China has become a big country in the equipment manufacturing industry，but not a power in the world.Although the development of China’s equipment manufacturing industry is very fast，basically the core components relied on the imports，such as car’s engine，electronic integrated circuit chips etc..Due to the lag in technology，the export manufacturers need to import machinery and equipment from developed countries to improve the quality of their products and achieve the rapid growth of exports with effects of“Import-induced Export”.But the implementation of the strategy of“import for export”also inhibits the industry relevance between the equipment manufacturing industry and producer services of Chinese native.

However，the core technology of equipment manufacturing industry requires a large amount of productive service inputs，not from processing procedure.Productive services is mainly intermediate inputs in product manufacturing or service delivery process，whose knowledge and technology determines the competitiveness of equipment manufacturing industry.Because producer services built into the equipment manufacturing industry，China’s equipment manufacturing industry can’t focus on their“core competence”，which leads to producer services without the substantial development.With the deepening of social division of labor and the decline of transaction costs，the producer services will gradually separate from equipment manufacturing to specialized production.Under the impetus of the third industrial revolution，specialized production service will deeply merge with the equipment manufacturing industry.

Firstly，on the basis of division and professionalization theory，the paper researches the relationship of equipment manufacturing industry，transaction cost and the productive service externalization.Secondly，the paper studies the motivation，types，impacts of the merge between productive service and the equipment manufacturing industry under the background of the third industrial revolution.Then this paper works out the degree of industrial connection of producer services and equipment manufacturing with Chinese input-output tables for the year of2002and2007，as well as the OECD input-output table.The paper also studies the spillover effect on the Chinese technology revolution through imports of conponents and equipment from developed industrialized countries.In addition the effect of merge between producer services and equipment manufacturing is also our focus.Finally，the paper researches the space agglomeration of producer services and the equipment manufacturing industry in the context of the integration of Yangtze River Delta.

This book mainly draws the following conclusions.

Firstly，with the continuous expansion of market the vertical integration model will gradually disintegrated for the equipment manufacturing industry according to the Theorem that“market size limits the division of labor”.Productive services will be outsourced gradually.But in China the contract maintenance is high because of low degree of commercialization，the unsound credit system and the unable handing legal dispute and etc.In complementry the fiscal policy has promoted the separation of the productive service and equipment manufacturing industry.

Secondly，through comparative analysis of input-output tables in the year1997，2002and2007，the producer service inserted in the capital-intensive equipment manufacturing industry has not enoughly invested.In2002and2007，the demand for technology services was growing rapidly.On the contrary，the demand for the information service has dropped significantly.In addition the infrastructure construction plays an important role in driving China’s economic development by comparing input-output tables of the OECD，For each subdivision of producer services industry，there is a higher demand for the equipment manufacturing industry than that in the developed country but with the lower productive service investment.

Thirdly，the investment of R&D Capital has certain inhibitory effect on technological progress in China mainly because of insufficient R&D，unreasonable R&D structure and institutional drawbacks.The Producer Services import has a great effect on technical progress in China.On the contrary，the complete sets of imported equipment have significant negative effects.The reason may be that they are mainly used for investment demand and transferred to fixed capital.The labor force does not need to know why but how to use.

Fourthly，Shanghai has formed dual agglomeration of productive service and equipment manufacturing industry.Jiangsu and Zhejiang also gradually become the manufacturing agglomeration regions.In Shanghai there are abundant R&D services，wholesale-retail network，business services and information service，which have a significant positive impact on the equipment manufacturing industry in Yangtze River Delta.But due to high logistics cost and low finaial support，the transportation，warehousing，the postal service and the financial insurance have some significant negative impact on the equipment manufacturing industry in Yangtze River Delta.

The innovation in this article manifests as follows.Firstly，the innovation on the research perspective：the article has inspected the problem of lag of producer services due to the lack of its externalization.In addition and the weak competitiveness of equipment manufacturing industry is due to the underinvestment of productive service.Secondly，the innovation on the theory：the article discusses the fusion which is blending productive service and equipment manufacturing industry.It refers primarily to the degree of involvement which is for productive service，and in turn which productive service embedded in the equipment manufacturing industry brings the upgrade of the equipment manufacturing industry and etc.Thirdly，the innovation on the research mode：using the WOID input-output table date，the paper analyzes the vertical separation degree of China’s productive service and the equipment manufacturing industry.The paper also undermined the data of input-output table of China in1997，2002and2007and the OECD input-output table data.

Key Words：Producer Services Equipment Manufacturing Vertical Separation Convergence