Annual Conference 2014, Boao Forum for Asia
Session Summary
Boao Forum for Asia No. 6 April 8, 2014
Six Questions from Economists
Moderator:
· Fred HU Zuliu, Chairman, Primavera Capital Group
Panellists:
Session 1
· Edmund PHELPS, Nobel Prize Laureate (2006)
· Ernst Ulrich von WEIZSACKER, co-President, the Club of Rome
· Yves-Louis DARRICARRERE, Executive Vice President, TOTAL
· Gregory D GIBB, Chairman & CEO, Shanghai Lujiazui International Finance Assets Trading Marketing Co. Ltd
· Leo MELAMED, Chairman Emeritus, Chicago Mercantile Exchange
Session 2
· ZHANG Weiying, Professor of Economics, Peking University
· CHEN Zhi Wu, Professor of Finance, Yale School of Management
· Zhang Qi Zuo, Vice Secretary General, Global Cooperation Forum
· GAO Jifan, Chariman& CEO, Trina Solar, Ltd.
· ZHANG Yaqing, Corporate Vice President, Microsoft
Key points:
· Panellists acknowledged that China has a deep history of innovationand shared the view that it will continue to contribute to innovation in the future.
· Countries and companies need to look at ways of doing things more environmentally friendly as energy issues will impact future global growth.
· The government plays an important role to encourage innovation however the market should be allowed to play a bigger role to set up the rules which can make it possible to obtain high returns from innovation and can increase the individual player's ability to mitigate risk.
· China may become the largest GDP in the world in the next 30 years however it may take longer to narrow the gap in technology innovation with the US. Chinese enterprises' incompetence at innovation may result from the lack of a law system facilitating fair market competition.
Summary:
Moderator Fred Hu spilt the panelists into two separate sessions. The first session focused on how to improve China's capability in innovation. Many economists, especially the Western ones, are in consensus that Asian economies, including China, should enhance their capability in innovation. What are the major obstacles? Is it on the institutional level? Is it the lack of resources? Or is it the fear of failure? And is there any growth model which can mitigate climate change and minimize degradation to the environment?
The second session focused on how to facilitate innovation. What kind of environment should the government create for innovation? How important is it to minimize the review and approval process? What kind of review and approval procedures should be abolished to promote entrepreneurship? Given that the Third Plenary Session of the Central Committee has given us an encouraging blueprint for reform, what impacts will measures announced have on entrepreneurs' innovation pathway and development strategy? Is this positive, neutral or negative?
For over a thousand years, the Chinese have invented items which have transformed our life, such as paper, gunpowder and even ice-cream. As such the Chinese have always had the capabilities to innovate. However as Professor Phelps wanted to make clear, a distinction needs to be made between innovation and invention. The former points to the change of economic practice, and implies that people need to change the way they look at innovation.
Gregory Gibbs believes that China is extremely strong at innovation, and that the proportion of innovative companies exceeds that in western countries. Companies that do something correct, can do it very fast. Companies such as Tencent and Alibaba have rapidly expanded and support new mobile business models. Further to this there needs to be a climate in China that provides the freedom to take a chance, encourages willingness to take on new ideas, enhances intellectual property management, and rewards success in the market.
Professor Phelps cited the US as an example, where innovation has slowed to a crawl, based on the total factor productivity declining from 2% per annum in the 1970's to the current 1%. China's estimated total factor productivity is currently at 2% per annum implying a boost to innovation and opening the economy wider.
Regarding climate friendly growth or green energy, China is lagging behind western nations such as France. Yves-Louis DARRICARRERE highlighted that cleaner energy is a global issue not only facing China. Countries and companies need to look at more environmentally friendly operating models, as energy will be an issue for global growth. Clean energy must be promoted such as using L&G Gas as it is one of the cleanest energies available.
The Chinese government sees the reduction of air pollution as one of the highest priority issues to address. The Chinese people's increasing sensitivity and growing dissatisfaction will ensure the government takes notice. This may lead to pressure for environmental reforms as the younger generation will not accept an environmentally unfriendly society.
In the second session, Mr. Zhang Yaqin and other panellists pointed out that government must play a leading role in encouraging innovation, which can be promoted by creating a fair, transparent and predictable policy making environment. Panellists explained the situations that subsidies are given to non-innovative and uncompetitive companies under the current policy. In order to have a sustainable growth, there should be reforms in policy and industries.
The Third Plenary Session of the Central Committee also focused on creating free competition to attract more foreign investment. Setting a market-oriented mechanism can eliminate the unfair acquisition of resources, and reduce the rent-seeking and corruption spread. This, in turn in the long-term, can force the industry to innovate for survival.
In conclusion, a quick poll of the session 2 panellists was conducted by Moderator Hu as to when China will close the gap in technology innovation between itself and the US. Some feel that this may be achievable within the next 20 – 30 years however most panelists are not as optimistic and feel that this will not happen in their lifetimes.