Across the threshold

China needs to spur innovation to drive faster growth and realize higher-quality development

The coming five years will be a crucial period in China's endeavor to become a modern socialist country in all respects, and to achieve breakthroughs in realizing high-quality economic development. The main goal of the coming five years is to elevate its per capita GDP to the level of moderately developed countries.

To this end, China should first cross the threshold for developed nations, which is widely considered to be $20,000 per capita GDP. In 2020, the figure of China was $10,400. Excluding price and exchange rate factors, China will reach the threshold by 2035 if its per capita GDP doubles from the 2020 level.

The demographic factor should also be taken into account. China's population is expected to peak in 2023, and plateau at the level of around 1.4 billion for a period. In this case, the country's per capita GDP could double by 2035 if the annual GDP growth rate reaches 4.73 percent from 2021 to 2035. Due to the impact of the COVID-19 pandemic, the country's annual GDP growth rate from 2020 to 2022 stood at 4.5 percent, and faster growth is required in the coming years to achieve the desired target.

China will still lag behind moderately developed countries by a wide margin even if its per capita GDP reaches $20,000, because the average per capita income in developed nations is around $48,000.Excluding some small-sized economies, the figure is still $35,000 to $40,000.

In addition, the factors of price and exchange rate should be considered. To have a stronger currency through improving the quality of economic development and boost the fundamentals of economy is still an important prerequisite for the country's per capita GDP to reach the level of moderately developed nations.

Since the level of per capita GDP of moderately developed nations is also rising, China can only cross the threshold by striving for faster economic growth, as well as higher-quality development.

After entering the stage of high-quality development, it is no longer sustainable to maintain growth primarily through input of production factors which sustained the country's high-speed growth for decades. Instead, more efforts must be made to drive growth through spurring innovation, increasing total factor productivity and raising the contribution rate of total factor productivity to economic growth.

Globally, China still lags far behind developed nations in total factor productivity. According to data released by the University of Pennsylvania, China's total factor productivity is around 40 percent that of the United States. Historically, Japan and the Republic of Korea's total factor productivity was 80 percent and 60 percent respectively that of the US when they reached the end of their high-speed growth era.

For China to lift its total factor productivity to that level by 2035, it has to increase its total factor productivity at a much faster pace than the US during the coming years, which entails advancing the reform for the market-oriented allocation of production factors.

China's aging population is increasing rapidly, which not only means a decline in labor supply, but also poses a challenge from the demand side, as it leads to a so-called low-desire society. As China's population is set to peak in 2023, the consumption capacity of residents will enter a new normal, influencing economic growth from the demand side.

Sino-US strategic competition is another key factor that will influence China's modernization drive, especially in the coming five years. The US has rolled out some laws to contain China's technological development, such as the Innovation and Competition Act, which aims to maintain the US' lead in key sectors such as telecommunications, and the CHIPS and Science Act that is designed to hinder China's progress in the semiconductor sector.

While China-US decoupling in the tech sector is expected to become a reality, whether or not it will extend to other fields remains to be seen, which adds uncertainty to China's economic development.

China aims to build a great modern socialist country by the middle of the 21st century. In 2022, China has moved up to the 11th place in the Global Innovation Index, and remains the only middle-income economy in the top 30. Meanwhile, to transform the country into a sci-tech powerhouse, China needs to strengthen weak links in sci-tech innovation, boost its original innovation capacity, seek breakthroughs in core technologies in key fields, and foster more top sci-tech talent.

Going forward, China should make breakthroughs on three fronts.

First, due to inadequate investment in basic research, China lacks major original innovations, which is a drag on the development of cutting-edge technologies. To enhance the capacity of original innovation, it is imperative for the country to greatly increase its input in basic research and redouble its efforts to facilitate the application of technologies of long-term importance, so as to make more breakthroughs in basic research and the application of new technologies of strategic significance, and to take the lead in more fields.

Second, China used to push technological progress mainly by introducing and absorbing foreign technologies before re-innovation, which helped the country catch up with the world's advanced levels in a relatively short period. It is in this way that China developed products with strong global competitiveness in some fields, such as the Hualong One technology, a homemade nuclear reactor design, 1,000-MW ultra-super critical thermal power units, 1,000-MW hydraulic turbine sets, high-speed railways, engineering machinery and telecommunications.

However, intermediary goods requiring core technologies such as components, basic materials, and industrial software are still the country's weak links. The market competitiveness of intermediary goods depends not only on the use of cutting-edge technologies, but also on their commercial feasibility. Therefore, China should enhance the market orientation of its innovation, and give better play to the role of market entities as innovators.

Third, although China boasts the world's largest pool of sci-tech workers, it needs to foster more top-notch talent and world-class scientists. The country should comprehensively improve the quality of talent training to foster more top-level sci-tech personnel, so as to deliver more breakthroughs in basic research and original innovation.

At the same time, it needs to lure more talent from the rest of the world by opening its door wider. China should push the development of education, science and technology, and human resources in an integrated manner to build a sci-tech powerhouse.

The author is vice-chairman of the China Center for International Economic Exchanges. The author contributed this article to China Watch, a think tank powered by China Daily.

Contact the editor at editor@chinawatch.cn.