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10 reasons why China is different

by Stephen S Roach
04:46 AM May 31, 2011

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distribution (wholesale and retail), domestic transportation, supply-chain logistics, and hospitality and leisure. Over the next five years, the services share of Chinese GDP could rise above the currently targeted fourpercentage-point increase. This is a labour-intensive, resource-efficient, environmentally-friendly growth recipe - precisely what China needs in the next phase of its development.

Foreign direct investment Modern China has long been a magnet for global multinational corporations seeking both efficiency and a toehold in the world's most populous market. Such investments provide China with access to modern technologies and management systems - a catalyst to economic development. China's coming pro-consumption rebalancing implies a potential shift in FDI - away from manufacturing towards services - that could propel growth further.

Education China has taken enormous strides in building human capital. The adult literacy rate is now almost 95 per cent and secondary school enrolment rates are up to 80 per cent. Shanghai's 15-year-old students were recently ranked first globally in maths and reading as per the standardised PISA (Program for International Student Assessment) metric. Chinese universities now graduate more than 1.5 million engineers and scientists annually. The country is well on its way to a knowledge-based economy.

Innovation In 2009, about 280,000 domestic patent applications were filed in China, placing it third globally, behind Japan and the United States. China is fourth and rising in terms of international patent applications. At the same time, China is targeting a research-and-development share of GDP of 2.2 per cent by 2015 - double the ratio in 2002. This fits with the 12th Five-Year Plan's new focus on innovation-based "strategic emerging industries" energy conservation, new-generation information technology, biotechnology, high-end equipment manufacturing, renewable energy, alternative materials and autos running on alternative fuels. Currently, these seven industries account for 3 per cent of Chinese GDP. The government is targeting a 15 per cent share by 2020, a significant move up the value chain.

Yale historian Jonathan Spence has long cautioned that the West tends to view China through the same lens as it sees itself. Today's cottage industry of China doubters is a case in point. Yes, by our standards, China's imbalances are unstable and unsustainable. Premier Wen Jiabao has, in fact, gone public with a similar critique. But that is why China is so different. It actually takes these concerns seriously. Unlike the West, where the very concept of strategy has become an oxymoron, China has embraced a transitional framework aimed at resolving its sustainability constraints. Moreover, unlike the West, which is trapped in a dysfunctional political quagmire, China has both the commitment and the wherewithal to deliver on that strategy. This is not a time to bet against China.

Stephen S Roach, a member of the faculty at Yale University, is non-executive chairman of Morgan Stanley Asia and author of The Next Asia.

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