Abstract

Economic growth benefits the average person but it could hurt some groups ofworkers by making their jobs obsolete or by reducing their real wages. Sustainable growth requires “inclusiveness,” with all workers benefiting from it, which removes the incentives for disruptive behaviour by the losers. The role of government is to help displaced workers make the transition to new jobs and not put obstacles to new technological advances in order to “protect” them.

Computerization and new developments in digital technologies brought the internet and the fourth industrial revolution of artificial intelligence, robotics, the internet of things and 3D printing; machines now have the potential to replace highly skilled jobs. China’s plan for further industrial development is the Made in China 2025 10-year plan launched by Prime Minister Li Keqiang in 2015. The emphasis on hi-tech manufacturing in the plan is to the point, given the need to raise wages to make growth more inclusive, and it is in conformity with the adoption of the technological advances associated with the fourth industrial revolution. The ultimate objective is that by 2025 China will be able to compete with countries like Germany and Japan.

The next phase of industrial development in China needs investment in hi-tech sectors. Investment is still the main driver of growth, with overall investment at just below 50% of GDP, in contrast to the United States, Japan and Germany, where investment is around 20% of GDP. In China State Owned Enterprises (SOEs), which are typically not advanced technology industries but industries in strategic and infrastructure sectors, attract a big part of this investment. So investment in hi-tech industry is not as large as might appear from the overall figure. This is also evident in R&D data, where China is lagging behind its main competitors. More of this activity is needed to support the objectives of the Made in China 2025 plan.

Foreign direct investment by technologically advanced foreign companies is also falling behind, whereas outward investment by Chinese companies is rising. Outward investment now exceeds inward investment. FDI has favourable technology spillovers in emerging countries and this is another channel that can improve technological knowhow in China.