Challenges for China: The path towards a knowledge economy

Challenges for China: The path towards a knowledge economy

Since China’s adoption of a market-based economy, the country has seen rapid widespread economic and social development, and today it plays an increasingly influential role in the global economy. With a (slowing) growth rate of around 7% per year, China is an economic powerhouse, yet the export-orientated production model is not wholly satisfactory.

China as a Knowledge Economy

China’s developmental success has largely hinged upon the country’s ability to manufacture cheap, low-added value goods – such as shoes, clothes and bicycles – and whilst this has brought prosperity to hundreds of millions of people, the export model is stagnating with the rise of labour costs which has seen Western multinationals move production elsewhere. Moreover, China’s current manufacturing role is monopolised by Western tech giants like Apple, which squander a large proportion of the profits from products assembled in Chinese factories. As a result, it makes sense for China to move in the direction of a knowledge based economy, and the Chinese government has certainly expressed a desire to do so in it’s Five-Year Plans… but what exactly is a knowledge economy, and what kind of obstacles must China overcome to become one?

According to the Organisation for Economic Co-operation and Development (OECD), the term ‘knowledge-based economy’ stems from a fuller recognition of the place of information, technology and learning in economic performance among modern OECD economies. Economies that are innovative, knowledge intensive and high-tech orientated tend to achieve higher levels of output and employment.

In the case of China, development has largely focused on the emulation of Western-style capitalist industry, rather than on innovation: in the annual Global Competitiveness Index produced by the World Economic Forum, China is not listed among the innovation driven economies and is instead classified within a group of ‘efficiency driven economies’. Whilst China can be seen to have transitioned from a centrally-planned economy to a market-based economy, the Chinese form of capitalism has not materialised with the same political and social structures that are associated with Western counterparts. The country has remained an authoritarian state which continues to be steered by a one-party system: the Chinese Communist Party (CCP).

Explosive growth and demographic demands

The result of one-party led development is that the Chinese economy is controlled by the government and monopolised by state-owned enterprises, rather than by individual innovators and independent corporations, with accompanying risks of corruption. Since the CCP places confidence in state-owned enterprises and is reluctant to back private enterprises, individuals are generally encouraged to take fewer risks. This is reflected in the Chinese education system, which does not tend to cultivate critical thinking. An anonymous Chinese university researcher, who looks into what professors in Chinese universities are doing in terms of research, described the problem: “a lot of money is spent on ideas which are quickly successful” rather than on innovative solutions and developments. Fokke Obbema, a journalist for the influential Dutch daily De Volkskrant and an expert on Chinese relations with the West, explained in an interview that one of the biggest issues facing the development of a knowledge economy revolves around mentality:

“It’s the mentality, and I don’t see any plans of the government to change the mentality of the people, in fact they want them to be more conformative, and more in the mould. I think if you analyse on the whole why China has been so successful, because it has, it’s not because of the system but despite the system, at least because of the Chinese people”.

The CCP places severe restrictions on the dissemination of information to Chinese citizens and has not welcomed the proliferation of private enterprise, and so if the country is to make the transition to a knowledge economy, it will have to overcome a tangle of structural tensions between the government’s desire to maintain regime control, and the desire to upgrade human capital, increase the educational capacity for people to learn and ultimately output high-tech, original products. An explosive growth in highly educated young people in the last decade has heightened the demand for the creation of skilled jobs and services, which puts pressure on the government to re-shape the economy and prevent the social problems which could occur in the absence of a suitable job market for university graduates (the CCP has been extremely sensitive to student demands after the events of 1989).

Growing through the cracks

Despite the challenges, Fokke Obbema is confident that a knowledge economy can emerge in China, albeit in a unique style:

“It will be high income, it will be innovative, be it in its own way, and there will be an emphasis on certain industries but that’s the same for every country, but I think that it will be a different knowledge economy in the way of innovating, that will be different.”

If the CCP is serious about fostering a knowledge economy, it will most likely proceed in a methodical yet innovative fashion, which will allow a knowledge economy to grow through the cracks of the system without destabilising the political and economic landscape. It seems feasible, therefore, that a knowledge economy may begin to form within state-owned enterprises and state-funded sectors which are trusted by the CCP: sectors like defence, aircraft construction and telecommunications have an immense drive to be independent of Western technology.

Since global economic and social pressures have not prevented China from developing its own unique form of Sino-capitalism, it is probable that they will not prevent the growth a knowledge economy either, and whilst there will certainly be structural hurdles to overcome, a knowledge economy does not seem likely to challenge to the authority of the CCP as the current strength of the system suggests that such a transition will be managed within the system.

Categories: Asia Pacific, Economics

About Author

Robyn Kelly-Meyrick

Originally from Oxford, Robyn currently works as an Analyst at a financial technologies provider based in Amsterdam. She holds an MSc in Political Science from the University of Amsterdam, and a BA in International Relations from the University of Sussex. As an undergraduate she studied Japanese, and spent a term abroad at the International Christian University in Tokyo. Her studies have focused on East Asian politics, and particularly on economic and social development in Japan and China. Robyn has her own blog, Deliberately Untitled, which focuses on foreign affairs, society and culture.