Preface

Since the Reform and Opening-up policy, resource-driven economy has resulted in industrial growth in China. Many Chinese enterprises have developed into famous multinational enterprises owing to the low-cost competitive strategy, such as Haier, Lenovo and so on. However, with the increasingly scarce resources and urban land, and the rising salary level, it is not a long plan for the future. The increasing comprehensive cost has become a significant bottleneck restricting Chinese economic development. In order to overcome the challenge, the government has put forward the innovation-driven development strategy to sustain economic development and has been sparing no effort to implementing it by emphasizing the important role of technology. As for the enterprises, from the micro-perspective, it is not easy to establish their own innovation advantages.

We find that ‘Made in China’ is losing its edge in low cost when compared with products made by other countries. In this paper, comprehensive cost consists of corporate tax, labor cost, land cost, Raw material cost and other cost. It finds that almost above-mentioned costs have showed a clear upward trend in the last few decades. Many Chinese manufacturing enterprises are in the global value chain's low end because of the lack of core technology and the weak capability for independent innovation. It is urgent for Chinese industry to upgrade industry's core technology in order to deal with the lack of owned intellectual property standards and independent brands. The contradiction between the increasing cost and undeveloped technology asks China to change its model of economic development. In other words, Chinese economic growth should take full advantage of the innovation and deepening reform Rather than the demographic dividend and low land cost, and should transfer from the stage pushed by element and investment into the new stage driven by innovation.

As for industrial upgrading, industrial chain upgrading and technology upgrading, a review of literature indicates that the research on these subjects'definition, classification and influencing factors is extensive, however, the research on industry's core technology is insufficient, especially the effects of the cost on the industry's core technology. This paper has a review of the current results of theoretical research on technology upgrading in the world. Based on the Comparative Advantage Theory, this paper analyzes the relationship between increasing comprehensive cost and industry technology innovation and then reveals the principles of the increasing comprehensive cost's effects on the industry's core technology. Based on an analytical framework of New Structural Economics, this papertakes the input of research and development as a mediator variable in order to further study on the effects, under the Relative Factor-Price Advantage Theory, Comparative Advantage Theory and Endogenous Growth Theory.

Then, this paper analyzes the evolution of industry's core technology upgrading by use of evolutionary game models. This paper constructs two types of evolutionary game models. According to gaming participants'behavior, this paper constructs one type of model including three evolutionary game models: one model for the rise-in-price gaming between various enterprises in industry, one model for the core technology upgrading gaming between various enterprises in industry, and another model for the core technology upgrading gaming between enterprise and government. According to different market conditions, this paper constructs the other type of model including two evolutionary game models for the enterprises group: a symmetric game model and an asymmetric game model. From these models, we find out the evolutionary stable strategy and the replicator dynamic of the industry's core technology upgrading under the pressure of increasing comprehensive cost. We reveal the effects of comprehensive cost on the industry's core technology upgrading, understand the prerequisites of transfer effect, transformation effect, transition effect and replacement effect, discuss the barriers to the industry's core technology upgrading when the comprehensive cost is increasing, and construct a theoretical model of the increasing comprehensive cost's effects on the industry's core technology upgrading.

This paper has drawn lessons from external experience of promoting core technology upgrading, especially the developed countries'experience, such as American experience and Japanese experience. We find that the effective promoting mechanisms from the three views of the macroscopic, the middle and the microcosmic is an underlying cause for continuously upgrading of core technology. These effective promotion mechanisms includes: promoting industry development by technology upgrading, providing the guidance and policies for innovation, improving technology personnel training and reserve mechanism, and establishing collaborative innovation system between government, enterprise, school and research institute. It is still need to discuss that these mechanisms also can play an effective role in promoting the industry's core technology upgrading under the pressure of increasing comprehensive cost in China.

In order to validate the validity of the theoretical model, this paper carries out three empirical studies. Each study has its own sample and data. In the first empirical study, the provincial panel-data of industry during 2000—2012 is selected as a sample for testing the relationship between factor cost and input of research and development on the industriallevel. It indicates that the price of land has a negative effect on input of research and development and that the increase of labor cost, the increase of environmental cost and the rise of commodity price level all have a positive effect on input of research and development.

In the second empirical study, the panel-data of 34 typical Chinese listed manufacturing companies during 2004—2013 is selected as a sample to verify the effects of labor cost, capital cost and selling cost on the quantity of patents. This study indicates that the mentioned costs all have a significant effect on technology innovation. At 5%significance level, labor cost has a negative effect on technology innovation, which means that labor cost rising by 1%leads to the quantity of technology innovation falling by 4.24%.At 1%significance level, capital cost has a positive effect on technology innovation, which means that capital cost rising by 1%leads to the quantity of technology innovation rising by 10.53%.At 1%significance level, transaction cost has a negative effect on technology innovation, which means that transaction cost rising by 1%leads to the quantity of technology innovation falling by 0.1%.

These two empirical studies have proved the effects of comprehensive cost on input of research and development and the output of technology innovation. In order to take a closer look at the relationship between comprehensive cost, input of research and development and the output of technology innovation, another empirical study is carried out. Chinese listed manufacturing companies are selected as sampling models to do empirically tested work for the relationship between comprehensive cost and the input. These companies are divided into two parts. One is the high-tech manufacture industry. The other is the low-and medium-tech manufacture industry. It finds that the high-tech manufacture industry is more likely to increase the input of research and development under the pressure of increasing comprehensive cost. Then the high-tech manufacturing industry is selected as sampling models to do empirically tested work for the mediator effect of input of research and development between comprehensive cost and the quantity of three types of patents. It proves that increasing labor cost results in the increase in the quantity of the invention patent, utility model patent and design patent. Increasing selling cost results in increasing the quantity of the utility model patent and design patent. The increase of urban construction and maintenance taxes, as well as the increase of the capital cost, leads to the increase of the design patent's quantity. It finds that the more input of innovation is, the more output of innovation is. The input of research and development fully mediates the effect of the increase of labor cost on the quantity of the invention patent. It also partly mediates the effect of selling cost on the quantity of the invention patent andthe effect of labor cost on the quantity of the utility model patent. At the same time, it plays a part-mediating role on the effect of labor cost, selling cost, and environmental cost on the quantity of the design patent. The effect of capital cost on the quantity of the design patent is partly mediated by it, too. As for the low-and medium-tech manufacture industry, there is a positive correlation between the selling cost and R&D expenditure. Other cost is not significantly related to R&D expenditure, which indicates, as for the low-and medium-tech manufacture industry, that only the increase of selling cost could lead to improvement of technology innovation.

Based on the above-mentioned, this paper puts forward some policy recommendations from the government level and the enterprise level respectively. As for the government, they should slow down the cost's rising by administrative means, support and protect the enterprises'behaviors and outcomes of the innovation. As for the enterprises, in order to increase the capacity for innovation and construct core competences, they should set up the concept of technology innovation, develop appropriate technology upgrading strategy in terms of the stage of enterprises'development and industrial characteristic, choose the proper path of upgrading, reserve qualified personnel, and strengthen technological cooperation.