An Evolutionary Perspective on Industrial Policy and GVCs: Policy Regimes in the Guangdong Electronics Sector

The expansion and increasingly intricate governance structures of Global Value Chains (GVCs) have been seen as a key limiting factor in the implementation of industrial policy. Policy advisors and GVC theorists alike have argued that implementing traditional industrial policy is not a viable path for contemporary developing countries, citing the increased leverage of lead firms, the import-intensity of production and exports, and the bluntness of sectoral measures in a value chain landscape. However, while such explorations are useful in understanding the evolving limits of industrial policy, they often fail to consider policy measures beyond tariff protection. This paper contributes a fresh perspective to this debate by offering a case study of industrial policy implementation in a GVC landscape. This allows us to go beyond the simple question of whether industrial policy is possible, to considering the interactions of different types of industrial policy and foreign direct investment measures on one hand, and the needs of GVCs on the other.

Our case study is about the electronics sector in the southern Chinese province of Guangdong. Guangdong province was the earliest adopter of liberalisation and marketization reforms, had few industrial assets inherited from the previous regime and is known for a lighter government touch in the economy compared to other Chinese provinces. It therefore relied heavily on integration into GVCs to develop, presenting a rich case study for scholars of industrial upgrading within an internalized production structure. At the same time, the provincial and local authorities often pursued traditional industrial measures to promote local firms, albeit with the realisation that integration to global chains is necessary for their development. Guangdong is now one of the leading production bases in the electronics sector, currently producing about a third of the sector’s value added in China and hosts some of the biggest Chinese brands such as Huawei, TCL and ZTE.

Using a mix of quantitative and qualitative evidence, it is argued that the interaction between successive policy regimes in Guangdong during the period 1980-2015 and the evolving needs of GVCs has led to the parallel existence of multiple production regimes in the province with distinct developmental potential. From the small scale capital from Hong Kong and Taiwan that offers few opportunities for upgrading to the large scale contract manufacturers who have started to employ more local R&D, and eventually to large domestic firms establishing brands, the sector is heterogeneous and in transition. Its future success will hinge on the ability of these domestic firms to push for frontier innovation and the continued improvement of the domestic environment to encourage R&D transfer by global firms. Rather than pronouncing industrial policy prematurely dead, this paper suggests that a GVC-cantered industrial strategy would need to be dovetailed with a strong policy of encouraging the domestic sector to eventually take lead firm status for industrial upgrading to be sustained.