High-income status an achievable dream
Updated: 2016-03-22 07:48
By ERIK BERGLÖF(China Daily)
|
|||||||||
Central to the innovation-focused perspective is the notion that economic growth requires technology transfers and an environment in which new companies can form, grow and exit (thereby reallocating factors of production to more successful firms).Quality of management obviously plays a key role, but institutions and human capital also matter; corruption, credit constraints and lack of access to high-quality education all make economic transformation more difficult.
But fostering innovation is not a silver bullet. While providing returns to innovators can help spur more innovation, it can also allow businesspeople to capture too large a share of the transformation process. For example, whereas Bill Gates has probably been good for economic transformation, the Mexican telecoms billionaire Carlos Slim has not. Encouraging one kind of innovator could easily give rise to the other.
What does all this mean for China? As the country attempts to create the conditions for greater genuine innovation, it must also address myriad short-term challenges. It is caught in a deflationary spiral, with falling prices and increased anxiety over the economy's prospects reinforcing each other. And excessive lending to the corporate sector, particularly in manufacturing, has led to massive excess capacity and a growing mountain of bad debt, suppressing growth.
Compounding the challenge, China's economy is more globally relevant and interconnected than ever before, which means that any action it takes can have far-reaching effects. With tried and tested policies unlikely to work in this new context, the government is having to improvise. And, as anxious markets clearly recognize, that approach carries the potential for policy mistakes.
Nonetheless, there is good reason to believe that China can succeed because its economic history indicates an impressive capacity for transformation. Of course, China's economy has come a long way since Deng Xiaoping initiated reform and opening-up in 1978. But even in more recent years, the skill content in China's output has improved radically, and resources have been successfully transferred from agriculture to the services sector, rather than to the manufacturing sector, where large State-owned firms still dominate many industries.
If the recent research debunking the middle-income trap is correct, China has a very good chance of succeeding in becoming a high-income economy with similar vigor. The underlying structural changes that have occurred in China in recent years reinforce this optimism. China will need to continue reforms and overcome vested interests, particularly in the State-owned sector, but its chances of success remain high.
The author is director of the Institute of Global Affairs at the London School of Economics and Political Science.
Project Syndicate
- Global CEOs reiterate their faith in Chinese economy
- China's economy showing signs of improvement: vice premier
- No need for pessimism on the economy
- Foreign media drawn to outlook on economy
- China has policy tools to anchor economy, says Li
- New growth engines will help economy to restructure, says Premier Li
- No need to be pessimistic about economy
- High-tech sectors driving new economy: NBS head
- Empower women for betterment of economy
- Global health entering new era: WHO chief
- Brazil's planning minister steps aside after recordings revelation
- Vietnam, US adopt joint statement on advancing comprehensive partnership
- European border closures 'inhumane': UN refugee agency
- Japan's foreign minister calls A-bombings extremely regrettable
- Fukushima impact unprecedented for oceans: US expert
- Stars of Lijiang River: Elderly brothers with white beards
- Wealthy Chinese children paying money to learn British manners
- Military-style wedding: Fighter jets, grooms in dashing uniforms
- Striking photos around the world: May 16 - May 22
- Robots help elderly in nursing home in east China
- Hanging in the air: Chongqing holds rescue drill
- 2.1-ton tofu finishes in two hours in central China
- Six things you may not know about Grain Buds
Most Viewed
Editor's Picks
Anti-graft campaign targets poverty relief |
Cherry blossom signal arrival of spring |
In pictures: Destroying fake and shoddy products |
China's southernmost city to plant 500,000 trees |
Cavers make rare finds in Guangxi expedition |
Cutting hair for Longtaitou Festival |
Today's Top News
Liang avoids jail in shooting death
China's finance minister addresses ratings downgrade
Duke alumni visit Chinese Embassy
Marriott unlikely to top Anbang offer for Starwood: Observers
Chinese biopharma debuts on Nasdaq
What ends Jeb Bush's White House hopes
Investigation for Nicolas's campaign
Will US-ASEAN meeting be good for region?
US Weekly
Geared to go |
The place to be |