When discussing the growth in China we tend to view it using our own (capitalistic/democratic) filter. However, the economy in China is much different than our own. This piece tries to help
1. China: Innovation in a
Centrally Planned Economy
ETM 520/620
November 30, 2009
Greg Bourque Dan Meador
Wilson Zehr Shawn Jiang
Lam Dinh Nametsegang Boemo-Mokhawa
2. Foundation
Innovation is: “…the creation and implementation of new
processes, products, services and methods of delivery, which
result in significant improvements in outcomes, efficiency,
effectiveness or quality.”
Mulgan, G and Albury, D (2003) Innovation in the Public Sector, Cabinet Office, London.
2Team 5
Why Innovate?
• Increase standard of living
• Achieve sustained economic growth
• Kontratieff’s Long Wave Cycle
3. Tale of Two Priorities
Central Planning
• Need for control
• Activity based rewards
• Follow the party line
• Top down decisions
• Planned growth
Market Driven
• Need to innovate
• Outcome based rewards
• Think outside of the box
• Bottom up decisions
• Organic growth
3Team 5
Can an innovation system in a centrally planned economy
be as successful as in a market driven economy?
4. Measuring Innovation
Metrics
• Human Capital
• Research and Development
Expenditures
• Patents granted
• Economic Performance
• Per Capita income
• Domestic Consumption
• Productivity
– Key to raising living standards
– Key to poverty reduction
– Key to a sound environment
Methods
• Ranking
• Trending
• Policy Analysis
• System Analysis - Analysis of
support structures
4Team 5
7. Source: Stages of Economic Development (transcript) Speech at the Chinese Academy of Arts and Sciences
Beijing, June 19, 2004
Professor Jeffrey D. Sachs
Director, The Earth Institute at Columbia University
Economic Growth
Path to Sustained Growth
IncomeperCapita
Time0 n
Knowledge
Industrial
Commercial
Pre-commercial
Leverage low cost
resources such as labor
Add additional value
through innovation
7Team 5
8. MongoliaProvinces (22)
Autonomous Regions (5)
Guangxi
Inner Mongolia
Ningxia Hui
Xinjiang
Tibet
Municipalities (4)
Beijing
Shanghai
Tianjin
Chongqing
Special Administrative Regions (2)
Hong Kong
Macau
China: The Country
Population: 1.3B (1st
)
Land Area: 9.6M KM (4th
)
8Team 5
9. Source: The China Business Review, April 2009
Notes: NEA = National Energy Administration; SAFE = State Administration
of Foreign Exchange; SFDA = State Food and Drug Administration.
China: Government
National People’s Congress (NPC)
9
11. Demographics
80% men
77% over 35
31% college degree
Group Members Meet
Communist Party 73 million
National Party Congress 2,000 5 years
Central Committee 200
Politburo 24
Standing Committee 9 frequent
Source(s): BBC News
The China Business Review
Hu Jin
President
Hu Jintao
Chair
Hu Jintao
Chairman
General Secretary
Hu Jintao
11th
Five Year Plan
China: Government
Role (Rule) of Communist Party
11Team 5
12. Open to World
Deng Xiaoping
‘80
80% SOE
‘53 – ’57
1st
5 Year Plan
‘56
100% SOE
93.5% farm cooperatives
‘06 – ’10
11th
5 Year Plan
China: Economy
History of Growth
12Team 5
China GDP Growth (1950 – 2005)
Korean War Great Leap Forward Cultural Revolution Market-based economic returns since 1978
Farm privatization
WTO entrySEZ’s
1997 Asian Financial Crisis
‘58 Break with Soviet
Style Communism
‘96
43% SOE
‘76 – ’80
5th
5 Year Plan
Source: GDP data published by the People's Republic of
China and compiled by Hitotsubashi University (Japan) and
augmented with World Bank and other data.
13. China: Economy
Role of Special Economic Zone (SEZ)
Function
• Create Jobs
• Acquire technical knowledge
• Attract foreign direct investment
Common Incentives
• Access to low cost labor pool
• Favorable tax treatment (tax-free window)
• Greater independence for international trade
• Business friendly rules & policies
• Potential for subsidies
13Team 5
14. China: Economy
Special Economic Zones
1980 - 1984
Guangdong Province
- Shantou
- Shenzhen
- Zhuhai
Fujian Province
- Xiamen
Hainan Island
1984 (FDI)
Dalian
Qinhuangdao
Tianjin
Yantai
Qingdao
Lianyungang
Nantong
Shanghai
Ningbo
Wenzhou
Fuzhou
Guangzhou
Zhanjiang
Beihai
1985
expand coastal areas
open economic zones
Mountainous
Region
14
Source: Handbook of International Economic Statistics, Feb 1999
15. labor
labor
labor
China: Economy
Flow of Capitol & Labor
Government
Investment
Government
Investment
urban >
rural
2015
15
Mountainous
Region
Source: Handbook of International Economic Statistics, Feb 1999
16. Time0 n
Knowledge
Industrial
Commercial
Pre-commercial
Urban
China
Rural
China
Source: Stages of Economic Development (transcript)
Speech at the Chinese Academy of Arts and Sciences
Beijing, June 19, 2004
Professor Jeffrey D. Sachs
Director, The Earth Institute at Columbia University
IncomeperCapita
• Economic Development and Nation-Building: the Case of China
Shinichi Ichimura (Co-leader)
Professor Emeritus, Kyoto University, Japan
10,000*
modernization
2,000*
Industrialization
500*
Take Off
China: Economy
Evolutionary Stage
Ұ 13,786**
$ 1,907
Ұ 4,140**
$ 573
** Source: Thomson Reuters, Jan 24, 2008
growing
faster
US Medium
$ 48,000
n = 2007
16Team 5
17. HDI measures the average progress of a country in human development across
three dimensions: life expectancy, education, and standard of living.
United Nations Development Program
Human Development Report 2009
China: Innovation
Human Development
17Team 5
18. China: Economy
Preserve “Social Harmony”
Labor Force Composition
Agriculture: 43%
Industry: 25%
Services: 32% (2006 est.)
GDP Composition
Agriculture: 11.3%
Industry: 48.6%
Services: 40.1% (2008 est.)
18Team 5
Source(s): Stratfor, (www.stratfor.com) April 2, 2007
Urban to Rural Migration Population Aging Rapidly
19. 5th
5 Year Plan v1.0 (1976 – 1980)
• Steel Output – 60M tons
• Oil Output – 250M tons
• 10 oil & gas fields
• 120 large projects
• Steel, non-ferrous metal, coal
• Ұ70B government investment
11th
5 Year Plan (2006 – 2010)
• Scientific approach to development
• New socialist countryside
• Upgrade industrial structure
– Technology-based industries
– Modernize manufacturing
– Strength before scale
• Develop service industry
• Balance among regions
• Environmentally sensitive
• Science and education
• Institutional reforms
• Harmonious socialist society
• Socialist democratic politics
• Socialist cultural development
• Strengthen national defense
Team 5 19
China: Planning
Changing Focus
5th
5 Year Plan v2.0 (1978 – 1980)
• Modernization (revised focus)
• Principles of readjustment, reform,
rectification and improvement.
• Market-based reforms
• Open to world
• Foreign direct investment
• Agricultural privatization
Guideline
Source: china.org.cn
National Party Congress (en.ndrc.gov.cn)
20. China Made
Top Manufacturer & Exporter
• Toys 70%
• Shoes 50%
• Color TV 45%
• Air Conditioner 30%
• Textile 24%
Export/GDP: 60%(2003); 64%(2005)
Excessive investment into processing
trade (OEM), resulting in, labor, land
and resource intensive products
China: Planning
The Torch Program
5th
5-Year Plan FDI China Made
CHINA TORCH PROGRAM
Independent Innovation China Created
China
Created
Policy
Capital Market
Talents
Independent Innovation
Technology
Industrial Construction
Climb Value Chain
21. STIP Locations:
• 29 in central cities with intensive
intellectual resources and sound
industrial base
• 13 in coastal cities with better
conditions of opening-up to
outside world
• 12 in the cities with intensive
military industries and traditional
industrial base
China: Planning
Science & Technology Industrial Park (STIP)
CHINA TORCH PROGRAM
28. 28
Team 5
Source: Ministry of Science and Technology of the
People’s Republic of China
China: Innovation
Science & Technology Publications
Domestic: Classified by Institution
29. China: Innovation
Income & Savings Growth
29Team 5
Source: Boston Consulting Group
Asia-Pacific excluding
Japan: 33%
China
Singapore
Malaysia
India
Thailand
South Korea
Australia
Philippines
New Zealand
2003 2004 2005 2006 2007
30. China Rank Globally
Factor 1960 2000
Income per worker 103 71
Total factor productivity 105 76
30Team 5
China: Innovation
Income & Productivity Rank
31. Conclusions
• Enormous Economic Growth Over the Past 30 Years
– Foreign Direct Investment (FDI - open to outside world)
– Low cost Labor (Export oriented)
– Urban Development
• Improvements Innovation System
– Education
– R&D
– Implementation
– Linkage
– (End-use)
• Factors to Sustain Growth
– Central Planed S&T DevelopmentIndividual Enterprise R&D / Entrepreneurial Collaboration
– Government Intervention, Primary ActorsSecondary Actors
– Planned EconomyMarket Based
– Focus is on short-term economic benefit Focus must be on long-term S&T Research
Team 5 31