Assessing China's quest for innovation

The Chinese economy is at a crossroads. The investment-driven
growth model, which the government had relied on for the last
four decades, is running out of steam. Fiscal deficits are
widening and public debt is rising. Furthermore, population aging
is becoming more visible and the pandemic had some scarring
effects which have taken a toll both on consumer and business
confidence. 

The very rapid rise in wages since the global financial crisis is
pushing China to get ahead in its production capabilities so it
will be productive enough to continue to raise wages and avoid
the middle-income trap. Pressure on the economy is further
intensified by the recent increase in geopolitical tensions and
fears of decoupling between the US and China. 

As the Chinese economy continues to decelerate, the central
government is investing heavily in innovation, doubling down on
research and development (R&D) spending and STEM-oriented
human capital.

In this episode of The Sound of Economics, Giuseppe Porcaro
invites Alicia García-Herrero and Robin Schindowski to discuss
the challenges China faces, including three potential bottlenecks
that might be hindering the translation of China’s innovation
efforts into productivity growth, with a specific focus on
whether Chinese growth can defy gravity. 

Relevant publication


Schindowski, R. and A. Garcia-Herrero (2023) ‘China’s quest
for innovation: progress and bottlenecks', Working Paper 08/2023,
Bruegel

Garcia-Herrero, A. (2023) ‘Can Chinese growth defy gravity?’
Policy Brief 14/2023, Bruegel



This episode is part of the ZhōngHuá Mundus series of The Sound
of Economics. ZhōngHuá Mundus is a newsletter by Bruegel,
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This is an output of China Horizons, Bruegel's contribution in
the project Dealing with a resurgent China (DWARC). This project
has received funding from the European Union’s HORIZON Research
and Innovation Actions under grant agreement No. 101061700.