The world's most populous nation is an industrial powerhouse, but it has not yet transitioned to a knowledge-based economy.
China’s rise as an economic power has been staggering. Its manufacturing prowess is well-established, having earned it the moniker, "the world’s factory." Roughly half of its population now lives in urban areas, up from less than one in five three decades ago. Over 100 of its cities have populations of one million or more.
More than half of Americans already believe China is the world’s most powerful economy, according to Gallup polls, and a growing chorus of commentators believes that it will overtake the U.S. as the world’s largest economy by 2030. Some are projecting this to happen as early as 2016.
How rapidly can China's economy move up the development ladder and become genuinely innovative and technology-driven?
Xu Xiaoping, one of China’s leading investors, “doesn’t think China will be able to produce its own equivalent of Steve Jobs or Bill Gates in this generation,” according to a recent article in The Washington Post. He expects that it will take “at least 20 years” before China’s economy becomes truly innovative and creative.
Surely its policies are directed toward that end: China has rapidly expanded its spending on universities and research and development; it has attracted R&D centers from abroad; and its level of innovation (as tracked by patents) has increased substantially.
A recently published study I conducted with my colleagues Charlotta Mellander and Haifeng Qian from Cleveland State University suggests China still has a long way to go before it becomes an advanced center for innovation and creativity. Our study, published in the journal Environment and Planning, assessed the knowledge economy across China’s major regions, tracking levels of college grads, the creative class, high-tech industries, and major universities and examining their effects on regional economic performance. Using the statistical technique of structural equation modeling, we gauged the effect of those factors over time, teasing out their strengths both individually and in combination with other factors.
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China’s knowledge economy is incredibly spiky. Its college grads and members of the creative class are even more geographically concentrated than they are in the United States and other advanced nations. (The maps above and below by Zara Matheson chart the shares of human capital or college grads and the creative class across China's major regions).
Both college grads and the creative class are heavily clustered in three major city-regions - Beijing, Shanghai, and Tianjin. These star regions boast great universities and have much higher levels of urbanization (70 percent or more) than the rest of the country. Beijing is the leader by far, where slightly more than one in five adults hold college degrees and roughly one in ten are members of the creative class. Shanghai and Tianjin have significantly lower levels of both, with roughly 15 percent of adults holding college degrees and just 5 percent of the workforce in the creative class. This is far, far below the levels of global cities in the advanced nations, many of which boast creative class shares of 30 or 40 percent or more.
(Click the map for a larger image)
China has faced considerable difficulty converting its knowledge-based assets (college grads and the creative class) into economic value-added. What high-value, high-tech industry it has developed remains extremely concentrated in Beijing, Shanghai, and Tianjin. When we looked across all China’s regions, our analysis turned up little, if any, connection between their stock of human capital and their ability to generate high-tech industries and improve their regional economic output. This stands in contrast to the pattern of the United States and other advanced nations, where human capital and technology are the key drivers of innovation and economic growth.
When all is said and done, China remains an industrial nation. Its creative class and human capital levels are minuscule by the standards of advanced economies and heavily concentrated in just three super-star city regions. Those regions appear to operate as self-contained entities; their levels of human capital and innovation have not spilled over to other regions or to the national economy as a whole. Worse, China’s overall technological and economic performance appears to be disconnected from its human capital and knowledge-based assets. Moving forward, China is likely to face substantial obstacles in transitioning from its current industrial stage of development to a more knowledge-based economy.
Xiaoping is right: it will be at least a couple of decades if not more before China can compete as a truly innovative and creative economy.
Top image: Reuters/Carlos Barria