How can China find new routes to growth?

With the recent passing of the economist Cheng Siwei, China has lost one of its most influential thinkers and a man who made many contributions to the development of China’s economy. Just last year, I had the privilege of writing an article with him for China Daily about China’s future development.

Siwei, who passed away in Beijing on 12 July at the age of 80, was the former vice-chairman of the Standing Committee of the National People’s Congress and dean of the School of Management of the University of the Chinese Academy of Sciences. He saw that China was entering the fourth phase in its modern economic development after Deng Xiaoping opened up the country.

In the first phase, China was seen as a potentially huge market in which to sell products. In the second phase, the country started producing products and became a strong competitor. In the third phase, its manufacturing position was further strengthened by Western companies producing in China as well. In the current fourth phase, innovation is added to the nation’s strength in manufacturing.

Innovation and domestic consumption

Structural reforms and partial liberalization are easing China’s reliance on growth through investments and net exports mainly driven by manufacturing. Instead, a model based more on domestic consumption and services, and strongly driven by innovation, is emerging.

What China will do next to maintain its economic vigor and continue spreading wealth among all its citizens will shape its outlook for generations to come. The challenge is that the factors that have served it so well in the past are different from those that will help it succeed in the future.

China’s growth has slowed in recent years, although it is still very high. The expected growth rate of about 7% a year will practically double the size of its economy over the next decade, effectively resulting in another China. However, this growth will also have an impact on the nation’s ability to address its most pressing long-term needs.

China’s economic growth is crucial, not only to hundreds of millions of Chinese, but also to the rest of the world, which has become increasingly dependent on it. But it is especially pressing for those millions of people in rural areas in the western part of the country, who have benefited comparatively less from the economic growth and prosperity.

Producers versus consumers

In this context, a sustainable social balance and nationwide stability are important elements to consider, given that major demographic shifts are expected to continue. As more cities face urban pollution related to fossil fuels, there is an urgent need to develop cleaner energy sources that are more sustainable in the long run. As well as addressing sustainable food production, since with every farmer leaving the rural areas to the cities, a small food producer will be lost and a food consumer gained.

At the heart of the opportunities to address the issues arising from China’s economic growth and consequent urbanization lies a fundamental shift in the way the nation generates its wealth. To find new routes to growth and solutions to the challenges it faces, China will move gradually, but decisively, towards becoming an economy in which innovation is central.

China’s leadership has been courageous enough to understand that it cannot rely only on existing strengths to determine the nation’s future. It is already taking bold steps to instil a culture of innovation and sustainability at all levels. These will enable it to consolidate its remarkable gains and reap the opportunities that lie ahead.

Cheng Siwei, a chemical engineer with a strong passion for technology and innovation, made a remarkable contribution to China and its development and displayed much wisdom in studying issues relating to the nation’s development and reform. Over many years he represented China in many arenas, including the World Economic Forum, elucidating China’s approach to economic development, which lifted hundreds of millions of people out of poverty. He will be greatly missed.

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The Forum’s Annual Meeting of the New Champions, with the theme Charting a New Course for Growth, will take place in Dalian, China, on 9-11 September.

Author: Feike Sijbesma, CEO, Royal DSM

Image: An overview shows the east section of Chang’an street in Beijing. REUTERS/Reinhard Krause