By Lu Wei, Department of Techno-Economic Research of DRC

Research Report No 208, 2012 (Total 4210)

Currently, China is at a crucial stage for transformation of its development mode. Along with the fast increasing factor cost, growing resources and environment pressure, declining demographic dividend, the economic growth slows down and the growth mode involving high investment, high energy consumption and low cost can no longer be sustained. The economic growth in future shall be driven by innovation and reform, more social values should be created by fewer resource inputs, and the quality and efficiency of economic growth shall be improved.

I. Establish the Factor Productivity Indicator System for Manufacturing Industries

The transformation of development mode requires the manufacturing industries to grow in a more efficient manner rather than a mere increase in quantity. As a major manufacturer and exporter in the world, China is seeing weakening advantages in low-cost manufacturing due to increasing factor price, a slowdown in external demand growth and continuing overcapacity. Under such circumstances, the core to transform the development mode of the manufacturing industries is to shift from resource consumption to intensive utilization of factors, from dependence on investment and scale expansion to factor upgrading and value chain improvement, so as to foster new competitiveness.

Correspondingly, efforts should target on improving the growth quality and efficiency of the manufacturing industries and establishing the factor productivity indicator system to replace the evaluation system blindly pursuing economic scale and GDP growth rate, to guide the transformation of development mode of the manufacturing industries and realize intensive growth.

1. Take value added as the profitability indicator

The industrial value added reflects the contribution of the industry to the national income and benefits of all sides.

First, the GDP, a major indicator measuring the national economic growth, is the total sum of value added of all industries. Taking value added as the benefit indicator helps reflect the consistency of the growth of industrial profitability with the national economic growth.

Second, the industrial value added is the sales income of enterprise in the industry minus consumption. Its increase implies the decrease of material consumption or the increase of added value, and reflects the improvement of productive efficiency.

Third, industrial value added includes tax, salary and benefits, interest and profits, etc., reflecting the interests of various stakeholders. The tax reflects the enterprises' contribution to the country, salary and benefits are the compensation for employees, interest is the reward for creditors and profits are the disposable surplus of the enterprise.

2. Establish labor, fund, energy and composite factor productivity indicator system

(1) Labor productivity indicator— labor added value rate. The labor added value rate is the ratio of industrial value added to the annual average number of employees in the industry. The higher the labor added value rate, the higher the labor productivity of the industry.

(2) Fund efficiency indicator—assets added value rate. The assets added value rate is the ratio of industrial value added to the total assets of the industry. Higher assets added value rate means better fund efficiency and investment efficiency.

(3) Energy utilization efficiency indicator—added value rate of energy consumption. This rate is the ratio of industrial value added to the energy consumption. The higher the added value rate of energy consumption, the higher the energy efficiency of the industry and the better the energy saving and emission reduction performance of the industry.

(4) Composite factor productivity indicator—output added value rate. This rate is the ratio of the industrial value added to the gross product. This indicator reflects the direct input-output efficiency of the business operation activities in the industry. Usually, the higher the proportion of raw material cost in the output per unit, the lower the industrial added value rate of this activity. Therefore, a high output added value rate means low resource consumption and high value added and composite factor productivity of the industry.

(5) Factor substitution indicator—per capita share of fixed assets. This is the ratio of the original value of fixed assets to the annual average number of employees in the industry. It reflects the substitution relation between investment and labor, and shows the capital intensity of the industry. This indicator is higher in capital-intensive industries and lower in labor-intensive industries.

3. Notes on the application of factor productivity indicators

Featuring simplicity, conveniences, feasibility and data availability, the factor productivity indicators avoid errors possibly incurred from hypotheses. This article includes the factor productivity indicators of 28 manufacturing industries according to statistics between 1999 and 2009, and conducts dynamic analysis and inter-industry comparison.

(1) Dynamic analysis. Through vertical comparison, the article analyzes the dynamism of the industrial factor utilization ratio. To reflect the influence of technical economy, as per the standards of OECD and World Bank and considering the R&D expense and intensity of R&D staff, the article divides manufacturing industries into four categories including high-tech manufacturing industries, middle-high-tech manufacturing industries, middle-low-tech manufacturing industries and low-tech manufacturing industries, so as to find out the change of factor productivity in industries with different technical features.

(2) Comparison between industries. To reflect the influence of industrial structure on factor utilization ratio, the comparison of the factor productivity between industries shall be made and the industrial competitiveness shall be analyzed from the perspective of factor productivity, so as to provide a basis for industrial restructuring and improvement of the overall resource efficiency.

Table 1 Manufacturing Industries Grouped by Technology Intensity

Low-tech manufacturing industry	Middle-low-tech manufacturing industry	Middle-high-tech manufacturing industry	High-tech manufacturing industry
agricultural products-based food processing Food Beverage Tobacco Textile, clothing and fiber manufacturing Leather, fur, feather (eiderdown) and their products Timber processing, and wood, bamboo, rattans, palm and grass products Furniture making Papermaking and paper products Printing and record medium reproduction Culture, educational and sport products manufacturing Handicrafts and other products manufacturing	Petroleum processing, coke making and nuclear fuel processing Nonmetal mineral products Ferrous metals smelting and rolling processing Nonferrous metals smelting and rolling processing Metal products Rubber products Plastic products	Universal equipment manufacturing Special equipment manufacturing Transportation equipment manufacturing Electrical machines and equipment manufacturing Chemical materials and products manufacturing Chemical fiber manufacturing	Communication equipment, computers and other electronic equipment manufacturing Manufacturing of instruments and meters as well as cultural and office machinery equipment Pharmaceutical

(3) The nominal factor productivity shall be calculated as per the price data of the year. The added value of industrial enterprises above the designated scale as per the present prices is adopted when the factor added value rate is calculated. Among others, the price factors in the industrial added value and the gross product in the output value added value rate are mostly offset; while they are still influential in the labor added value rate, energy consumption added value rate and asset value assed rate.

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