China’s success is really a story of innovation, productivity and entrepreneurship

A distorted picture of China’s competitive landscape obscures the real story of innovation and productivity improvements that have radically reconfigured entire industries such as automotive, energy and information technology. Although we tend to focus on the influences of state capitalism and particularly its monumental infrastructure investments, in China, increased competitiveness has really more been a consequence of orthodox and conventional investments in performance and productivity improvement, integration into the global supply chain, the creation of strategic alliances, and relentless innovation at every stage in the value chain.

The impact of these investments has been that China continues to outperform expectations and a far larger number of Chinese firms are now among the world leaders than anyone would have anticipated even 5 years ago. Such firms as the computer maker Lenovo, appliance giant Haier and auto maker Chery are now global success stories that are emblematic of China’s new status as the world’s second largest economy. Because the dominant stimulus for accelerated growth in China has been private entrepreneurship, Western corporations and governments can learn lessons from China’s success. Policy makers would do well to understand how China’s policies have encouraged both rural and industrial entrepreneurship and how its support has been pervasive and ubiquitous.

In the West, the objectives of public policy have been to support a much smaller, elite class of entrepreneurs and, perhaps more importantly, we have managed no substantial government reform or created the suitable institutional arrangements to more effectively support an innovation-driven economy. While in the West we deliver speeches about becoming nations of entrepreneurs and innovators, China consistently continues to deliver on that objective.

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One response to “China’s success is really a story of innovation, productivity and entrepreneurship

  1. Eric

    I agree with your post.

    China’s success has also been helped by a sense of urgency; necessity truly is the mother of invention. China’s need for growing the economy and the competitive nature of a billion-person nation drives productivity.

    As you seem to suggest, effective innovation policy must appreciate that innovation is not reserved only for disruptive technology such as the internet. Policy that supports incremental innovation, like computer factories that can cut manufacturing costs in half, are also important.

    Canada’s innovation policies are built on the theory that innovation occurs through curiosity-driven research that hopefully leads to discoveries, and ultimately commercial application. Our massive investments have generated a lot of discoveries but we are learning (the hard way) that does not always lead to commercial applications. As China has shown us, this is not the only path and one might suggest, not the most prolific path for innovation. Identifying market needs and opportunities and developing innovative solutions to address them holds tremendous potential.

    Modifying our policies to support both curiosity-driven and market-driven research is key to improving our innovation performance.

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