Overview of the Industry Chain: From Efficiency to Security

Division of labor and the ability to facilitate transactions lie at the heart of industry chains, supply chains, and value chains. Two major factors that determine how the division of labor and transactions unfold globally are efficiency and security. We can see from the history of industrial development that companies and markets are able to continuously improve efficiency by optimizing the division of labor and transactions, through which they can dominate the development of industry chains. Differences in factor endowments and equalization of factor prices among countries determine how industry chains are developed around the world under the principle of efficiency. China’s reform and opening-up have improved the efficiency of its industry chains both domestically and internationally. Domestically, reforms have enhanced China’s marketization and industrial agglomeration, thereby unleashing the country’s economic efficiency. Internationally, opening-up has propelled China’s participation in the global industry chain and its cooperation with developed countries, resulting in the country becoming one of the leading forces of globalization. How should we understand the security of industry chains and supply chains? From the enterprise perspective, security is mainly associated with maintaining the stability of supply chains. From the perspective of governments, security is to ensure the country’s industrial and technological superiority as well as independence from international competition, which is to some extent related to the backdrop of rising geopolitical risks. After years of efficiency gains, China and the US’s pursuit of industry chain security somewhat goes against the principle of efficiency in the context of global industry chains, thereby necessitating efforts from both countries to control the resulting loss of efficiency. The two countries need to maintain bilateral economic and trade relations as well as the global trade system at the economic level. Technological decoupling between countries would hinder technological progress and economic growth on both sides. However, the fundamental factor that determines a country’s technological progress lies in its national innovation system, which consists of the government, the market, universities, and companies. Ultimately, industrial competition between countries is competition in innovation.