Innovative China: New Drivers of Growth
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Innovative China Innovative China New Drivers of Growth World Bank Group Development Research Center of the State Council, the People’s Republic of China Washington, DC © 2019 International Bank for Reconstruction and Development / The World Bank and the Development Research Center of the State Council, P. R. China 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 2 3 4 22 21 20 19 This work is a product of the staff of The World Bank and the Development Research Center of the State Council, P. R. China. Note that neither The World Bank nor the Development Research Center of the State Council, P. R. China necessarily owns each component of the content included in the work. The World Bank and the Development Research Center of the State Council, P. R. China therefore do not warrant that the use of the content contained in the work will not infringe on the rights of third parties. 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Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank Group, and the Development Research Center of the State Council, P. R. China. 2019. Innovative China: New Drivers of Growth. Washington, DC: World Bank. DOI: 10.1596/978-1-4648-1335-1. License: Creative Commons Attribution CC BY 3.0 Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected]. ISBN (paper): 978-1-4648-1335-1 ISBN (electronic): 978-1-4648-1420-4 DOI: 10.1596/978-1-4648-1335-1 Cover design: Critical Stages, LLC Library of Congress Cataloging-in-Publication Data has been applied for. Contents Foreword ...............................................................xi Acknowledgments ...................................................... xiii Executive Summary ..................................................... xvii Abbreviations .........................................................xxxi Introduction .......................................................... 1 1 China’s Rapid Growth and Evolving Economy ........................ 3 An economy already transforming .............................................4 A rapidly changing and more uncertain global environment ..........................8 Notes ...................................................................10 References ...............................................................10 2 The Need for New Drivers of Growth ................................ 11 Investment’s diminishing contribution to growth .................................11 Labor’s diminishing contribution to growth .....................................14 Notes ...................................................................17 Bibliography .............................................................17 3 The Productivity Challenge ........................................ 19 Promoting new drivers of growth through the “3+6+7” reform agenda ................21 The three D’s .............................................................21 Six strategic choices ........................................................22 Seven critical reform areas ...................................................24 The impact of reforms on future growth ........................................25 Notes ...................................................................26 Bibliography .............................................................26 INNOVATIVE CHINA v vi CONTENTS 4 Reshaping Industrial Policies and Supporting Market Competition . 29 Industrial policies to support market competition .................................31 Promoting greater competition in the services sector ...............................36 Promoting entrepreneurship and improving the business climate .....................38 Ensuring fair competition and reforming state-owned enterprises ....................42 Notes ...................................................................46 Bibliography .............................................................47 5 Promoting Innovation and the Digital Economy . 49 China’s rapidly increasing innovation capacity ...................................49 Promoting the diffusion of innovation and technology .............................54 Improving research and development ..........................................56 Improving intellectual property policies ........................................57 Improving the management of innovation policies ................................59 Supporting innovation driven by digital diffusion .................................60 Promoting data trade and data flow ...........................................63 ICT telecommunications infrastructure .........................................68 Notes ...................................................................71 Bibliography .............................................................71 6 Building Human Capital . 75 Technology’s impact on China’s labor market ....................................76 Building universal foundational skills ..........................................79 Creating a world-class higher education system ..................................80 Teaching creative thinking and problem solving ..................................85 Using technology to teach creativity and problem solving ...........................86 Strengthening technical and vocational education and training ......................87 Promoting lifelong learning ..................................................89 China’s new education sector strategy ..........................................91 Notes ...................................................................92 Bibliography .............................................................93 7 Allocating Resources Efficiently . 95 China’s financial sector developments ..........................................95 Financing small and medium enterprises and entrepreneurs .........................97 Facilitating free flows of labor ...............................................104 Notes ..................................................................109 Bibliography ............................................................110 8 Leveraging Regional Development and Integration . 113 Reducing spatial frictions in factor markets ....................................114 Nurturing and connecting economic clusters ...................................115 Notes ..................................................................120 Bibliography ............................................................120 9 Promoting International Competitiveness and Economic Globalization . 123 China’s integration into the global economy and rising competitiveness ...............124 Major challenges and opportunities ..........................................129 Policy recommendations ...................................................133 Notes ..................................................................137 Bibliography ............................................................137 CONTENTS vii 10 Governing the Next Transformation .............................. 139 Toward a new state-market relationship .......................................140 Strengthening regulatory governance .........................................141 Aligning the government’s incentives with the needs of the new economy .............143 Reforming intergovernmental relations and tightening fiscal discipline ...............144 Improving public sector transparency and accountability ..........................148 Notes ..................................................................148 Bibliography ............................................................149 Boxes 4.1 Industrial excess capacity in China ......................................32 4.2 Impact of the Mass Entrepreneurship Program in Guangdong Province ..........39 5.1 Digital health .......................................................62 5.2 OECD recommendations for protecting data privacy ........................64 6.1 A modern tertiary education governance framework. .83 6.2 Lessons from recent World Bank TVET projects in China