Innovative China: New Drivers of Growth

by Development Research Center of the State Council, World Bank Group

Overview

After more than three decades of average annual growth close to 10 percent, China's economy is transitioning to a 'new normal' of slower but more balanced and sustainable growth. Its old drivers of growth — a growing labor force, the migration from rural areas to cities, high levels of investments, and expanding exports — are waning or having less impact. China's policymakers are well aware that the country needs new drivers of growth. This report proposes a reform agenda that emphasizes productivity and innovation to help policymakers promote China's future growth and achieve their vision of a modern and innovative China. The reform agenda is based on the three D's: removing Distortions to strengthen market competition and enhance the efficient allocation of resources in the economy; accelerating Diffusion of advanced technologies and management practices in China's economy, taking advantage of the large remaining potential for catch-up growth; and fostering Discovery and nurturing China's competitive and innovative capacity as China approaches OECD incomes in the decades ahead and extends the global innovation and technology frontier.

Product Details

ISBN-13:	9781464813351
Publisher:	World Bank Publications
Publication date:	01/13/2020
Pages:	184
Product dimensions:	8.00(w) x 10.50(h) x 0.40(d)

About the Author

The World Bank came into formal existence in 1945 following the international ratification of the Bretton Woods agreements. It is a vital source of financial and technical assistance to developing countries around the world. The organization's activities are focused on education, health, agriculture and rural development, environmental protection, establishing and enforcing regulations, infrastructure development, governance and legal institutions development. The World Bank is made up of two unique development institutions owned by its 185 Member Countries. The International Bank for Reconstruction and Development (IBRD) focuses on middle income and creditworthy poor countries and the International Development Association (IDA), which focuses on the poorest countries in the world.

Table of Contents

Foreword xi

Acknowledgments xiii

Executive Summary xvii

Abbreviations xxxi

Introduction 1

1 China's Rapid Growth and Evolving Economy 3

An economy already transforming 4

A rapidly changing and more uncertain global environment 8

Notes 10

References 10

2 The Need for New Drivers of Growth 11

Investment's diminishing contribution to growth 11

Labor's diminishing contribution to growth 14

Notes 17

Bibliography 17

3 The Productivity Challenge 19

Promoting new drivers of growth through the "3+6+7" reform agenda 21

The three D's 21

Six strategic choices 22

Seven critical reform areas 24

The impact of reforms on future growth 25

Notes 26

Bibliography 26

4 Reshaping Industrial Policies and Supporting Market Competition 29

Industrial policies to support market competition 31

Promoting greater competition in the services sector 36

Promoting entrepreneurship and improving the business climate 38

Ensuring fair competition and reforming state-owned enterprises 42

Notes 46

Bibliography 47

5 Promoting Innovation and the Digital Economy 49

China's rapidly increasing innovation capacity 49

Promoting the diffusion of innovation and technology 54

Improving research and development 56

Improving intellectual property policies 57

Improving the management of innovation policies 59

Supporting innovation driven by digital diffusion 60

Promoting data trade and data flow 63

ICT telecommunications infrastructure 68

Notes 71

Bibliography 71

6 Building Human Capital 75

Technology's impact on China's labor market 76

Building universal foundational skills 79

Creating a world-class higher education system 80

Teaching creative thinking and problem solving 85

Using technology to teach creativity and problem solving 86

Strengthening technical and vocational education and training 87

Promoting lifelong learning 89

China's new education sector strategy 91

Notes 92

Bibliography 93

7 Allocating Resources Efficiently 95

China's financial sector developments 95

Financing small and medium enterprises and entrepreneurs 97

Facilitating free flows of labor 104

Notes 109

Bibliography 110

8 Leveraging Regional Development and Integration 113

Reducing spatial frictions in factor markets 114

Nurturing and connecting economic clusters 115

Notes 120

Bibliography 120

9 Promoting International Competitiveness and Economic Globalization 123

China's integration into the global economy and rising competitiveness 124

Major challenges and opportunities 129

Policy recommendations 133

Notes 137

Bibliography 137

10 Governing the Next Transformation 139

Toward a new state-market relationship 140

Strengthening regulatory governance 141

Aligning the government's incentives with the needs of the new economy 143

Reforming intergovernmental relations and tightening fiscal discipline 144

Improving public sector transparency and accountability 148

Notes 148

Bibliography 149

Boxes

4.1 Industrial excess capacity in China 32

4.2 Impact of the Mass Entrepreneurship Program in Guangdong Province 39

5.1 Digital health 62

5.2 OECD recommendations for protecting data privacy 64

6.1 A modern tertiary education governance framework 83

6.2 Lessons from recent World Bank TVET projects in China 88

6.3 Adult learning in the United Kingdom 90

7.1 An integrated system delivers better social insurance services 106

Figures

1.1 Composition of GDP growth in China, 1992-2018 4

1.2 Contribution of fixed-asset investment to growth in China, 2005-18 5

1.3 Share of industry in GDP in China, by sector, 1978-2017 6

1.4 Share of services in GDP in China, 2016 6

1.5 Share of labor income and gross savings in GDP in China, 1992-2017 7

1.6 Number of Internet users in China, 2007-18 9

1.7 Value and share of online retail sales in China, 2008-18 9

1.8 Growth in the global trade of goods, 2001-19 10

2.1 Sources of growth in China, 1978-2017 12

2.2 Sectoral gross capital formation as a share of GDP in China, 1990-2016 12

2.3 GDP growth and the incremental capital-output ratio (ICOR) in China, 1995-2018 12

2.4 Capital-output ratio in China, by economic sector, 1990-2015 13

2.5 Estimated composition of debt accumulation in China, 2012-16 13

2.6 Real gross capital formation in China, 2001-18 14

2.7 Public and private sector capital stock per worker in China and other countries, 2014 14

2.8 Projected labor force in China, by age, 2010-30 15

2.9 Population of China, by gender and age group, 1971-2041 16

3.1 Aggregate growth of total factor productivity (TFP) in China, 1978-2017 20

3.2 Growth of total factor productivity (TFP) in industry in China before and after the global financial crisis, 1998-2013 20

3.3 Contribution of labor productivity to growth in China, by sector, 2003-17 21

3.4 The three D's: reducing distortions, accelerating diffusion, and fostering discovery 22

3.5 Total factor productivity (TFP) relative to the global technology frontier, 2014 23

3.6 Share of income and consumption in GDP in selected countries, 2016 24

3.7 Projected gross national income (GNI) per capita in China, 2011-46 26

B4.1.1 Industrial capacity utilization rates in China, 2013-19 32

4.1 Annual number of insolvency cases in selected countries, 2017 35