anal­y­sis of ex­port tech­nol­ogy con­tent and struc­ture:

2.1 Prod­uct (Sec­tor) Clas­si­fi­ca­tion Method

Prod­ucts (sec­tors) are clas­si­fied into cat­e­gories ac­cord­ing to fac­tor (tech­nol­ogy) in­ten­sity. It is gen­er­ally be­lieved that an econ­omy en­joys higher tech­nol­ogy so­phis­ti­ca­tion if there are more cap­i­talor tech-in­ten­sive prod­ucts in its ex­ports. Such a method of clas­si­fi­ca­tion is ex­ten­sively em­ployed in stud­ies on trade struc­ture and ex­port com­pet­i­tive­ness. As a clas­sic case, Lall (2000) clas­si­fies three­digit prod­ucts of the Stan­dard In­ter­na­tional Trade Clas­si­fi­ca­tion (SITC) into re­source-in­ten­sive, lowtech, medium-tech and high-tech prod­ucts ac­cord­ing to prod­uct tech­nol­ogy level (gen­er­ally de­fined by R&D and patent in­ten­sity of par­ent com­pa­nies). Prod­ucts may also be di­vided into la­bor-, cap­i­tal- and tech-in­ten­sive prod­ucts ac­cord­ing to the pro­por­tion of pro­duc­tion fac­tor in­put. Ob­vi­ously, mea­sur­ing the ex­port tech­nol­ogy struc­ture by the share of high-tech ex­ports may not re­flect a com­plete pic­ture. In to­day’s world, a prod­uct is of­ten man­u­fac­tured through pro­cesses scat­tered in var­i­ous coun­tries. Thus, the ho­mo­ge­neous tech­nol­ogy as­sump­tion does not hold true. Un­der the global value chain, core tech­nol­ogy may come from a coun­try other than the ex­port­ing coun­try. Even though a coun­try’s cer­tain prod­uct is clas­si­fied as high-tech, this coun­try could be spe­cial­ized in la­bor-in­ten­sive as­sem­bly and pro­cess­ing, while de­sign and core com­po­nents are from an­other coun­try. Take the Philip­pines for in­stance, its semi­con­duc­tor ex­ports ac­count for a higher share in its to­tal ex­ports com­pared with that of the U.S.; if mea­sured by the share of high-tech ex­ports, the Philip­pine ex­ports could be more tech-in­ten­sive than those from the U.S. In this man­ner, the tech­nol­ogy level of Philip­pine ex­ports is over­es­ti­mated.

2.2 Tech­no­log­i­cal So­phis­ti­ca­tion and Im­prove­ment Method

It is gen­er­ally be­lieved that prod­uct tech­nol­ogy so­phis­ti­ca­tion refers to the weighted av­er­age of the per capita in­comes of all ex­port­ing coun­tries of the prod­uct, with the weight be­ing such prod­uct’s ex­port by the ex­port­ing coun­try as a share in the to­tal world ex­port of such prod­uct. Ro­drik (2006) dis­cov­ered that China’s ex­port tech­nol­ogy varies sig­nif­i­cantly from that of other coun­tries, and that China’s ex­port tech­nol­ogy is equiv­a­lent to those of coun­tries whose per capita in­comes are three times as high. How­ever, the tech­nol­ogy so­phis­ti­ca­tion method leaves out one im­por­tant fac­tor, i.e. tremen­dous changes have oc­curred in the pro­duc­tion process un­der the global value chain sys­tem. First, while the same prod­ucts ex­ported by var­i­ous coun­tries are of het­ero­ge­neous tech­nol­ogy con­tents, tech­nol­ogy so­phis­ti­ca­tion is cal­cu­lated us­ing coun­tries’ per capita GDP on a weighted ba­sis. There­fore, it is un­rea­son­able to con­clude that the same prod­ucts ex­ported by var­i­ous coun­tries are of the same tech­no­log­i­cal so­phis­ti­ca­tion, and that the tech­no­log­i­cal so­phis­ti­ca­tion of dif­fer­ent prod­ucts is de­ter­mined by per capita in­come dis­tri­bu­tion. Let us as­sume that two coun­tries ex­port iden­ti­cal prod­ucts (with the same prod­uct quan­tity and qual­ity), but the two coun­tries em­ploy dif­fer­ent pro­por­tions of do­mes­tic and for­eign in­ter­me­di­ate in­puts in their pro­duc­tion process of goods, in­clud­ing ex­port goods. Sim­i­larly, coun­tries ac­quire dif­fer­ent value-added in their ex­ports un­der the global value chain. In this cir­cum­stance, even if tech­nol­ogy can be ac­cu­rately mea­sured, the tech­nol­ogy so­phis­ti­ca­tion method is not able to re­flect real prod­uct tech­nol­ogy con­tent or con­tri­bu­tion for var­i­ous coun­tries. Take the com­puter in­dus­try for in­stance, both China and the United States ex­port lap­top com­put­ers, but the dif­fer­ence is that while the United States takes care of prod­uct de­sign and man­u­fac­tures key com­po­nents like CPUs, China as­sem­bles these im­ported

com­po­nents us­ing its low-skill la­bor. If the tech­nol­ogy so­phis­ti­ca­tion method is fol­lowed, China’s ex­port tech­nol­ogy con­tent may be over­es­ti­mated.

The tra­di­tional prod­uct tech­nol­ogy so­phis­ti­ca­tion method is in­ap­pro­pri­ate in some ways. As Lall (2006) points out, tech­nol­ogy so­phis­ti­ca­tion is not a method for mea­sur­ing a spe­cific tech­nol­ogy, and is sub­ject to the in­flu­ence of non-tech­ni­cal fac­tors (po­lit­i­cal en­vi­ron­ment, nat­u­ral re­sources, in­fra­struc­ture, ge­o­graph­i­cal lay­out and dis­tance). These fac­tors must be taken into ac­count in ex­plain­ing tech­nol­ogy so­phis­ti­ca­tion. The new method for mea­sur­ing tech­nol­ogy con­tent based on the pro­duc­tion process over­comes most de­fects of the tra­di­tional method, and will bet­ter re­flect the tech­nol­ogy con­tent, struc­ture and dy­namic change of Chi­nese ex­ports from the per­spec­tive of the global value chain and in­ter­na­tional com­par­i­son.

3. Method for Tech­nol­ogy Con­tent Mea­sure­ment Based on Pro­duc­tion Pro­cesses

The prod­uct tech­nol­ogy con­tent es­ti­ma­tion prin­ci­ples men­tioned in this paper have many sim­i­lar­i­ties with the prin­ci­ples for trade value-added ac­count­ing and im­plicit pol­lu­tants (such as im­plied car­bon emis­sions) (Daudin, 2012; John­son and Noguera, 2012; Koop­man et al., 2014; Wang et al., 2013; Ni Hongfu et al., 2012; Ni Hongfu et al., 2016). Lall (2006) ar­gues that the tech­nol­ogy con­tent of a prod­uct should be the ag­gre­gate of the tech­nol­ogy con­tents of all its pro­duc­tion pro­cesses. This ar­gu­ment co­in­cides with the ap­proach to es­ti­mate tech­nol­ogy con­tent based on tasks of a spe­cific stage (pro­duc­tion process). Un­der the global value chain, the pro­duc­tion process is di­vided into dif­fer­ent pro­duc­tion tasks or steps. In the in­put-out­put ta­ble, the in­put-out­put re­la­tion­ship of a prod­uct re­flects its eco­nomic and tech­ni­cal char­ac­ter­is­tics in the fi­nal pro­duc­tion process, i.e. fi­nal pro­cess­ing and as­sem­bly of pro­duc­tion fac­tors (cap­i­tal and la­bor) and in­ter­me­di­ate in­puts. There­fore, the prod­uct tech­nol­ogy con­tent should be the sum of the tech­nol­ogy con­tents of the fi­nal pro­duc­tion process and in­ter­me­di­ate in­puts. Un­der the frame­work of the world in­put-out­put ta­ble, the to­tal tech­nol­ogy con­tent of prod­uct k man­u­fac­tured by coun­try i should be the sum be­tween the tech­nol­ogy con­tent of all in­ter­me­di­ate in­puts and the tech­nol­ogy con­tent of the fi­nal pro­duc­tion process in coun­try i. The tech­nol­ogy con­tent of the fi­nal pro­duc­tion process is de­noted by its la­bor pro­duc­tiv­ity 2, i.e. mea­sured by the ra­tio be­tween value-added gen­er­ated from the fi­nal pro­duc­tion process and em­ployed work­force. The fol­low­ing shows the def­i­ni­tions and cal­cu­la­tion meth­ods of the com­plete tech­nol­ogy con­tent, the do­mes­tic tech­nol­ogy con­tent and its in­dex.

3.1 Com­plete Tech­nol­ogy Con­tent

Ac­cord­ing to clas­sic in­put-out­put model, it is gen­er­ally as­sumed that the pro­duc­tion func­tion of var­i­ous sec­tors in an econ­omy is in Leon­tief form, i.e.:

(1)

Where, is prod­uct out­put from sec­tor k of coun­try i. is the de­mand of sec­tor k in coun­try i for in­ter­me­di­ate in­puts from a sec­tor of a coun­try in or­der to man­u­fac­ture its prod­ucts. is the di­rect con­sump­tion of out­put from sec­tor l in coun­try j for coun­try i to man­u­fac­ture one unit of out­put from sec­tor k. is fac­tor pay­ment (la­bor and cap­i­tal fac­tor in­put). is the share of fac­tor pay­ment (value-

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