SHANGHAI – China’s economy is at a crossroads. As 2013 begins, foreign and domestic observers alike are asking which path the country’s economic development should take in the next decade. How can China ensure stable and sustainable growth in the face of significant internal and external challenges, including slowing medium- and long-term growth, rising labor costs, and growing inflationary pressure?
After the global economic crisis weakened external demand, which sustained China’s unprecedented economic growth for three decades, the authorities agreed that internal demand, especially domestic consumption, must become the country’s new growth engine. At the Chinese Communist Party’s ...view middle of the document...
The respondents most often viewed China not only as a market opportunity, a research-and-development base, and an export base, but also as a high-end manufacturing base, a regional-headquarters site, and a service base. The results also reflected China’s declining attractiveness as a base for product assembly, low-cost manufacturing, and parts production.
In fact, while the US and other developed countries have sought to bring manufacturing home (“reshoring”), they have been establishing innovation facilities in China. Multinational companies have created nearly 1,000 R&D centers in China, including 194 in 2010 alone, enabling them to develop products for the local market. More than 1,400 foreign-funded R&D institutions are currently operating in China, and data from China’s Ministry of Commerce indicate that 480 of the world’s top 500 companies have established local subsidiaries.
But China cannot rely on consumption as its only growth engine. History has shown that a one-dimensional development model cannot ensure sustainable competitiveness, just as no single market can sustain global demand. Given this, China must continue to develop its manufacturing sector.
China is the world’s top manufacturing country by output. But, while it accounts for 19.8% of total global manufacturing, it receives less than 3% of the world’s manufacturing R&D investment. As a result, China’s innovative capacity remains relatively low, with its high-tech and knowledge-intensive industries unable to compete globally.
On average, China’s industrial enterprises are relatively small, and, although its industrial labor productivity (real manufacturing value added per employee) has improved over the last decade, it remains much lower than that of developed countries – just 4.4% of America’s and Japan’s productivity, and 5.6% of Germany’s. And the “pauperization” phenomenon – in which companies must adjust their commercial strategies to cope with an impoverished consumer base – is increasingly affecting traditional industries, further undermining China’s capacity for...