In recent decades, China has experienced rapid development and has emerged as one of the world’s largest economies. It is widely acknowledged that China has produced cutting-edge technology and holds a leading position in artificial intelligence patent applications. However, these achievements do not necessarily answer the simple question of whether China’s economy possesses the ability to innovate.
From automobiles to solar panels, Chinese products have made significant waves in the global market, seemingly demonstrating China’s innovative capabilities. Yet, the reality is more complex than it appears.
Generally speaking, a continuously innovative economy should witness increasing productivity and efficiency. This is known as total factor productivity growth in economics, meaning an economy can produce more with fewer resources. Technology and capital enable us to enhance productivity by expanding our capabilities.
While many believe that China’s economy exhibits innovative capabilities, distinguishing between the innovation capacity of individual enterprises or sectors and the overall innovative vitality of the economy is crucial. Even economically flawed systems like the former Soviet Union or North Korea have managed to produce innovative products. However, this does not equate to fostering an innovative economy.
In fact, China has long struggled with low innovation capacity. Even local Chinese economists have openly expressed concerns about inadequate total factor productivity being a significant issue. Much of the remarkable economic growth in China is attributed not to innovation, increased efficiency, or a more skilled workforce, but rather to capital formation in the form of escalating debt levels.
It is well-known that products like high-speed trains, operating systems, and aircraft in China originate from foreign technologies and are then developed and manufactured by local companies with substantial subsidies. The sole path to economic progress is improving productivity. However, China’s economy relies heavily on centralized planning and guidance, creating abnormal incentive mechanisms.
During the “Great Leap Forward” in the 1950s in China, a ludicrous occurrence took place where local furnaces melted down household metal objects to fulfill the steel production quotas mandated by Chairman Mao Zedong. This act did not affect the production of new steel material and was rendered useless for industrial purposes due to its poor quality. Nevertheless, it helped demonstrate how various insane measures taken by local governments met the central government’s quota requirements.
Similar instances continue to unfold in modern-day China. The Chinese government announces initiatives to boost the semiconductor manufacturing industry, prompting numerous enterprises to flock into the sector seeking government aid. This influx leads inevitably to business closures and bankruptcies. Even surviving enterprises rely on substantial government subsidies to sustain their operations.
This, in essence, is a primary factor hindering China’s economic innovation. Under a centrally planned economic system, business innovation and product quality are not as significant as garnering favor from government departments. This contrasts with the findings of economic research. Young Chinese enterprises exhibit higher levels of innovation and efficiency relative to their older counterparts, which tend to stagnate and rely more on fiscal investment and government support.
As everyday Chinese citizens often remark, most of China’s innovations revolve around the political interests of the Chinese Communist Party. For instance, as the CCP emphasizes the importance of promoting “Xi Jinping Thought” nationwide, ordinary workers dedicate their time to studying Xi Jinping’s ideology instead of focusing on enterprise development needs and improvement strategies.
The root of the problem lies not in the lack of innovative capabilities among the Chinese people or the nation as a whole, but rather in the obstructive incentive mechanisms and structures of the CCP’s authoritarian economy that hinder innovation, making it exceedingly challenging.
According to the China Daily, the CCP leader emphasized the importance of “strengthening centralized and unified leadership of the Party Central Committee in scientific and technological work” at last month’s national science and technology conference. Placing innovative activities under the control of the party is not only inherently contradictory to the nature of innovation but also clashes with the rigid authoritarianism of the CCP’s one-party rule.
Given the stagnation of the economy and declining social productivity, the CCP seems to have no viable solutions beyond seeking more administrative and ideological control.
Note: This rewritten and translated content no longer contains information about the original news writer, publisher, editor, or date of publication for confidentiality reasons.