own valve-making company in Yongjia

companies, some counted among China’s leading industrial enterprises today. By 2005, collective firms represented only a tiny proportion of employment in TVEs (Naughton 2018).

While China’s industrialization strategy was initially based on cheap labor, with labor productivity increasing more rapidly than earnings, increasing investment in physical and human capital allowed China to move up the value chain in a growing number of sectors.19 Alongside improvements in education access, a significant public health effort helped make the labor force healthier and more productive.20 Through “learning by doing” and vocational training, some rural migrants who had received little formal schooling beyond compulsory levels were equipped with skills that allowed them to become more productive and increase their income (see box 3.2 on the valve making industry). From 1992 to 2001, the average labor productivity of secondary industry increased from 8,150 yuan to 30,133 yuan and the average annual manufacturing wage tripled from 2,635 yuan to 9,774 yuan (figure 3.3).

China’s WTO accession in 2001 significantly accelerated the process of industrial upgrading, turning China into a giant workshop for the global economy. The share of foreign trade in China’s GDP rose significantly, from 39.6 percent in 2000 to 63.8 percent in 2005. In 2009, China’s export value reached US$1.2 trillion and it replaced Germany as the largest global exporter. Chen and Ravallion (2004); Hertel, Zhai, and Wang (2004); and Sicular and Zhao (2004) present evidence of the positive impact of China’s WTO accession on average household incomes. Although the resulting terms of trade shifts benefited predominantly urban consumers, rural households nonetheless benefited indirectly through new job opportunities and through the remittances from migrant workers, and were additionally supported by the shift in net government taxation of the agricultural sector as discussed in the previous section (Anderson and Martin 2008).

Shortly after WTO accession, China began to adopt national strategies aimed at closing regional disparities that had widened in the previous decade. Regional development strategies such as the Western Development Program and the Rise of Central China promoted industrial investment in these regions, channeling government resources to improve connectivity with the eastern region and the global production system. The composition of total investment in fixed assets shifted away from the eastern region, with its share declining from 66 percent in 2003

BOX 3.2 Upgrading skills through learning by doing: How Mr. Xie Dewu set up his own valve-making company in Yongjia

Valve making is one of the pillar industries in Yongjia, populated by about 400 small and medium enterprises. Henghua Safety Valve Company with 80 employees ranked in the top 150 of these firms by sales. It manufactures products with high safety requirements for the electric and petroleum industries. Its boss, Mr. Xie Dewu, was born into a poor family and rose to be an entrepreneur through learning by doing. After graduating from lower secondary school, Xie worked for five years with his elder brother in processing spare valve parts in a family workshop. In his daily work, with the help of family and friends, he gradually learned the ropes in operations, enriched his technical knowledge, expanded his social network, and accumulated capital. In 2008, he set up his company, Henghua, which in 2018 generated output worth 40 million yuan a year, led by substantial progress in competitiveness and technology adoption. Now, Henghua is upgrading its workshops with digital and automation technology.

Among the five enterprises the Center for International Knowledge on Development team visited in Yongjia, the owners of three of them, including Mr. Xie, had completed only lower secondary school. Their human capital is accumulated through learning by doing.

Source: CIKD case study on poverty alleviation in Yongjia, carried out by the CIKD team (World Bank, forthcoming).