Innovation-driven development benefits China and the world

By He Yafei
0 Comment(s)Print E-mail China Today, March 11, 2016
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China is simultaneously dealing with slowing economic growth, difficult structural adjustments, and absorbing the effects of previous economic stimulus policies. The Chinese economy faces severe challenges, in the form of slowing economic growth, deflation, a fall in enterprise profits and tax revenues, and lurking financial risks. Meanwhile, the global economy remains under the shadow of the financial crisis, and recovery is sluggish. Countries around the world are therefore exploring new development concepts and growth models in hopes of promoting stable and sustained development of the world economy.

Under this background, China's 13th Five-Year Plan has attracted wide attention. The world hopes that China's economy will continue to act as an engine for global growth, and that Chinese wisdom might formulate a new economic growth concept and roadmap. The focus of the recent G20 Finance Ministers and Central Bank Governors Meeting in Shanghai was on sources of new dynamism for global economic growth. China will hold the G20 Hangzhou Summit this in September 2016, amid high expectations.

Why Does China Propose Innovation for Development?

China's economy has now entered the "new normal." Development Research Center of the State Council (DRC) statistics show that China's potential growth rate during the 2001-2005 period was 9.8 percent; 11.2 percent during the 2006-2010 period; 9.7 percent during the 2011-2015 period; and 6.5 percent during the 2015-2020 period. These figures demonstrate that China's potential growth is transitioning from high speed to medium-to-high speed. As President Xi Jinping observed, China's new normal economy has emerged, and has several notable features. First, the economy has shifted gear from the previous high speed to medium-to-high speed growth. Second, the economic structure is steadily improving and upgrading. Third, the economy is increasingly driven by innovation. The present overall strategy to boost Chinese economic growth is to adapt to and understand the new normal, and thus achieve healthy and sustained economic growth.

Therefore, a brand new development concept, compatible with current conditions in the new era, and which will guide our practice, is needed. Knowledge and action are both essential, and intelligent action requires forethought. Therefore, China has proposed the five development concepts of innovation, coordination, green development, opening up, and sharing, among which innovation is considered the core. Those concepts are the key to resolving the problems that impede China's economic growth and roadmap towards socio-economic development. They also constitute, after thorough consideration of world economic growth patterns and reforms to the global governance system, China's contribution to the world.

The current pervasive pressure indeed compels us to boost economic growth through innovation. The Chinese economy achieved consistently high speed growth in the 34 years following the end of the 1970s, when the reform and opening-up policy came into effect, with average annual growth of around 9.8 percent. It was mainly driven by supply-side factors, such as a cheap labor force and land, a late-mover's advantages, as well as demand-side factors such as a substantial rise in residents' incomes and thriving infrastructure construction. China's GDP now exceeds US $10 trillion, and ranks a world No.2, with GDP per capita of US $8,000, and has climbed to a new high in terms of social productive forces, comprehensive national strength, and science and technology. China's achievements appear miraculous, taking into consideration its massive population of 1.4 billion. However, China now faces the growingly prominent problem of uneven, uncoordinated, and unsustainable development, and the immense pressure this exerts on population, resources, and environment. For example, China's working-age population (15-59 year-old) has peaked, and its dependency ratio has reached a turning point. The country hence needs new impetus for its future development. Therefore, we must boost development through innovation in a bid to promote effective supply-side reform and unleash the innovative potential of science and technology.

Innovation-driven Development Connotations

What exactly does innovative-driven development mean? How do we implement an economic development strategy driven by innovation? Judging from the challenges that China's economy faces, innovation, when compared with developed nations, remains the country's major shortfall. The aim of innovation-driven development is to foster a new impetus against the backdrop of the new normal. Total factor productivity (TFP) is a comprehensive index to evaluate innovation achievements. Its enhancement, therefore, plays a crucial role in this regard.

The reason primacy is given to the new concept of innovation-driven development is because innovation is a major propellant of development. Chinese President Xi Jinping indeed stated that innovation should take center stage in the national development strategy, in the form of theoretical, institutional, and scientific and technological innovation, and become common practice in party and state work as well as throughout society.

As the driving force behind traditional development peters out, both the new and old impetus for economic growth need to be transformed in good order. The key lies in expanding innovation capacity by nurturing new industries and production factors, creating new development models, and exploring new markets. Meanwhile, national projects in such areas as 马mass entrepreneurship and innovation, Internet plus, and Made in China 2025 are expected to lead China's social and economic progress to embrace a new era.

China's economy has indeed entered a new age. Despite the economic downturn and a turbulent financial market, China maintained in 2015 growth rate of 6.9 percent, and at the same time bolstered employment. And a daily average 12,000 new companies were registered throughout the country. Over the same period, more than 20,000 new technological enterprises were established in Beijing's Zhongguancun Science Park, achieving year-on-year growth of 23 percent and contributing 40 percent to Beijing's economic growth. Also in 2015, a total of 256,000 patents were licensed -- 78 percent more than in 2012. New industries and business models are constantly emerging and thriving. From 2013 to 2015, the annual average value of online retail sales rose 40 percent. High-tech products such as industrial robots, new energy autos, and photoelectronic devices have also multiplied. Meanwhile labor productivity reached RMB 76,978 per person -- 22.2 percent higher than in 2012.

Substantial progress amid economic restructuring has laid a solid foundation for innovation-driven development that will optimize the economic structure and achieve high quality, sustainable development. Supply-side structural reform will play a significant role in this regard. According to the statement issued after the Central Economic Work Conference of 2015, China's economic work in 2016 focused on the five tasks of reducing industrial capacity, destocking, de-leveraging, lowering corporate costs, and strengthening weak links.

China is determined to weed-out and soak up its excess capacity, and to beef-up its service industry and consumption. The economy's transition and upgrade have maintained steady momentum. The share of tertiary industry in China's GDP continues to rise, which implies that the service sector has begun to take the lead. In 2015, service industry accounted for 50.5 percent of China's GDP – 10 percent more than the secondary industry share. Meanwhile, final consumption expenditure accounted for 66.4 percent of the nation's economic growth. Urbanization has also risen. As at the end of 2015, 56.1 percent of the population lived in cities, 3.53 percent more than in 2012. Such tireless efforts are vital in order to advance along the broad road of innovative-driven development.

Innovative-driven development is more than simply a new leading principle in the fields of economy and science; it also encompasses institutions and development modes. Therefore, we must keep an open mind as regards comprehending and implementing this notion. The "new economy" concept, raised in this year's government work report, added substance to innovative-driven development by defining it as new momentum, new industries, and new business models. Moreover, innovation is encouraged not only in institutions at the macro level, but also in business patterns at the micro level. To sum up, innovation-driven development is the key to actualizing China's goal of maintaining growth at above 6.5 percent.

Global Significance of Innovation-driven Development

Implementation of innovation-driven development is not only conducive to a stable and healthy Chinese economy, but also carries great significance as regards China and the world's economic growth.

In the new era of burgeoning globalization and new industrial revolution, it is clear that China's economy must fully utilize the two resources constituted by the domestic and international markets. We must insist on innovative development in accompaniment with the policy of opening further to the outside world. However, China would never of its own volition rely solely on the global market and foreign investment to boost its economic growth. The annual government work report of 2016 specifies that we must consider our national realities, further develop the service industry, consumer services in particular, in our efforts to expand the development space to a level commensurate with a rapidly growing economy. Innovation-driven reform is expected to boost economic growth in an innovative way. Nor will the new economic growth mode be detrimental to the global market, or exert negative impact on the economies of other countries, there being scant global externality by virtue of developed nations. China's innovation-driven development indeed sets great store on bolstering the world economy.

China's traditional export advantages and participation in international industrial specialization have encountered serious challenges in recent years. The extreme overseas economic environment has forced China to accelerate its building of a new and more open economic system. This need brought about the country's proposal of a Belt and Road Initiative, establishment of the AIIB and Pilot Free Trade Zone, and acceleration of RMB internationalization. Today's innovation-driven, open-minded China takes the initiative with the aim of triumphing over international competition. China's total commodity import and export volume last year reached RMB 24.6 trillion, so maintaining its top slot in the world market. From 2013 to 2015, the total volume of import and export services showed an annual increase of 14.9 percent, among which high-added-value export services, such as insurance, finance, and consultancy, maintained a robust momentum. During the same period, China's cumulative actual use of Foreign Direct Investment (FDI) surged to US $363.4 billion, and China's overseas investment also expanded. The past three years witnessed accumulation of China's non-financial overseas direct investment to US $311.1 billion, an annual growth of 15.2 percent. And at the end of 2015, FDI stocks for the first time exceeded US $ one trillion.

Enterprises, as the main body of innovation, thrive on intense international competitiveness. China's innovation-driven development has indeed polarized worldwide attention. The National Science Foundation reports that various comprehensive indicators of China's innovation show that it comes a close second to that of the United States. The Institute of World Politics of the United States stated, "The real threat comes from China's innovated development, whose aim is to change the rules of the game globally."

The world economy today showcases three main features. They are: first, the economy has entered periodical turmoil and new adjustments, and various intertwined risks complicate the external environment with respect to China's innovated development; second, the new industrial revolution, characterized by the rapid integration of new technologies and information technology, are subversively changing the people's life style and mindset; third, the globalization wave has engendered a large number of emerging economies.

The global economic scale now stands at around US $70 trillion -- US $118 trillion if calculated according to Purchasing Power Parity (PPP). The emerging economies accounted for 57.6 percent in 2015, contributing 68 percent to global economic growth, of which China furnished almost a half.

Upon the decline of the West's highly commended Washington Mode of economic development, all nations began to search out new development modes and their own pathways. The 2008 financial crisis was a crucial point in history at which to expose the fundamental flaws of the capitalist development mode. It is hence no surprise that world attention is now focused on China. China's new concepts of innovation, coordination, green development, opening up, and sharing with the aim of economic development are thriving. We have every reason to believe that, along with its increasingly close links with the world economy, and its continually expanding contributions to global economic growth, China and the world's win-win and all-win prospects will become reality, and bring benefit to all peoples throughout the world.

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