Innovation the powerhouse of China's economy

Note: The following article is taken from the Chinese-language "Commentaries on International Affairs."

China's economy is transitioning to a 'new normal' of slower but more balanced and sustainable growth, while the ‘new economy’ is rapidly rising with enhanced capabilities for innovation. That’s the key finding of a new report jointly released by the World Bank and the Development Research Center of the State Council and the Ministry of Finance. According to the report, since the global financial crisis, the slowdown in total factor productivity (TFP, efficiency of production activities over a certain period of time) has been common in both developed and developing countries, and China is no exception. In recent years, China's total factor productivity has rebounded, but the overall level is still low.

[Photo: VCG]

The good news is that China's economy is benefitting from constantly emerging new kinetic forces. According to the latest data released by the National Bureau of Statistics, the new kinetic energy index for China's economic development in 2018 reached 270.3, a year-on-year increase of 28.7%. Among them, the rate of the network economy contributing to the total index growth is over 80%. This shows that the digital economy, encompassed by the network economy, continues to exert strength in China.

The report further says China's ranking on the “Global Innovation Index” and other rankings has steadily increased, from 29th in 2011 to 17th in 2018, and is currently ranked highest among developing countries. In the fields of e-commerce, artificial intelligence, financial technology, high-speed rail, renewable energy, electric vehicles and others, China stands out, and is entering the world's leading camp.

At the same time, another sign of the Chinese economy's accumulation of new kinetic energy is the continuous increase in human capital. According to the report, graduates in science, technology, engineering, and mathematics account for 40% of all undergraduate students in China. China is becoming a research base for global technology companies including Microsoft and IBM.

The new kinetic energy of China's economy continues to gather pace, mainly because of the Chinese government’s emphasis on using innovation to lead development, and has fully mobilized market forces, and launched a series of policies to support enterprise and talent innovation, and encourage enterprises to increase research and development. At present, the R&D spending of Chinese enterprises accounts for more than 70% of the total societal R&D spending. Alibaba, Huawei, Tencent and other companies have stood at the forefront of global technological innovation.

At present, China's total factor productivity (TFP) is only about half of that of the OECD (Organisation for Economic Co-operation and Development) countries, which means that China still has great potential to promote future growth by increasing the TFP.