Impact of Green Policies on Industrial Upgrading

Shuyin Liu

Jinan University, University of Birmingham Joint Institute, Jinan University, Guangzhou, China

Keywords: Green Industrial Policy, Industrial Upgrading, Sustainable Development.

Abstract: As the global community shifts towards sustainable development, there is a growing interest in the

development of a green economy. Countries are striving to balance economic growth and environmental

protection and have introduced relevant green policies, which have led to profound changes in the

manufacturing sector. China, the second biggest economy in the world, has issues with its conventional

industrial model, which is unable to keep up with the demands of fast economic expansion. These issues

include an excessive reliance on resources and an excessive number of low-value businesses. The effect of

China's green policies on industry upgrading will be the main topic of this essay. Firstly, the theoretical basis

of industrial upgrading is summarized, and then the existing green policies in China and the current situation

of industrial upgrading in China are analyzed. Additionally, a relevant study is conducted on how green

policies affect industrial upgrading. Combining the theoretical foundation of industrial upgrading and the

reality of green policies, this paper draws a diagram to illustrate the impact of major green policies on

industrial upgrading.

1 INTRODUCTION

After the Industrial Revolution, technological

advances caused a change in production methods—

the use of large quantities of chemical fuels brought

about industrial pollution. Environmental problems

are becoming more and more prominent and natural

disasters are occurring frequently.

A green economy is an economic system that

sustainably promotes economic growth while

minimizing negative impacts on the environment. It

places a strong emphasis on the use of

environmentally friendly technology in production

operations, the effective use of resources, and the

reduction of pollutants and emissions. The core

concept of a green economy is to achieve economic

prosperity while protecting ecosystems and providing

sustainable development for current and future

generations.

The global shift towards sustainable development

has led to an increased focus on green economic

development. As countries strive to balance economic

growth with environmental protection, the

manufacturing sector is undergoing significant

changes. China's previous industrial model, which

was unable to fulfill the demands of rapid economic

expansion, has suffered from an overstock of poor

value-added sectors and an overreliance on resources.

Simultaneously, the level of competition in the global

market is increasing, making industrial upgrading an

essential strategy to boost the nation's overall

competitiveness and secure a more competitive place

in the global value chain. In the face of increasingly

serious environmental problems, including climate

change and resource depletion, the old industrial

model is also unable to meet the needs of sustainable

development. Conversely, industrial modernization

and transformation will successfully advance

production techniques and technological

advancements. Achieve the goal of raising the added

value of the industrial chain by simultaneously

adjusting the industrial structure and the distribution

of production factors, moving away from the

economic development model driven by labor

accumulation and resource consumption and toward

one driven by technology.

Relevant studies show that green policies have an

obvious promotion effect on industrial transformation

and upgrading. This paper will start with the research

of industrial upgrading and transformation, explore

the mode of industrial upgrading and transformation

based on the existing theoretical foundation, and

gradually dismantle it. At the same time, combined

with the current situation of industrial upgrading in

Liu, S.

Impact of Green Policies on Industrial Upgrading.

DOI: 10.5220/0012829400004547

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 1st International Conference on Data Science and Engineer ing (ICDSE 2024), pages 299-304

ISBN: 978-989-758-690-3

299

China, it will summarize the existing major green

policies in China and analyze the key factors of

different green policies on industrial upgrading and

transformation. This study intends to further evaluate

and identify the critical elements of green policies on

industrial transformation and upgrading, as well as to

gain a thorough understanding of the relationship

between green policies and upgrading. It also

provides policy recommendations for effectively

promoting industrial transformation and upgrading,

thereby promoting sustainable economic

development.

2 RESEARCH ON INDUSTRIAL

UPGRADING

2.1 Overview of the Theoretical

Foundations of Industrial

Upgrading

China's original concept of "industrial upgrading"

was originally referred to as "industrial restructuring".

Therefore, in China, the research on "industrial

upgrading" mainly originated after the reform and

opening-up. These studies mainly focus on the

development of industrial structure and how

economic liberalization has affected it (Chen et al

2004). Poon provides a micro-level definition of

industrial upgrading, using business economic

behavior as the primary research focus. The process

through which businesses go from the bottom to the

top of the value chain and consistently raise the added

value of the goods they create is known as "industrial

upgrading" (Cheng 2009). The industrial upgrading

discussed in this paper refers to the process of making

the whole industrial chain develop in the direction of

higher value-added, higher technological content, and

higher innovation capacity by adjusting and

upgrading the industrial structure, technological level,

and management level of the economic system in a

country or region. Industrial upgrading involves

changes in several areas, including but not limited to

technological upgrading, industrial restructuring,

improvement of innovation capacity, human resource

cultivation, market expansion, environmental

friendliness, and sustainable development.

The theoretical foundations of industrial

upgrading cover a wide range of fields. Firstly, the

theory of industrial value chain upgrading suggests

that industrial upgrading can be done in four ways:

technological upgrading, product upgrading,

functional upgrading, and upgrading between value

chains (Poon 2004). Among these, the restructuring

of the industrial structure is primarily referred to as

inter-value chain upgrading (Poon 2004). Of them,

the modification of the industrial structure is the

primary definition of inter-value chain upgrading.

Secondly, David argued that different countries have

different labor productivity gaps for different

products. Countries or regions should focus on their

relative advantages of the industry, through

specialized production and trade, goods with

comparative advantages to export, and goods with

comparative disadvantages to import. Thus achieving

the effect of improving labor productivity to

maximize the trade welfare of each country (John and

Hubert 2020) This is the famous theory of

comparative advantage. According to the theory of

comparative advantage, industrial upgrading can be

achieved by constantly searching for new competitive

advantages, focusing on the development of leading

technologies or local characteristic industries,

maximizing geographical advantages according to

local conditions, and maintaining the leading edge.

Thirdly, Technical Innovation Theory was first put

forward by Joseph A. Schumpeter's Theory of

Economic Development. Joseph A. Schumpeter

presented that innovation is defined as the realization

of a new combination of production factors and

conditions that have never been realized before and

their introduction into the production system, i.e., the

establishment of a new production function (David

2010).

Innovation usually covers innovations in

production methods, products, and raw materials. It

also leads to the creation of new markets and new

forms of organization. The theory emphasizes the

close relationship between industrial upgrading and

technological progress and innovation, which are the

driving forces for the evolution and modernization of

the industrial framework. Fourthly, Wernerfelt stated

that “A firm's resources at a given time could be

defined as those(tangible and intangible) assets which

are tied semi-permanently to the firm. Examples of

resources are brand names, in-house knowledge of

technology, employment of skilled personnel, trade

contacts, machinery, efficient procedures, capital, etc

(Xiong 2019). Resource-based theory focuses on the

resources and capabilities of an enterprise and

believes that an enterprise's competitive advantage

comes from its unique and not easily imitated

resources. Applying resource-based theory to

industrial upgrading involves the rational allocation

and development of enterprise resources to promote

industrial development to a higher level.

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2.2 The Theoretical Analytical

Framework of Industrial

Upgrading

Referring to the theory of technological innovation,

this paper first divides industrial upgrading into two

parts: product technology as well as other resources.

Among the product part, this paper is divided into two

parts: centralized production of products and research

and development of new products. Based on the

theory of comparative advantage, the company should

concentrate on the production of products with

comparative advantage, while the theory of

technological innovation also emphasizes that new

products and technologies should be developed or

new technologies should be cited so that

technological upgrades can promote the enhancement

of the added value of the industrial chain to achieve

the purpose of industrial upgrading. Meanwhile, the

resource-based theory emphasizes that enterprise

resources with strategic advantages should be

integrated and synergized, including raw materials

and semi-finished products, enterprise culture, human

resources, brand value, and so on. It can also be

categorized into internal resources and external

resources through the way of acquisition. First of all,

enterprises should identify and evaluate the existing

resources of the enterprise, including human

resources, capital, brand value, and so on. Through an

in-depth understanding of the internal and external

resource status of the enterprise, it provides basic data

for the strategy formulation of industrial upgrading.

Conduct core competence analysis to determine the

competitive advantages of the enterprise in specific

fields. Encourage resource integration and synergy

between different departments. By improving the

mobility of internal resources, enterprises are

prompted to better respond to the needs of industrial

upgrading. At the same time, enterprises should not

only make good use of internal resources but also

flexibly acquire external resources. Advanced

resources of other enterprises can be acquired through

cooperation, mergers and acquisitions, and

technology introduction. Invest in the development of

key resources, and selectively invest in the

development of key resources according to the

strategic direction of industrial upgrading. This may

include investments in cultivating talents, enhancing

brand image, etc. Cultivate the dynamic capabilities

of enterprises so that they can flexibly adjust their

resource allocation to adapt to the dynamic changes

of industrial upgrading.

2.3 Current Status of Industrial

Upgrading

As shown in Fig 1, since the reform and opening up,

China's national economy has made rapid progress.

The country attaches great importance to industrial

upgrading and has implemented a series of reform

strategies. In terms of industrial structure, by

analyzing the GDP growth rate, the GDP growth rate

from 2019 to 2023 is 5.95/2.24/8.45/3.00/8.45 percent

respectively. The contribution of the secondary and

tertiary industries to the GDP growth rate is

significantly higher than that of the primary industry,

and the tertiary industry continues to be higher than

the secondary industry. From the analysis of the data,

China's service industry has been developing rapidly,

and the proportion of the service industry in GDP has

gradually increased, becoming one of the pillars of

China's economy. In particular, high-end service areas,

such as finance, information technology, culture, and

creativity, have flourished and promoted industrial

upgrading.

Figure 1: Industrial contribution to China's GDP growth (percentage) (Picture credit: Original).

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301

The current status of China's industrial upgrading

shows notable features: technological upgrading and

innovation-driven, with China increasing its

investment in technological innovation and

promoting the upgrading of its traditional

manufacturing industries to high-technology and

high-value-added industries. Efforts have been made

to develop cutting-edge fields such as artificial

intelligence, new energy vehicles, and biotechnology

to upgrade industrial technology. It has made

remarkable achievements in technological innovation,

especially a series of important breakthroughs in

artificial intelligence, 5G technology, biotechnology,

and other fields, which have promoted industrial

upgrading.

At the same time, there are also problems in

China's industrial upgrading, such as the industrial

structure still relying on the traditional manufacturing

industry, the technological innovation system is not

perfect, the innovation ability of enterprises, and the

autonomy of core technologies need to be improved,

the regional imbalance of industrial upgrading, the

mismatch between talent supply and industrial

demand, and the mismatch between talent supply and

demand of emerging industries.

3 IMPACT OF GREEN POLICIES

ON INDUSTRIAL UPGRADING

3.1 Scope and Classification of Green

Policies

Xinmiao assumed that a green industrial policy ought

to be a workable policy that prioritizes the

advancement of environmentally friendly

technological innovation and the strengthening of the

market system. In the end, it should realize the all-

encompassing green development of the economy

and society by encouraging the upgrading and green

transformation of industries (Wernerfelt 2019). Green

policy as defined in this paper refers to government

policies that promote environmental protection,

sustainable development, and a low-carbon economy

through legislation, administrative measures, and

market instruments.

This paper categorizes China's existing green

policies into six categories. The first category is

environmental laws and regulations, in which China

has enacted and enforced an array of rules and

legislation about the environment to regulate the

environmental behavior of enterprises and citizens,

and to ensure the rational use of resources and

environmental sustainability. These include the Water

Pollution Prevention and Control Law. The second

category is clean energy policy, which refers to

promoting a larger proportion of clean energy in the

energy mix by limiting the use of energy sources that

are damaging to the environment and fostering the

development and use of renewable energy sources.

This includes the renewable energy law and the

energy conservation and emission reduction policy.

The third category is market subsidies and incentives.

Gao et al. point out that a key factor that enables

industrial upgrading to be promoted is the expansion

and upgrading of consumption on the demand side.

They argue that industrial upgrading will be promoted

with the expansion and upgrading of the consumption

scale (Hu 2022). Echoing this view, Jiang Xuan's

study found that there is an imbalance between supply

and demand in China. He emphasized that expanding

domestic consumer demand should be the core focus

of industrial policy (Gao et al 2015). These include

green industry tax credits for businesses, green

technology R&D credits, and subsidies for new

energy vehicles, including for consumers. The fourth

category is carbon emission and climate change

policies, which speak about regulating and cutting

greenhouse gas emissions as well as addressing

climate change by enacting carbon emission quotas

and fostering a market for carbon trading. These

include carbon pricing mechanisms. The fifth

category is green education and green training

policies. Green policies increase investment in talent

training in the field of environmental protection and

promote universities and scientific research

institutions to strengthen green science and

technology research. This includes training programs

for green industry talents and public education for the

public. The sixth category is green finance, which

refers to a financial model in the financial system that

promotes the realization of green transformation of

the economy by directing capital flows to

environmental protection and sustainable

development. China actively promotes green finance

through the formulation of policies and the

introduction of relevant financial instruments to

encourage green investment and support

environmental protection projects to promote

sustainable economic development.

3.2 Investigations into How Green

Policies Affect Industrial

Upgrading

Referring to the study of the industrial upgrading

mechanism in 2.2, this paper divides industrial

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upgrading into parts such as product technology, other

resources, market structure, and factor allocation, as

shown in Fig 2. Among them, market structure and

factor allocation in turn interact with the upgrading of

product technology and other resources. Together

with the categorization and organization of green

policies, this paper constructs the following diagram

of the influence mechanism of the main effective

green policies on industrial upgrading. In this paper,

the author believes that the green policies that have a

major part in promoting the development and

upgrading of green industries can be categorized into

four categories: research and development support,

green education and training, subsidies and incentives,

and green finance. First, research and development

support contributes significantly to the advancement

and upgrading of green industries. Firstly, research

and development support is used to promote the

upgrading of product technology and the continuous

innovation and progress of green technology.

Secondly, Green education and training for

professional practitioners focuses on professional

practitioners, aiming to promote the upgrading of

human resources and cultivate more professionals in

the green field. The fourth Green finance provides

financial support to improve the industrial chain of

businesses, thus also positively affecting changes in

the distribution of industrial factors. These five types

of policies synergize with each other and jointly

promote the comprehensive development and

continuous upgrading of the green industry.

4 RELEVANT POLICY

RECOMMENDATIONS

To achieve greening in society and the economy,

outdated development routes must be changed, new

ways forward created, and risks distributed equally

among government and enterprises. Effective

responsibility and implementation mechanisms

should be established through forward-looking

judgment (Lütkenhorst and Altenburg 2014).

Based on the analysis of 2.2 on the current

situation of China's industrial upgrading, China

industrial upgrading still exists the problems of

industrial structure relying on the traditional

manufacturing industry, the innovation system is not

perfect enough, the environmental protection pressure

and resource consumption problems, as well as the

regional imbalance of industrial upgrading and the

imbalance of talent supply. In this regard, this paper

gives the following green policy suggestions for

industrial upgrading:

The first is to promote innovation and

technological upgrading: formulate innovation

incentive policies, including tax incentives and

financial support, to stimulate businesses to invest

more in research and development, as well as to

support technological innovation and the emergence

of new sectors; establish green innovation funds to

support environmental protection science and

technology enterprises, and to promote the

application of green technology in the manufacturing

industry; the second is to strengthen the

environmental protection supervision and standard

system: strengthen environmental protection

supervision, and to increase the enforcement of

environmental protection standards for traditional

manufacturing industries, and to promote the

adoption of cleaner technologies by enterprises. The

second is to strengthen the environmental protection

regulation and standardization system: strengthening

environmental protection regulation, increasing the

enforcement of environmental protection standards

for traditional manufacturing industries, promoting

the adoption of cleaner production technologies by

enterprises; and formulating and updating green

industry standards to guide enterprises to shift to more

environmentally friendly and sustainable production

methods. The third is to promote a low-carbon and

circular economy: formulate carbon pricing policies

to guide enterprises to reduce carbon emissions and

prompt industrial upgrading in a low-carbon direction;

support the development of circular economy

industries and encourage the resourceful use of waste,

to reduce reliance on limited resources. The fourth is

to promote regional industrial upgrading and

balanced development: formulate differentiated

industrial policies to promote industrial upgrading

with differentiated characteristics based on the

industrial foundation and advantages of different

regions; and provide financial and tax incentives to

guide the flow of funds to weaker industrial upgrading

regions, to promote balanced regional development.

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303

Figure 2: Illustrative map of the impact of green policies on industrial upgrading (Picture credit: Original).

The fifth is to focus on talent training and

introduction: strengthening the training system for

green industry-related talents, as well as raising the

bar for environmental preservation and green

technology among practitioners; promoting talent

introduction policies to attract Superior skills in

environmental science and technology and

management talents, and prompting enterprises to

carry out more in-depth innovations and

improvements in the area of safeguarding the

environment.

5 CONCLUSION

This study divides industrial upgrading into four ways

of upgrading: Product technology, Other resources,

Market structure, and Factor distribution, where

Other resources are divided into three ways of

upgrading: Human resources, semi-finished goods,

raw resources, and brand value. Simultaneously,

China's existing green policies are summarized,

mainly divided into four forms: research and

development support, green education and training,

subsidies and incentives, and green finance.

Combined with the current situation of China's

industrial upgrading, the analysis names the key

factors in the impact of green policies on industrial

upgrading, specifically the Research and

development support Policy for Product technology,

the Green education and training Policy for Human

resources, and the Green education and training

Policy for Market structure. The results of this study

provide five policy recommendations for green

policies, namely, promoting innovation and

technological upgrading, strengthening the

environmental regulation and standardization system,

enhancing environmental protection, and

strengthening the environmental management system

and standardization system. The findings of this study

provide five policy recommendations for green

policies, namely, promoting innovation and

technological upgrading, strengthening

environmental regulation and standardization systems,

promoting low-carbon and circular economy,

promoting regional industrial upgrading and balanced

development, and focusing on talent training and

introduction. This study identifies important

components in the influence of green policies on

industrial upgrading, drawing on prior research on the

subject's effects in China, which helps readers to

understand how green policies affect industrial

upgrading, but to quantify how much the impact has

been, subsequent studies can be further quantitatively

analyzed on this basis.

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