The next phase of development

Innovation and sustainability are the stepping stones to upgrading industries and services

China has begun the next phase in its development as a leading global country. Structural reforms and partial liberalization are easing its reliance on growth through investments and net exports mainly driven by manufacturing. Instead, a model based more on domestic consumption and services and strongly driven by innovation is emerging.

What China will do next to maintain its economic vigor and continue spreading wealth among all its citizens will shape its outlook for generations to come. The challenge is that the factors that have served it so well in the past are different from those that will help it succeed in the future.

It is the culmination of a journey that began in the 1980s under the leadership of Deng Xiaoping. The economic and social development he initiated, a form of a centrally steered market system, has produced the fastest economic growth the world has ever seen sustained for three decades. It has made China the world's second-largest economy and has lifted about 650 million people out of hunger and extreme poverty.

The model was based on the mass manufacturing of certain goods, by using mainly imported technology. China has become so incredibly good at manufacturing, with its ultra-efficient supply chains and modern infrastructure, that it produces more than 25 percent of all the goods made worldwide today. Interestingly, this was also the case some 200 years ago.

However, China's dependency on manufacturing, investments and net export as the main growth model is becoming harder to sustain. China's growth has slowed somewhat in recent years, although it is still very high. The expected growth rate of about 7 percent a year will practically double the size of its economy over the next decade, effectively resulting in another China. However, this growth will also have an impact on the nation's ability to address its most pressing long-term needs.

China's economic growth is crucial, not only to hundreds of millions of Chinese, but also to the rest of the world, which has become increasingly dependent on it. But it is especially pressing for those millions of people in rural areas in the western part of the country, who have benefitted comparatively less from the country's economic growth and prosperity.

In this context, a sustainable social balance and nationwide stability are important elements to consider as well, given that major demographic shifts are expected to continue. As more cities face urban pollution related to energy consumption derived from fossil fuels, there is an urgent need to develop cleaner energy sources that are more sustainable in the long run.

Interestingly, it is via industrialized farming that perhaps some of the biggest opportunities can be created for sources of sustainable energy and materials. The waste generated by a modern Chinese agri-food business would open the door to second generation advanced biofuels and bio-based materials on a grand scale while sustaining food production. The latest bio-waste conversion technology can process agricultural waste, instead of the edible carbohydrate component of the plant, and therefore presents no competition in the food supply chain. A large-scale Chinese biofuel industry is an area where China could one day claim leadership, as its waste will only increase with further urbanization.

But at the heart of the opportunities to address the problems arising from China's economic growth and consequent urbanization lies a fundamental shift in the way the nation generates its wealth. To find new routes to growth and solutions to the challenges it faces, China must move gradually, but decisively, toward becoming an economy in which innovation is at the center.

To some extent, this is already beginning. Chinese universities are delivering large numbers of scientists and technicians. An innovation-driven approach implies a transformation in mindset that can prevent established ways of doing things from stifling change at every level. A shift to an economic growth model with innovation as one of the core drivers implies several adjustments. It will require China to embrace a concept of open innovation via strong international and private-public partnerships.

This will also demand stronger and more enforceable patent laws to protect the commercial value of China's innovations. Already today there are areas in which China is issuing more patents, even at the European Patent Office, than all European countries combined, such as in biotechnology. Greater respect for patents is now very much in China's own best interest.

China's leadership has been courageous enough to understand that it cannot rely on its existing strengths to determine the nation's future. It is already taking the bold steps that are needed to instill a culture of innovation and sustainability at all levels. These will enable it to consolidate its remarkable gains and reap the opportunities that lie ahead.

China is entering its fourth phase in its modern economic development after Deng opened up the country. In the first phase, China was seen as a potentially huge market to sell products. In the second phase, China started producing products and became a strong competitor. In the third phase, its manufacturing position was further strengthened by Western companies producing in China as well. In this fourth phase, innovation will be added to the nation's strength in manufacturing.

Feike Sijbesma is CEO and chairman of Royal DSM and Cheng Siwei is dean of the School of Management at the University of Chinese Academy of Sciences and former vice-chairman of the Standing Committee of the National People's Congress. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 12/12/2014 page1)