Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized TALES FROM THE DEVELOPMENT FRONTIER TALES FROM THE DEVELOPMENT FRONTIER How China and Other Countries Harness Light Manufacturing to Create Jobs and Prosperity Hinh T. Dinh, Thomas G. Rawski, Ali Zafar, Lihong Wang, and Eleonora Mavroeidi with Xin Tong and Pengfei Li © 2013 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org Some rights reserved 1 2 3 4 16 15 14 13 This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. 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Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: Dinh, Hinh T., Thomas G. Rawski, Ali Zafar, Lihong Wang, and Eleonora Mavroeidi. 2013. Tales from the Development Frontier: How China and Other Countries Harness Light Manufacturing to Create Jobs and Prosperity. With contributions by Xin Tong and Pengfei Li. Washington, DC: World Bank. doi:10:1596/978-0-8213-9988-0. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. ISBN (paper): 978-0-8213-9988-0 ISBN (electronic): 978-0-8213-9989-7 DOI: 10.1596/978-0-8213-9988-0 Cover artwork: Cover art: © Michael S. Geller, Off I Went, 2010, oil on canvas, 30" x 40". Courtesy of Jake Anderson. Used with permission of Michael S. Geller. Further permission required for reuse. Cover design: Bill Pragluski, Critical Stages, LLC Library of Congress Cataloging-in-Publication data Dinh, Hinh T., 1953- Tales from the development frontier : how China and other countries harness light manufacturing to create jobs and prosperity/by Hinh T. Dinh, Thomas G. Rawski, Ali Zafar, Lihong Wang and Eleonora Mavroeidi, with contributions from Xin Tong and Pengfei Li. pages cm ISBN 978-0-8213-9988-0 (pbk.) — ISBN 978-0-8213-9989-7 (e-book) (print) 1. Manufacturing industries—China. 2. Manufacturing industries—Developing countries. 3. Economic development—China. 4. Economic development—Developing countries. I. World Bank. II. Title. HD9736.C62D55 2013 338.951—dc23 2013023253 Contents Foreword xi Preface xiii Acknowledgments xv About the Authors and Contributors xxi Abbreviations xxiii Introduction 1 Part I Tales of China 17 1 The Development of Light Manufacturing 19 2 Resolving the Binding Constraints 69 3 Major Policy Tools 99 4 Case Studies, China: Individual Firms and Entrepreneurs 177 5 Case Studies, China: Industrial Parks and Industrial Clusters 215 Part II Tales of Other Countries 313 6 Agribusiness 315 7 Wood Products 341 8 Leather Products 357 9 Textiles and Apparel 379 v vi Contents Part III Policy Lessons 419 10 The Chinese Policy Experience 421 11 Policy Lessons for Developing Countries 461 Appendix: Interview Questionnaire 493 Index 501 Boxes 1.1 Milestones of China’s Economic Reforms 27 3.1 Shenzhen Everich Industry Development Co., Ltd. 155 3.2 Li & Fung Trade Company 158 3.3 The Haixin Trading Group: Success during the Transition from the Plan System 165 3.4 SMEs in Wenzhou 166 5.1 Roeblan: From Hand Workshop to Custom Tailor to the U.S. First Lady 219 Figures 1.1 Micro, Small, and Medium Enterprises Per 1,000 People, Selected Transition Economies, 2000–05 43 1.2 Manufacturing Output, Shenzhen Special Economic Zone, China, 1982–89 46 1.3 Light Manufacturing Enterprises by Ownership Structure, China, 1999–2010 48 1.4 Output Value of Light Manufacturing by Ownership Structure, China, 1999–2010 49 1.5 Labor Productivity of Light Manufacturing Firms, by Ownership Structure, China, 1999–2007 50 3.1 Industrial Output in the Four Initial Special Economic Zones, China, 1989 109 3.2 Growth in the Number of Newly Added Provincial Economic Development Zones, China, 1984–2006 114 3.3 Growth in the Number of Provincial Economic Development Zones, by Region, China, 1985–2003 116 Contents vii 3.4 Number of Collective, Private, and Household TVEs, China, 1985–2002 139 3.5 Central Government Revenue and Expenditure, China, 1985–2002 139 3.6 Warp Knitting Firms, Haining Industrial Park, Zhejiang Province, China, 2000–09 143 3.7 Dynamic Cluster Policies Implemented by the Guangzhou Municipal Government, China 144 3.8 How Foreign Buyers and Local Manufacturers Connect, China 152 3.9 Services Off ered by Trading Companies to Manufacturers and Foreign Buyers, China 154 B3.2.1 The Five Stages of Li & Fung’s Development 158 4.1 Per Capita Meat Output, China, 1979–2011 180 4.2 Changes in the Pork Price Index, China, 2005–11 186 4.3 Growth of the Snack Food Industry, China, 2005–11 188 4.4 Export Volume and Growth of Stevia Extract, China, 2004–09 202 5.1 Trade Volume, Dieshiqiao International Home Textiles Market, Haimen, China, 2004–10 225 5.2 Gross Output by Above-Scale Enterprises, Warp Knitting Industrial Zone, Haining, China, 2004–08 237 5.3 The Market Share of the Qiaotou Button Industry, China and the World, 2007–10 245 5.4 Daily Production, Weihai Zipper Company Ltd., Yiwu, Zhejiang Province, China, 2010 253 5.5 Hourly Wages in the Zipper Industry, by Country, 2009 256 5.6 Tariff s on Zipper Imports, China, 1992–2009 260 5.7 Growth, Zhengzhou Economic Development Zone, China, 2000–11 289 5.8 Average Monthly Salary of Workers, Zhengzhou Economic Development Zone, China, 2001–10 291 5.9 Industrial Structure, Yinchuan Economic Development Zone, China, 2009 295 5.10 Automobile Production, China, 1978–2008 297 6.1 Growth of Flower Exports, Ethiopia, 2005–12 318 6.2 Cut Flower Exports, Kenya, 1990–2010 325 viii Contents 6.3 Average Infl ation, Kenya, 1995–2011 327 6.4 Cut Flower Production Costs, by Size of Farm, Kenya, 2010 329 6.5 Horticulture Exports to the EU, Senegal, 1990–2010 334 7.1 Index of the Real Eff ective Exchange Rate, Ghana, 1990–2011 344 7.2 Infl ows of FDI, by Sector, Ghana, 2011 345 7.3 Growth of the Furniture Industry, Vietnam, 1990–2011 348 7.4 Trade Defi cits, Major Wood Product Exporters, Asia, 1990–2010 350 7.5 Changes in the Real Eff ective Exchange Rate, Chinese Yuan and Vietnamese Dong, 2000–10 351 8.1 Production Indicators, Morogoro Shoe Factory, Tanzania, 1980–90 364 8.2 Exports of Sialkot, Pakistan, 1990–2010 370 8.3 Index of the Real Eff ective Exchange Rate, Pakistan Rupee versus Chinese Yuan, 1990–2011 371 8.4 Cost Structure of Soccer Balls, Sialkot, Pakistan, 2010 376 9.1 Infl ation Rate, Bangladesh, 1980–2010 383 9.2 Monthly Labor Rates, Selected Asian Countries, 2010 386 9.3 Cost of Indian- and Chinese-Made Saris, 2007 391 9.4 Textile Industry Employment, Lesotho, 1999–2009 395 9.5 Real Eff ective Exchange Rate, Lesotho Loti and Chinese Yuan, 1990–2011 396 9.6 GDP, by Main Economic Sector, Mauritius, 1976–2009 403 9.7 Labor Compensation in the Textile Industry, Selected Countries, 2002 405 11.1 Import Tariff s on Buttons, China, 1992–2009 466 Maps I.1 Cities Visited by the Study Team, China, 2010 and 2012 14 1.1 China: Regional Variation in Population Density 33 3.1 Location of Special Economic Zones and Selected Open Areas, China, Mid-1980s 106 3.2 Shenzhen Special Economic Zone, China, 2009 110 5.1 Dieshiqiao Home Textile Complex, Jiangsu Province, China 226 Contents ix Tables I.1 Contributions of Light Manufacturing in Food Processing, Textiles, and Garments to Industrialization, 1839–1981 3 I.2 Offi ces and Enterprises Visited by the Study Team, China, 2010 and 2012 13 1.1 State Sector Employment Growth in Major Industries, China, 1952–78 23 1.2 Growth of Township and Village Enterprises, China, 1978–90 31 1.3 Long-Term Trends in International Merchandise Trade and FDI, China, 1913–2012 36 1.4 Contribution of Private and Individual Business Firms to the Economy, China, 2006–08 42 1.5 Output Growth in Major Light Manufacturing Products, China, 1970–2010 45 1.6 Share of Global Exports