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On right track for growth model change

By Zheng Yangpeng and Lu Yanyu  (China Daily)

15:46, July 27, 2012

The dramatic rise in the price of land, labor and raw materials, and a 30 percent appreciation of the renminbi since 2005, have seen China fast losing the historic cost advantages that helped fuel arguably the most dramatic economic rise in history.

But after several visits to China, Anders Aeroe - a senior director of the World Trade Organization-linked International Trade Centre - says that he thinks the country remains firmly on track to successfully transform its manufacturing-led growth model of the past 20 to 30 years, into a more sophisticated economy, led by innovation and services.

In an interview with China Daily, Aeroe - whose organization is tasked with helping small business in developing and transition-economy countries - said the Chinese government's very visible hand on the economy, is working better than the international market's often invisible, more natural influences in helping companies here build their competitiveness around the world, and change their image.

"In my opinion, there is no invisible hand (in an economy).

"It doesn't exist. For a well-functioning market, it is amazing how many intelligent policies are needed," Aeroe said.

He said that the government's tackling of issues "simultaneously from industrial development to education to infrastructure to urbanization" has been well planned and delivered, and in contrast to many Western economies, China's evolution is being handled with "long-term vision" in mind, not short-term gain.

He said the "interplay between politics and economics" in China has played a hugely beneficial part in changing that business and economic model, and also reported that during his tour of the country he was enormously impressed by the number and standard of business graduates from universities.

"The interplay ... has certain advantages and allows China to do certain things and help it move faster on its development path, which I don't think has been seen in any places elsewhere in history," he said.

Aeroe, who heads the ITC's key market development division, said China is correct in following the same trajectory of many of its predecessors, by gradually moving away from low-value added, labor-intensive manufacturing to a more sophisticated manufacturing power.

"When it comes to cheap labor, it only lasts so long because there are always other countries that are cheaper than you.

"It is important for a country to move up the value chain, to be more competitive in more sophisticated, more knowledge-intensive areas of production.

"So innovation, R&D and so on, become very important," he said.

Aeroe was in Beijing after traveling across the country, from Nanjing to Chongqing, and said he was hugely impressed by how much progress China had made in producing future business leaders, armed with master's degrees and PhDs.

He singled out one science park he visited in Chongqing, which housed various universities. It had more than 400,000 students, and one company in the park had half its workforce made up of PhDs.

"This is extraordinary because it showed that the country recognizes so well that the future lies in innovation, in added value.

"So in trade terms, it might be that you might export less, but the value you add will be higher," Aeroe said.

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