MYOB paper 代写 Role of technological change in Chinas growth

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MYOB paper 代写 Role of technological change in Chinas growth

After the death of Mao, economists estimate China's GDP growth from 1978 to 2005 at 9.5% a year, which is incredible given the length and some of the crisis that have occurred during the period. Since the beginning of Deng Xiaoping's reforms, China's GDP has risen tenfold (People's Daily Online, 2005), due to a number of different factors, such as institutional reform, labour market restructuring, productivity increases and technological change. The global technology boom of the 1990s and 200s has enabled China to evolve into a more technologically advanced export driven economy. China was the tenth largest high-tech exporting country in the world in 1998 to 1999 (UNDP, 2001) and has sustained rapid economic growth over the past quarter-century due to very rapid industrialization, and it's economic growth since the reform era has been very rapid, exceeding all of the East Asian Tigers. China's progress in industrialization has far outstripped the rest of the developing world. Its real growth rate of industrial value-added reached 11.1% per annum in the 1980s, and increased further to the rate of 13.7% per annum in the 1990s. These rates are much higher than the average of all low-income economies meanwhile, 5.5% and 2.7%, respectively for the two periods, as well as that of all middle-income economies, 3.6% and 3.9%, respectively. They are also substantially higher than the average of the East Asian high-growing economies, where the average annual growth rates during these two periods are both 9.3% (World Bank, World Development Indicators).

The Chinese growth model has enabled China to rely on external demand and investment to generate high growth rates while maintaining low consumption and current account surpluses. Chinese investment in recent years has been driven mainly by manufactures, real estate, and infrastructure, Barnett and Brooks (2006) find that manufacturing investment is significantly correlated with retained earnings. They also find that the capital-output ratio has increased, and the marginal product of capital has declined since around 1993. This pattern of increasing capital-output ratios raises important concerns about the sustainability of recent growth patterns. For example, based on their estimate that it would require the investment-to-GDP ratio reaching unprecedented high levels of 55% on average in 2014-24 in order to maintain an annual GDP growth of 8%, Kuijs and Wang (2005) conclude that continued investment and industry-led growth in the scenario on current policies is almost certainly unsustainable. Yet, Lo & Li (2006) find that the capital-deepening development path, which has become predominant since the early 1990s, has exhibited strong dynamic increasing returns further implies China's economic growth could be sustainable in the foreseeable future and that the associated market-supplanting elements of the economy should be considered as something positive, rather than being easily dismissed. Chaudhuri and Ravallion (2006) discuss the unevenness of Chinese growth and state that it is due to three characteristics, firstly, an unevenness across households, with the incomes of the richest households growing much faster than those at the bottom of the income distribution, giving rise to dramatically increased between-household inequality. Also there is unevenness across provinces with the inland provinces lagging behind the coastal provinces. Finally, there is unevenness across sectors, with agriculture lagging behind the industrial and service sectors.

Since Mao, China has mastered a broad range of codified industrial technologies to become the world's leading manufacturer of mass-produced goods. By 2006 China had become the fourth-largest economy in the world and the third-largest trading nation, and in 2010 by-passed Japan to become the third largest economy. China is now aiming higher, preparing to compete with the industrial frontrunners on the basis of industrial production capability in more complex products and services as well as on the basis of industrial innovation and design in a number of fields. To telescope the time needed to achieve this objective, China is increasing its outlays on research and development (R&D) and seeking to build an innovation system that will deliver quick results. China's spending on R&D rose from 1.1% of GDP in 2000 to 1.3% of GDP in 2005. In absolute terms the growth was even more impressive, because national product increased by an average annual rate of over 9% during this period. On a purchasing power parity basis, China's research outlay was among the world's highest, far greater than that of Brazil, India, or Mexico (UNCTAD 2005).

When China's "open door" policy began integrating China with the global economy, the country's capabilities have been extensively augmented by importing plant and equipment embodying new technologies, licensing industrial technology, attracting FDI, through the circulation of knowledge workers, mainly Chinese trained abroad, who have become an important conduit for technology transfer, and more recently, through the help of domestic R&D. In its effort to strengthen industry, China has been aided by two closely related trends. First, because of the maturing of certain technologies and the parallel growth of consumer markets, many manufactures have become standardized commodities. Second, the very process of "commodification" has been supported by the codifying of the associated technologies, some embedded in equipment, others available from suppliers. These changes have made it easier to absorb new production methods and quickly achieve high levels of efficiency. These developments have also made the production of mass market items increasingly mobile globally.

China has benefited more from these trends than most other countries, because it was better prepared to assimilate manufacturing technology, for a number of reasons, including the advantages of a potentially huge domestic market and the rapid increase in workers with secondary and tertiary education. Export-led growth was greatly aided by the flow of FDI, as firms in Hong Kong (China) and other neighboring economies shifted production facilities to take advantage of China's low-wage industrial workforce and establish a foothold in the Chinese market (Berger and Lester 1997). As a result of the transfer of hard and soft technologies aided by the growth of human capital, industrial capability has grown by leaps and bounds, facilitated by the elastic supply of rural workers to China's burgeoning industrial cities in strategic locations along the east coast. The buildup has been supported by rising investment in urban, transport, and energy infrastructure, which has helped sustain China's cost advantage, making it the workshop of the world for a range of mass produced goods. China has clearly demonstrated a knack for absorbing and harnessing codified technologies far in excess of other industrializing countries. It has also invested heavily in fixed plant, which has lowered the average age of equipment to 7 years (compared with 17 years in the United States) (Boston Consulting Group 2006). At the same time, the number of science and technology workers rose sharply, from 755,000 in 1998 to 1.2 million in 2004 (Shang 2005).

Dobson & Safarian (2008) argued that if China is making the transition from imitation to innovation we should expect to see institutions that promote technical advance and firms that develop new capabilities, technologies and products. A striking feature both of the studies in the literature and our survey is the increasing competitive pressure on firms that encourages learning. Intense product competition and demanding customers encourage rising R&D spending and the development of new products and processes, imitation of competitors, linkages with foreigners and local research institutions, and increased emphasis on incentives and development of human resources in their own organizations. Dobson & Safarian (2008) found evidence of some new inventions measured by novel patents granted, but most innovations were adaptations and process innovations. Jefferson et al (2006) and Brandt et al (2007) point out how productivity is rising because of the creative destruction of firm entry and exit rather than the adoption of new technologies. Heston (2008) notes that the increase in total factor productivity was an important factor in economic growth, with productivity accounting for 40.1% of the GDP increase, compared with a decline of 13.2% for the period 1957 to 1978 - the height of Maoist policies. For the period 1978-2005, Chinese GDP per capita increased from 2.7% to 15.7% of US GDP per capita, and from 53.7% to 188.5% of Indian GDP per capita. Per capita incomes grew at 6.6% a year (p. 28). Dobson & Safarian's (2008) survey emphasizes the reliance by enterprises on internally-generated processes to promote learning. This behavior will continue to evolve and it would be helped along by further reform to protect property rights and remove distortions created by regulatory uncertainties and the lack of a level playing field with SOEs.

The share of high tech exports in total manufactured exports. China's performance is exceptional; in 2003, 27% of its manufactured exports were high tech compared to an OECD average of 18%, but performance in a broad range of medium technology exports was weaker (OECD 2006). As we will see in the third section, high tech export data can be misleading as an indicator of technological capabilities because production occurs in international networks within which high valued added components are largely imported. Indeed, UN data on technological performance for the late 1990s ranked China 45th among 72 countries (that is, among the top third of those labeled dynamic adopters) but well below those labeled leaders and potential leaders (U.N. 2001). Sachwald (2006) summarized four indices of technological capabilities in 47 developed and developing countries in the late 1990s and early 2000s. China ranked 33rd in one classification and between 39th and 41st in the other three - considerably below the developed and a dozen developing and transition economies.

The speed with which China has imitated technologies and mastered production skills has been impressive. However, the degree of innovativeness has been limited. This is most clearly apparent from the composition of China's major manufactured exports and the nature of the commercial innovations associated with China's leading companies. By 2005 China was the world's largest exporter of information and communication technology-based products, and close to one-third of its exports were classified as "high-tech." Although the domestic value added in the mature electronic products subsector (which includes televisions and refrigerators) is rising steadily as more components are sourced domestically, indigenous technology inputs are relatively insignificant. The manufacture of computers and office equipment still largely involves the assembly of imported components or locally produced ones based on foreign technologies.

Empirical evidence indicates that the returns from R&D investments can be handsome. Indeed, private returns can average 28%, while social returns can be as high as 90-100%. The elasticities of total factor productivity with respect to R&D range from 0.03 to 0.38, with higher rates in the United States than in Europe or Japan (Wieser 2005). The success of corporate and government efforts has depended on the supply of trained and talented people from and the research conducted by universities and research centers (Mowery 2005). The creation of intermediary institutions has helped bridge the information gap between universities and businesses. In each of these three countries, tertiary-level institutions for training, research, and technological intermediation carry the imprint of government policy.

The extent to which a few corporations, universities, research centers, and individuals account for a high proportion of innovation says something about the quality of researchers. During the "catch-up" phase, having large numbers of science and technology personnel to assimilate technology from abroad may be an advantage. In contrast, innovation depends largely on the quality of the researchers, the size of the research teams, the research environment, the resources at their disposal, researchers' willingness to explore technological possibilities, and in many instances their readiness to engage in long-range basic research. Over the past 20 years, China has initiated a number of programs to promote technology development. These programs and the many other initiatives relating to technology development constitute an impressive and sustained effort to build capacity. China's demonstrated ability to rapidly absorb foreign technology indicates that the programs are working.

Science and technology has been the cornerstone of China's development strategy since the 1980s, with a heavy initial emphasis on public funding of projects and investment in infrastructure (Sachwald 2006). The architecture of China's NIS has evolved from a central-planning model in which industrial R&D centers are located in ministries and organized by product. This structure effectively separated and prevented communications among producers and users. Since the mid-1980s government has encouraged closer integration among R&D institutes and science parks through investment in R&D clusters, and mergers of R&D institutes into enterprise groups (some such as Huawei, Datang and Lenovo subsequently evolved into major IT enterprises). As a result of such policies and China's openness to FDI, technology market transactions increased, as did in-house R&D. Outsourcing of science and technology from universities and research institutes to various types of domestic firms and to international firms expanded, although the share of the latter is still relatively low (Motohashi 2006). Multinational firms are now locating basic research facilities in China to take advantage of the abundant supplies of low-cost skilled researchers in Beijing and Shanghai (OECD 2006).

The strong government role in investing and restructuring the NIS suggests the government has not settled a key question: whether to concentrate on scientific mega-projects or incremental innovation. Careful international research into characteristics of successful innovation policies has concluded that such policies are more likely to succeed if they promote incremental change rather than "big bangs" or leaps and structural changes, and if the private sector is given leeway in dealing with the inevitable uncertainties involved (Lipsey & Carlaw 1996).

Kroeber (2006) argues the Plan fails to recognize the importance of non high-technology, incremental innovation, driven by competitive forces that is widespread. Hout (2006) also argues that the incentive structure for technology-based innovation is shaped by firms in the private sector responding to market forces, not government policies and funding. The technology markets introduced as far back as 1985 have failed to develop on the scale expected, instead R&D and production became vertically integrated to internalize the risks and costs, a feature commonly found in centrally planned economies. These weaknesses documented in the literature suggest lock-in effects in China's National Innovation System (NIS). Continued vertical integration is a central planning legacy which is slow and difficult to change and undermines incentives for incremental innovations by non-state firms. Preferences for high tech projects and international markets may stimulate learning but can discourage export-oriented firms' learning to innovate on their own.

Fuller (2006) argues that basic innovation is weak among domestic firms. Three-quarters of R&D is in development, rather than in research, and patent applications are dominated by foreign firms. Gilboy (2004) argues that Chinese-owned firms lag behind foreign-invested enterprises because they have failed to invest in long term technological capabilities.

Private firms have broken away from government intervention, transforming the productive landscape by creating and expanding new businesses. Brandt et al (2007) note lags in development of firm capabilities in interior regions, continuing barriers to links across regions, the negative effects of high state ownership and government regulation in some sectors, and limited contract enforcement and weak property rights. Motohashi (2006) used the NBS database to examine the growing links between public research institutes and industry and concluded that, despite reforms in the NIS, the technological capability of Chinese manufacturing firms is still low relative to firms in developed countries. Jefferson et al (2006) conclude that their findings on productivity growth imply the need for a long list of institutional reforms, of which property rights and corporate governance are key, to enhance the incentives and opportunities to develop and employ new technologies.

Despite these weaknesses, the LME data show that Chinese firms are raising their productivity and extending their capabilities. Jefferson et al (2006) examined labour and capital productivity of entrants, survivors and exiting firms. While labour productivity of entrants was marginally lower than that of survivors, the capital productivity of entrants was 61% greater than that of survivors in the 1996-98 period, and more than 150% greater in later periods. These findings suggest that the birth and death of firms is an important source of productivity growth. They also suggest that productivity improvements are due to improving allocation of labor and capital deepening rather than the adoption of new technologies. Brandt et al (2007) studied industry development show rising capabilities in a number of sectors (but not all), emphasizing the importance of intensifying market competition on the birth and death of firms, where uncompetitive enterprises, often SOEs, are weeded out and collective, private and foreign-owned enterprises enter. The survivors are building a variety of capabilities as measured by exports net of imports, exports of know-how and higher quality of the parts produced. One area of success is in new industries such as color televisions where China has become a leading global producer. In established industries the picture is mixed, some firms quickly moved toward international productivity levels. By 2000 China was the world's largest steel producer; both cement and textiles and apparel producers have adjusted to market forces successfully. The auto parts industry also shows success in that production capabilities have been effectively transferred through auto parts supply chains from international car-makers and first-tier component suppliers; however, quality declines rapidly in second-tier suppliers (Sutton 2004). In other industries, high transport costs have segmented markets, whilst others remain inefficient, a pattern due in part to a continuing preference for state ownership and control of large producers.

In conclusion, China is determined to achieve technological parity with the front running economies and to do so within the next decade or two. Its R&D effort are deployed across a broad front ranging from automotive and electronic technologies to high energy physics, to space exploration, nuclear energy and consumer product design. The government is allocating large sums to research and providing generous incentives to private firms, domestic and foreign. But as international experience clearly demonstrates, financing is only one factor albeit an important one. The productivity of an innovation system depends also on the volume of talent, and depth, as well as the heterogeneity of experience. Cross country studies show that the creativity of talented people is stimulated by society and how companies maximize the commercial benefits from R&D through effective strategies, management and coordination of research, production, and marketing. The strong government role in investing and restructuring the NIS suggests the government has not settled a key question: whether to concentrate on scientific mega-projects or incremental innovation. Careful international research into characteristics of successful innovation policies has concluded that such policies are more likely to succeed if they promote incremental change rather than "big bangs" or leaps and structural changes, and if the private sector is given leeway in dealing with the inevitable uncertainties involved (Lipsey & Carlaw 1996). It is uncertain as to how much longer China's growth can continue without increasing the domestic demand, given the rising level of inflation, constant bombardment by WTO members on China's "dumping", and the increasing number of graduates, who are not being absorbed appropriately into the labour market. It can therefore be said that technological progress and industrialization has been a major factor in China's economic growth over the last two decades.