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Industrial Clusters and their Importance to Economic Development
2003-06-02
Liu Shijin
Research Report No 025, 2003
The 16th National Congress of the CPC proposed that China should “braze a new trail for industrialization, featuring high scientific and technological content, good economic returns, low resources consumption, little environmental pollution and a full display of advantages in human resources.” But how to braze a new trail for industrialization with Chinese characteristics and high efficiency requires a study of specific forms of industrial development. In particular, industrial cluster is an issue that should receive adequate attention. Here I would like to do some explorations on the issue of industrial clusters in light of my recent survey on the Pearl River Delta and the Hangzhou Bay of Zhejiang Province.
I. Concept and Phenomenon
The so-called industrial cluster means, in simple words, a high concentration in a proper regional scope of many enterprises of the same type producing a certain product, along with many upstream and downstream supporting enterprises and related service industries. The English equivalent is cluster or industrial group, with more or less the same meaning. Our investigation and research showed that an industrial cluster generally has the following tangible features.
First, the scale of production and marketing in an industrial cluster district is very big and accounts for a fairly large share of the same product nationwide. Its output and marketing volume often use 100 million as the counting unit. In Zhejiang Province, for example, the socks market at the Datang Town in Zhuji County has an annual turnover of 6 billion pairs, the necktie market in Chenxian County has an annual turnover of 250 million pieces, and a newly-built weaving plant in Shaoxing City has an annual output of over 100 million meters. In that province, such an industrial cluster is called “economic blocks”. Statistics show that Zhejiang Province has 52 such “economic blocks”, whose products account for more than 30 percent of the domestic market. Of the 532 major industrial products nationwide, Zhejiang Province’s “economic blocks” rank first in 56 catagories. In the Pearl River Delta, the enterprises producing color TV sets, computers and other products also claim a considerable share of the national market. For example, the delta is the production base of China’s four largest color TV enterprises and several largest computer enterprises.
Second, industrial clusters have brought about an unprecedented development of specialization and division of labor in a unique way. A production link that used to exist within a “big and all-embracing” or “small and all-embracing” enterprise is now massively scattered in different enterprises. Each enterprise produces only one component and even only one part of a component. The unique feature of division of labor here is that a product, such as a color TV set or a photocopier, that has high technological contents, large numbers of spare parts and high value, is not produced by just one nucleus plant (the general assembly plant). Instead, it is produced by several nucleus plants in the same region. The spare parts come from several suppliers, instead of only one. This is precisely called “enemies are bound to meet on a narrow road”. In this way, one spare parts plant can simultaneously support several nucleus plants. This makes the economy of scale and cost cutting easier to be achieved. For a nucleus plant, it can have many suppliers to choose from, which helps improve quality and cut costs through competition among suppliers. For those products such as socks and neckties, which have less technological content and lower value, large numbers of enterprises producing finished products gather together. Their upstream link of production also has a detailed division of labor. The supporting systems based on high specialization and division of labor is the most important advantage of these industrial clusters. In the Pearl River Delta, the clusters of IT, household appliance and other enterprises have already taken shape. Within a radius of 100 kilometers, more than 90 percent of computer parts, more than 80 percent of cell phone parts and nearly 100 percent of color TV parts can be procured.
Third, the deepening of division of labor has greatly reduced the cost of production and transactions. We are told that in the Pearl River Delta, the procurement costs of the component parts of color TV sets, computers, cell phones and other products are 30 percent lower than those in other regions. The costs and prices of the products produced in Zhejiang Province’s “economic blocks” are also extremely low. For example, a cloth sold at 50-60 yuan a meter in Beijing costs less than 10 yuan locally, and a pair of socks sold at 5-6 yuan elsewhere cost only less than 1 yuan locally.
II. Formation Mechanism and Advantages
The formation process and mechanism of such industrial clusters are even more meaningful. In Zhejiang Province, they have been formed basically through the interaction between market and industry. At first, a centralized production of a specific product emerged in a specific place. Generally, a household was a basic production unit, and several dozens, several hundreds or even more production units of this nature concentrated in a relatively small place. It was often called “one product in one township” or “one product in one town”. In order to sell these products, spontaneous markets appeared. When these markets expanded, they promoted the development of production, which in turn further promoted the expansion of market. It is rare in the world that this type of markets made up of street venders’ stands could develop into such a large scale. In China’s peculiar environment, however, these markets emerged as a matter of course. Once these markets emerged and grew mature, they would form a rational order of their own. The “China Light Industry and Textile City” in Shaoxing City of Zhejiang Province has a highly efficient distribution network that reaches every corner of the country. Customers in other parts of China would rather come to this city by a detour for the delivery of goods, because in this way their goods can be delivered sooner, more reliably with cheaper price. The Yiwu small commodity market also has this unique feature.
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