After several months of financial volatility and policy stumbles, global commentators now argue that China’s economy is destined for a long period of stagnation or worse.
It is widely believed that the country’s economic success has been the result of large-scale planning by the state, not private enterprise.
Many also argue that Chinese firms are mere copycats incapable of innovation.
A new report on business in China by The Economist shows all these claims are wrong.
Although the rate of economic growth has dropped from double-digit percentages, even 5 percent growth would represent more output today than the 14 percent in 2007, because the economy is so much bigger now.
There is plenty to be hopeful about, thanks to private firms that have been the agents of change and the risk-takers.
The country’s increasingly innovative companies are using new technologies and nimble business models to disrupt incumbents across the egregiously inefficient economy.
China’s best chance of weathering the current economic storm lies in the resilience and dynamism of the entrepreneurial private sector.
Today China has millions of successful private-sector businesses – its internet companies are among the world’s biggest, and even niche markets are bigger than the entire car industry in many smaller countries – yet they are not given sufficient credit for China’s economic rise.
In reality, the private sector now contributes perhaps two-thirds of gross domestic product.
In the past, Chinese businesses had a reputation for merely copying companies from the West, but today a surprising number are embracing original innovation — and today’s best entrepreneurial firms are going global.
China’s leaders are also starting to recognize that their top-down approach may not be up to the challenges ahead.
Inventors are now encouraged to commercialize new technology, and protection for intellectual property is being strengthened.
In addition to intensifying competition in consumer-facing industries, Chinese consumers’ rising expectations are also driving firms toward more inventive offerings.
With the country’s middle class exploding, China’s private firms are delivering ever-better manufactured goods and increasingly high-tech-based services to the world’s most dynamic consumer market.
“China’s leaders need to stop coddling bloated state enterprises and let them be managed in competitive markets,” The Economist report argues.
They must ease their grip on academia and the internet so China’s bright sparks can benefit from a free flow of ideas to sustain world-class innovation.
As long as the government does not interfere too much in the private sector, there is every reason to think that it can help deliver the required growth and turn the Middle Kingdom into the world’s largest and most dynamic economy.
Vijay Vaitheeswaran, The Economist’s China business editor and Shanghai bureau chief, is the writer of this article, which was published in the magazine on Sept. 12.
– Contact us at [email protected]