1. Introduction
Since the 1990s, vertical specialization featured by separation of production processes in different locations has promoted global value chain (GVC) specialization, which has brought unprecedented development opportunities for developing countries. During that process, China tapped into its labor cost and policy advantages that followed its reforms and opening-up. Due to international relocation of industries on a large scale, products “made in China” have been increasingly embedded into the GVC. However, China’s manufacturing industry is still at the medium or low end of the GVC. It is large in scale, but weak in terms of core competitiveness. Due to the lack of high-end factors, such as core technologies and brands, China’s manufacturing industry is experiencing hardship in moving up the value chain. In another words, China is facing the severe issue of low-end lock-in. Apparently, low-end lock-in of the manufacturing industry runs counter to the current goal of high-quality economic development in China, which is an issue facing all developing countries. Such issues also impose vital impacts on developing countries’ engagement in global climate change governance. Suffering from low-end lock-in in their manufacturing industries, developing countries tend to be “conservative” in setting their goals for carbon emission peaks and carbon neutrality.
In terms of the factors influencing developing countries’ value chain upgrading, there are internal reasons, such as factor endowment and external constraints on industrial development. Developing countries are subject to factor endowment in the early stages of development; they specialize in labor-intensive industries and low-end processing in high-end industries. Taking the supply chain Apple Inc. as an example, China manufactures or assembles the vast majority of Apple’s electronic products, but claims less than 2% of the value added (Kraemer et al., 2011) [
1], which is much lower than that of the other processing procedures in the Apple industrial chain. By examining the role of factor input in industrial upgrading at both the industry and enterprise levels, Yang and Huang (2014) [
2] argued that technological innovation and the simultaneous increase in materials and human capital—in particular, the accumulation of human capital—help in realizing manufacturing upgrading in China. Moreover, research by Poon (2004) [
3] demonstrated that technological level and marketing capability are important indications of competitiveness, which are also the key factors in driving enterprises to enter capital-intensive and technology-intensive sectors. Qu et al., (2020) [
4] believed that China’s manufacturing industry needs to switch from factor-driven and investment-driven development to innovation-driven growth. Efforts should be made in original innovation and basic research. In-depth cooperation with multinationals should be promoted in R&D, brand design, marketing channels, etc., to move up the GVC and stop being held as a “captive” at the low end.
With respect to external conditions, factors affecting manufacturing upgrading or GVC elevation include the service level of the manufacturing industry (Neely, 2008; Kastalli & Looy, 2003; Crozet & Milet, 2017) [
5,
6,
7], the presence of multinational firms (Saliola & Zanfei, 2008) [
8], and industrial policy (Cheng & Kwan, 2000; Wang, 2013) [
9,
10], among others. It is worth noting that the prosperity and rapid expansion of the real estate industry may also influence manufacturing upgrading and GVC elevation. In fact, when China’s GVC participation rate showcased a substantial increase, housing prices in China also skyrocketed. The annual increase in average housing prices from 2000 to 2013 in China was 8.69%. The increase in 35 Chinese medium and large cities from 2004 to 2013 was as high as 11.65%. Surging housing prices attract wide attention from academia. Recent years have witnessed the emergence of a series of studies on the impacts of housing prices’ on economic activities, including their impacts on consumer spending (Kishor, 2007; Dong et al., 2017) [
11,
12], investment risk (Gang et al., 2021) [
13], labor flow (Laamanen, 2013) [
14], resource allocation efficiency (Zhou et al., 2020) [
15], economic growth (Collyns & Senhadji, 2003; Hui et al., 2007; Miller et al., 2011) [
16,
17,
18], credit constraints (Corradin and Popov, 2015) [
19], etc.
It is also worth mentioning that current research on the impacts of housing prices on manufacturing upgrading has not reached a consensus. Some scholars believe that increases in housing prices can significantly promote industrial upgrading. For example, research by Rong and Ni (2020) [
20] and Gan (2007) [
21] revealed that housing price increases boost capital appreciation for property-owning enterprises, which enhances their external financing capacity. This means that such enterprises are able to obtain additional investments for technological innovation and enterprise upgrading. Helpman (1998) [
22] maintained that housing prices affect the relative utility of labor, and thus suppress the clustering of labor in a region. In addition, Foote (2016) [
23] demonstrated that housing price increases exert positive wealth effects and negative lock-in effects on the migration decisions of home-owning laborers. To put it differently, high housing prices suppress labor inflow (Rabe & Taylor, 2012) [
24] and elevate salary levels and enterprise production costs, delivering crowd-out effects on low added-value and labor-intensive industries in a region (Liang et al., 2016) [
25]. However, for technology-intensive enterprises that are insensitive to housing prices, rent costs, and labor costs, employees continue to cluster in the region. As a result, enterprises in such a region gradually climb up the value chain and ultimately realize industrial upgrading through industrial restructuring (Cai, 2021) [
26]. However, and conversely, other researchers have found that housing price increases stunt industrial upgrading. Housing price increases generate high-return investment opportunities in the real estate industry. Capital in the manufacturing industry will be drawn into the real estate industry. When enterprises invest in the real estate industry, their input in R&D and innovation invariably decreases, which prevents technological innovation and exerts negative impacts in industrial upgrading (Rong et al., 2016) [
27]. Sun and Tang (2021) [
28] also found that housing price increases significantly suppress the upgrading of the industrial mix in local and neighboring regions by distorting capital, inhibiting consumption, crowding out labor, and other means. The above research on the relation between housing prices and industrial upgrading employs a three-sector structure to indicate industrial upgrading in a region. Such an inaccurate measure may be the reason for the contradictory conclusions among current studies. As Zhou et al. (2018) [
29] pointed out, the changes in a three-sector structure mainly reflect the evolution of the industrial structure over time, instead of industrial upgrading. Such a measurement fails to display the internal messages of manufacturing industry. Enterprise upgrading and industrial upgrading are, in essence, added-value increases for products (Pietrobelli & Rabellotti, 2006) [
30], which are displayed by the transition from producing low value-added products to producing high value-added products, coupled with enterprise status elevation in the product chain or the product value chain (Gereffi, 1999) [
31].
Based on the above literature review, the current research on the effect of housing price increases on manufacturing upgrading presents several gaps to fill. First, research on the impact of housing prices on enterprise upgrading is, in China and the world at large, inadequate, especially empirical research on the impact of housing prices on industrial upgrading at a micro level. Second, due to the inadequacy in micro-level research, current macro-level research is conducted by measuring industrial upgrading on the basis of shares in a certain type of industry. The results may be biased, as neither the value-added of products nor the elevation of value chain status is taken into account. Third, in terms of the impact mechanism, the cross-region flow of labor is interpreted as the intermediary mechanism through which housing prices affect industrial structural upgrading. The micro-level mechanism of the impact of housing prices on enterprise-upgrading is neglected. To fill these gaps, this study employs micro-level data of Chinese enterprises, unravels the impact of housing prices on industrial upgrading from the perspective of value chain on an empirical basis, and explores the micro-level mechanism through which housing prices affect industrial upgrading. Compared with current research, this study makes its contribution in the following three ways: first, in terms of the research angle, this study examines the impact of housing prices on industrial upgrading from the perspective of the enterprise value chain on an empirical basis for the first time; second, in terms of research sample, this study selects industrial enterprises from Chinese industrial and listed-enterprises databases from 2001 to 2013 as samples, which is a breakthrough compared with previous research based on the three-sector industrial structure; third, in terms of research content, unlike previous research focusing on the impacts of housing prices on industrial structural transformation, this study concentrates on the impact of housing prices on upgrading within an industry, reveals the intermediary mechanism through which housing prices affect industrial upgrading, and explores the heterogeneous impact of housing prices on enterprise upgrading.
5. Conclusions
This study employed data for industrial enterprises in 35 Chinese medium or large cities from 2001 to 2007 and data of 1413 listed enterprises to investigate the impacts of urban housing prices on the value chain upgrading of such enterprises. In addition, this study explored the intermediary mechanism, the non-linear characteristics, and the heterogeneity of the impacts of housing prices on enterprises’ value chain upgrading. The empirical results demonstrate the following:
(1) In general, housing prices deliver significant obstructing effects on value chain upgrading of Chinese industrial enterprises. When the per capita area of land supply is adopted as the instrumental variable for housing prices, housing prices still significantly suppress enterprises’ value chain upgrading. However, there are differences in the impacts of housing prices on enterprises’ value upgrading, in terms of time. From 2005 to 2007, 100% increases in housing prices led enterprises’ value-added rate to decrease by 12.4%.
(2) Analysis on the intermediary mechanism showed that soaring housing prices since 2004 obstructed enterprises’ value chain upgrading, through innovation suppression effects and resource misallocation effects.
(3) Due to the huge differences in housing prices in various regions, the impacts of housing prices on enterprises’ value chain upgrading also indicated region-based variance. Further analysis indicated that urban housing prices delivered non-linear and inverted-U impacts on enterprise upgrading. The tipping housing price was 3720 yuan/m2. Furthermore, the impacts of housing prices on the value chain upgrading of industrial enterprises are heterogeneous, in terms of ownership, size, export, and subsidy.
(4) Test results based on listed enterprises revealed that the value chain upgrading of listed manufacturing enterprises is also subject to the obstructing effects of urban housing price increases. When overall housing prices were replaced by residential housing prices for robustness checks, the results showed that housing prices still suppressed enterprises’ value chain upgrading.
The conclusions drawn in this study carry rich policy implications.
(1) The government and the relevant department(s) should pay attention to the negative impacts of surging housing prices on industrial upgrading and the development of the real economy. Driving housing price increases for industrial upgrading and growth of the real economy, a practice exercised by some cities, is detrimental. In the long term, as it will only lead to economic issues such as a low level of innovation, resource misallocation, lock-in in low-end industries, and a sluggish growth driver. Therefore, the establishment of a long-term and effective mechanism for stable housing prices and curbing rapid housing price increases is of great significance for economic structural adjustment, industrial transformation and upgrading, and economic growth.
(2) Efforts should be made to promote market-based reform for the real estate market. High housing prices deliver innovation input suppression effects and resource misallocation effects on industrial enterprises. On the one hand, housing prices should be kept at a stable range in the long term to avoid a decline in investment in R&D and in the main business of enterprises. Meanwhile, the government should encourage enterprises to increase innovation input through fiscal and taxation policies, to create a favorable atmosphere for technological innovation. On the other hand, market-based reform for interest rates and factors should accelerate. The government should eliminate the distortion in the factor market and promote financial institutional reform to lower the degree of resource misallocation. For example, market-based measures such as a property tax can be adopted to avoid the overflow of capital into the real estate sector.
(3) City-specific real estate policies should be implemented. The impacts of housing prices on enterprises’ value chain upgrading are varied in different cities. There is no one-size-fits-all policy for all cities. For a city where housing prices surpass the threshold and start to negatively affect enterprise-upgrading, comprehensive regulations on housing prices are beneficial to industrial upgrading in the city. Central and western Chinese cities, where housing prices are relatively low, are weaker in industrial foundation and lack geographical advantages compared with eastern seaboard cities. Such cities should remain on guard against the negative impacts of housing price increases on industrial upgrading. However, viewed from the other perspective, the relatively low housing prices in central and western Chinese cities are advantages. By offering premium public services and infrastructures, these cities can accommodate industries relocated from eastern China and realize industrial upgrading.
It is worth stating that it is still possible to generalize valuable information from the results even though the data are almost 10 years old. First, although some changes may have taken place in markets, cities, and enterprises during this period, the interaction between real estate and manufacturing has not changed in nature. In recent years, the Chinese government has successively issued many regulatory policies to promote the healthy development of the real estate market and the transformation and upgrading of the manufacturing industry. Therefore, balancing the relationship between real estate and the manufacturing industry is still a hot topic in China’s political and academic circles at this stage. Second, although the research data are old, the research conclusions still have important reference value for the healthy development of China’s real estate market and for realizing the upgrading of the manufacturing industry and high-quality economic development. Moreover, our research conclusions have certain enlightenment significance for some developing countries that are in the primary stages of industrialization.