Constructing a Value Chain from below: Emergence of NEV Battery Manufacturing and Advanced Cluster Policy in the Pearl River Delta, China

Keywords:

Abstract:

In China’s Pearl River Delta, which is the pilot region of master plan Made in China 2025, the region of Huizhou City has recently emerged as an important industrial cluster specialized in battery manufacturing for electric cars (NEV) both domestically and internationally. As a second tier city in the Pearl River Delta, Huizhou received a lot of factories relocated from higher cost regions such as Shenzhen. Traditionally, Huizhou has developed strong electronics industries, including lithium batteries for 3C products.
How have the firms’ strategies and local government industrial policies promoted such an emergence of battery production cluster inserted into global and regional value chains? What are the patterns of regional innovation system which helped the technological upgrading to capture Chinese NEV opportunities? Based on in-depth interviews and extensive field work of all local producers in the NEV value chain, this paper describes the main characteristics of value chain of lithium-ion batteries manufacturing for NEV in Huizhou, detailing firms’ value chain strategies, productive organizations, innovation capabilities, market positions, and policy relevance, etc.
It is found that local Chinese battery firms have successfully created a local industrial cluster of manufacturing in leveraging regional and industrial resources available, and rapidly upgrading in terms of new technology implementation, engineering, and capital investment, while facing the challenge of scaling up and adopting advanced manufacturing system for production capacity building, increasing production flexibility, as well as carrying out more profound research on cell design to supply NEV OEM companies and other sectors.
It is argued that the further development and upgrading of this emerging industry as one of the core sectors in the region depends much on the construction of a fully developed industrial ecosystem, as defined by Suzanne Berger (2013), which can provide firms with advanced capabilities including skills, engineering knowledge, funding, precompetitive R&D, suppliers, facilities, and industry knowledge. Many firms can draw on these capabilities and combine them with their own internal resources to scale up and innovate. Cluster policy of advanced industries consists not only measures to develop and promote the complete value chain from raw materials to pact system production, it has to aim to construct such an industrial ecosystem to help upgrade the emerging industry from below.