Social Sciences in China (Chinese Edition)

No. 4, 2025

China’s Structural Transformation Through the Lens of Evolving Production Networks

(Abstract)

Guo Kaiming

An objective understanding of the evolution of China’s production networks offers valuable insight into the economic drivers behind the country’s structural transformation. From the perspective that changes in production networks are endogenous to technological progress, this paper comprehensively assesses the impact of such progress on China’s industrial structure from 1995 to 2022. The study reveals that neutral technological change within the secondary sector has played a key role in both structural transformation and the reconfiguration of production networks. Specifically, the effects of neutral technological change in the secondary sector and capital-biased technological change in the tertiary sector stem primarily from the development of high-tech manufacturing and productive service industries, respectively. Moreover, by accelerating changes in the factor structure, neutral technological change within industries has offset the effects of capital-biased change, resulting in a U-shaped shift in the labor income share. Looking ahead, capital-biased technological change in the secondary sector may emerge as the dominant force driving structural transformation. To support China’s continued industrial upgrading, policy should focus on leveraging the diffusion effects of production networks, improving the alignment between human resource supply and demand, and fully unleashing the potential of innovation and talent.