How Developmental Government Drives Industrial Upgrading By Innovation? Case of China's Pearl River Delta

Abstract: Chinese Government has identified technological innovation as the most powerful weapon to undertake industrial upgrading across the firms in the country. Thus Chinese local governments as development agents are eager to elaborate new innovation-driven strategies and policies. This paper is an outcome in such a policy context. The research is based on in-depth interviews with 142 industrial firms, 41 R&D organizations and intermediate institutions, and 12 local government departments in China’s region of Pearl River Delta (PRD) during the summer of 2014, supplemented by a questionnaire survey of 159 firms and R&D organizations of the studied sample. Referring to the concept of linked chain of innovation as a major framework, the paper describes the different models of industrial innovation in traditional sectors and more modern sectors in the PRD. Main obstacles and problems are found both at each section of activity and at the linkages among activities of innovation chain. In a broader perspective, the nature of innovation difficulty in PRD is the problem of integration of innovation chains, chains of industrial production, and chains of financing innovation in the region. This key problem of integrating the triple chains for innovation is rooted within the current innovation policies and existing innovation ecosystems, both related closely to local government.

Therefore, this paper argues that in order to implement an appropriate innovation-driven strategy for industrial upgrading, the PRD government may tackle the potential of innovation through designing new organizational structures and policy measures in the fields of strategic technological forecasting and choosing, public-private partnership of innovation financing and investing, innovation management capabilities development, and technological assimilation by overseas merger and acquisition of local firms. In sum, the success of new innovation-driven upgrading in PRD depends to a large extent on its authority’s own transformation into a new generation of developmental State.