23 September 2018
Innovation could help steel and other traditional manufacturing industries to resolve overcapacity problems. Photo: Bloomberg
Innovation could help steel and other traditional manufacturing industries to resolve overcapacity problems. Photo: Bloomberg

POLICY WATCH: Innovation to fuel economic restructuring

China’s old reputation as the world’s factory no longer holds true as rising wages and lack of workers with adequate skills are prompting some global manufacturers to relocate to other countries in Asia and elsewhere. Which is just as well. The new leadership under President Xi Jinping {習近平} and Premier Li Keqiang {李克強} realizes that the nation needs to offer more than cheap labor and assembly lines to sustain its economic development.

During an inspection tour of central China’s Hunan province from Nov. 3 to 5, the President urged officials at all government levels to deepen efforts toward reform and opening-up as he stressed the importance of innovation to achieve the country’s economic restructuring.

Speaking days before the Communist Party’s central committee holds its plenum, Xi reminds them that it takes confidence and hard work to stabilize growth, adjust the structure, promote reform and improve people’s livelihood.

China watchers expect the party leadership to flesh out various reform plans, including land use and income distribution, to constitute the nation’s development agenda for the next 10 years.

However, Xi is apparently looking deeper into the challenges facing the nation in its quest for stable growth, and he understands that the lack of innovation and self-motivation is one of biggest hurdles that it must overcome to push the economy forward. 

As the world’s second biggest economy looks for a new engine of growth, various quarters, including analysts and investors, have criticized China for its lack of innovative spirit. Many of its industries, nurtured with state support, have relied on Western technologies to develop their products and services, sometimes copying them outright or customizing them for domestic use. But this is not innovation.

To develop the spirit of innovation, Xi urged government officials and policymakers to speed up the transformation of economic structures and the implementation of an innovation-driven development strategy, maintain the economic growth momentum while striving to achieve this year’s economic and social development targets.

The President said the government should focus on improving the structure of industries and resolving the problem of overcapacity. He urged Chinese enterprises to seize the opportunities arising from the latest developments in science and technology.

In fact, industry overcapacity can be traced to the nation’s lack of innovation and technology development. Traditional manufacturing industries have relied on low costs and high volume to sustain profitability, while local authorities encourage such strategy to sustain investment and employment levels that will reflect favorably on their performance. But as demand sags or overseas markets try to protect their local industries, many of these industries are left with excess capacity. 

The lack of innovation has also prevented the economy as a whole from responding to new market realities and from developing into a higher stage where quality and skills hold more value than volume and brawn.

Earlier this month, the central government issued a policy document calling for the phasing out of obsolete manufacturing capacity in several sectors in a bid to clear this hindrance to the economic growth.

It has also poured additional resources to promote innovation and technology and set up national innovative bases such as Zhongguancun in Beijing, Optical Valley in Wuhan and Zhangjiang in Shanghai, which now serve as frontiers in the country’s drive for economic reform.

More reforms are also expected to be implemented in the financial sector, including improving the financing channels for small enterprises and encouraging social investment to support research and development.

– Contact the reporter at [email protected]


EJ Insight writer

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