Challenges for China in the Creation of an “Innovative Country”

ABSTRACT

The rise of China as the “global factory”, a hot topic among business journals for some time, has brought about an imbalance in domestic and external economic development as typified by a shortage economy. In addition, an overseas spate of quality problems of “made in China” products has resulted in rapid decline in consumer trust particularly regarding Chinese food and medical products. The development of the “global factory” has reached its limit. Recognizing this, China’s Hu Jintao Administration has raised the “Scientific Development Concept” and is striving for balanced social development. Low cost policy under the foreign capital and export-led industrialization strategy has been amended, and policies advancing the consumption structure and industry from measures such as the improvement of the labor distribution rate that comes with growth, adoption of selective foreign-capital policies, and the internalization of environmental costs have been hammered out in rapid succession. The long-term goal is to become an “innovative country”.

This paper organizes and analyzes the problems and challenges faced in the economic development of China’s industries, and the policy response by the Hu Jintao Administration. The conclusions are as follows: 1. China’s production policy, which brought about the “global factory” that is currently petering out into a “landing area”, can claim “successes” such as the realization of rapid industrialization, but cannot deny “failures” such as delaying industrial sophistication. 2. The shift away from “low cost policy” means to “worsen the business environment” for foreign capital entering the production sector. This, however, is something China intended, and it was even a policy goal to force the withdrawal of a portion of labor intensive foreign capital. 3. State-run economic domination and serious intellectual property right infringement problems continue to be dragged along, and as such there are limits in the creation of an “innovative country”. It is proposed that to realize a sustainable development strategy, it is essential to: 1. have it be based on market principles, 2. form a society that respects intellectual creation, and 3. ultimately build a rule of law and trusting society.