Strengthen Sino-Europe Innovation-Driven Cooperation to InvigorateEconomic Growth

Zhang Yansheng,

Chief Research Fellow

China Center for International Economic Exchanges

I. Status Quo of China’s Innovation-Driven Development

Currently, regional economic development in China can be divided into three types:

Firstly, resource-driven economy. By R&D intensity, the levels of the R&D intensity shown in the economic development of China’s western underdeveloped region, including 8 provinces, municipalities and autonomous regions as Yunnan, Inner Mongolia, Guangxi and Xinjiang, etc., are all lower than 1%，with the R&D funds used by the region totaling only 49.74 billion Yuan (See Table 1). Transportation, energy, information and social infrastructure construction are still of vital importance to the region, where capacity building, market environment and opening-up remain important factors for boosting the economic development.

Secondly, investment-driven economy.R&D intensity of China’s central region ranges between 1%-2.2%，with R&D funds invested by the region totaling 477.9 billion Yuan. In this region, Fujian, Hubei, Anhui, Sichuan, Chongqing and Shaanxi have entered into the later period of investment-driven growth, while Hunan, Liaoning, Henan and Hebei stay in the middle period of investment-driven growth, and Shanxi, Jilin, Heilongjiang, Gansu and Jiangxi in the earlier stage of investment-driven growth.

Thirdly, innovation-driventransition economy. Coastal developed areas in East China hold a leading position in the country’s economic development, with their R&D intensity higher than 2.27% and their annual R&D input totaling 886.8 billion Yuan, accounting for 62.58% of the whole country’s R&D input during the same year. Of this total, in 2015levels of R&D intensity of Beijing, Shenzhen and Shanghai reached 6%, 4% and 3.73% respectively, and the R&D funds invested by Jiangsu, Guangdong and Shandong amounted to180.1 billion Yuan, 179.8 billion Yuan and 142.7 billion Yuan respectively.

Table 1R&D Fund Disbursements by All Localities of China in 2015

R&D Disbursement (in Billion Yuan) / R&D Intensity (%) / R&D Disbursement (100 Million Yuan) / R&D Intensity (%)
Beijing / 138.4 / 6.01 / Gansu / 8.27 / 1.22
Shanghai / 93.61 / 3.73 / Hebei / 35.09 / 1.18
Tianjin / 51.02 / 3.08 / Henan / 43.5 / 1.18
Jiangsu / 180.12 / 2.57 / Heilongjiang / 15.77 / 1.05
Guangdong / 179.82 / 2.47 / Shanxi / 13.25 / 1.04
Zhejiang / 101.12 / 2.36 / Jiangxi / 17.32 / 1.04
Shandong / 142.72 / 2.27 / Jilin / 14.14 / 1.01
Shaanxi / 39.32 / 2.18 / Ningxia / 2.55 / 0.88
Anhui / 43.18 / 1.96 / Yunnan / 10.94 / 0.8
Hubei / 56.17 / 1.90 / Inner Mongolia / 13.61 / 0.76
Sichuan / 50.29 / 1.67 / Guangxi / 10.59 / 0.63
Chongqing / 24.7 / 1.57 / Guizhou / 6.23 / 0.59
Fujian / 39.29 / 1.51 / Xinjiang / 5.2 / 0.56
Hunan / 41.27 / 1.43 / Qinghai / 1.16 / 0.48
Liaoning / 36.34 / 1.27 / Hainan / 1.7 / 0.46
Total / 1416.99 / 2.07 / Tibet / 0.31 / 0.30

Source: Statistical Bulletin onNationwide Input in Science and Technology, 2015，National Bureau of Statistics of China, Ministry of Science and Technology, and Ministry of Finance, November 10,2016.

II.China’s New Demand Factors Are an Important Engine for Boosting the Innovation-driven Development

Firstly, the number of middle-income groups has been growing rapidly in China. According to World Bank, groups with each person consuming 10—100 US dollars a day are considered middle-income groups. In 2015, 44% of the people in China, or over 500 million people or so, met the World Bank standard. Pursuant tostandard of the National Bureau of Statistics, a household earning an annual disposable income of 90 thousand to 450 thousand Yuan is classified as a middle-income earner. At this ratio, middle-income earners make up 24.3% of China’s total population to approximately 300 million[1]. With the number of well-off consumers being constantly on the increase (See Table 2), which show a taste for high-quality, diversified and personalized consumption,especially concept of consumption among young people has been changing qualitatively, and is bringing along changes in China’s supply structure.

Table 2Per-capita Disposable Income in Part of China’s Provinces and Municipalities in 2016

Province and Municipality / Per-capita Disposable Income（Yuan） / GDP（in Billion Yuan）
Shanghai / 57692 / Guangdong / 1943.8
Beijing / 57275 / Jiangsu / 1882.26
Zhejiang / 47273 / Shandong / 1665.33
Jiangsu / 40152 / Zhejiang / 1055.2
Guangdong / 37684 / Henan / 939.222
Fujian / 36014 / Sichuan / 755.2
Shandong / 34012 / Hubei / 725.6
Liaoning / 32860 / Hunan / 705.11
Hunan / 31284 / Shanghai / 692.284
Hubei / 29386 / Fujian / 653.519
Anhui / 29156 / Beijing / 604.05
Jiangxi / 28670 / Anhui / 582.68
Shaanxi / 28440 / Liaoning / 457.47
Sichuan / 28335 / Jiangxi / 431.86
Henan / 27233 / Shaanxi / 414.722

Source：National Bureau of Statistics

Secondly, the economy has entered into a new normal. Currently, China’s economic policy framework comprises three subject terms：1. “Economic New Normal”, which means the economic development model will transform from a model of speed and scale to a model of quality and efficiency, industrial structure transform from a low-end one to a mid- and high-end one, and the growth impetus transform from a sweat-driven force to an innovation-driven force. The transformation may take a long time. 2.“Supply-side Structural Reform is the mainline”, It should be clear the ultimate purpose of the structural reform is to meet the demand, the main direction is to improve the supply quality, and the fundamental approach is to deepen the reform. It may take ten years for these changes to take place. 3. “Seeking Improvement in Stability is the general principle”, it emphasizes that stability is about the whole situation, precautions should be taken against financial risks, and entrepreneur expectations and confidence should be maintained. In March, 2017, an investigation by Finance Magazine showed that top seven industries with utmost growth potentials chosen by interviewees were old-age health care, pharmaceuticals, tourism and leisure, artificial intelligence, new energy, education and training and cultures industry (See Table 3)，suggesting that new demands induce the ranking of industries through new changes in supply.

Table 3Industries with Utmost Growth Potentials in 2017

Industries with Utmost Growth Potentials / Old-age Health Care, Pharmaceuticals, Tourism and Leisure, Artificial Intelligence, New Energy, Education and Training, Cultures, Energy Conservation and Environmental Protection, New Energy Vehicles, IT, Biotechnology, Financial Services, New Materials, High-end Equipment, War Industry, Digital Creativity, Modern Logistics, Biological Identification, Agriculture, Energy, Automobile

Source：Asian Forward-Looking Indices，Finance Magazine, March, 2017.

Thirdly, city clusters have been growing rapidly. Currently, urban agglomeration has become the principal part of the new-type urbanization in China. Of those city clusters, the city clusters in the grand bay area of Guangdong, Hong Kong and Macao(See Table 4), in Yangtze River Delta area and in Beijing-Tianjin-Hebei area take the first place, whereas city clusters in Chengdu-Chongqing area, in middle reaches of the Yangtze River, in Central China and in Northeast China take the second place, with other city clusters ranking the third place. Keen competition among city clusters is becoming increasingly conspicuous: They are competing for the first to become world-level city cluster, world-level metropolis and world-level new growth pole; In terms of priority tasks, they are competing for concepts of innovation, coordination, green, openness, sharing of development benefits；in terms of field, more efforts are being devoted to the fields of innovation, modern service and internationalization, and in terms of condition, a prodigious amount of work are being made in a bid to make business environment more efficient and convenient, to maintain the impartiality of investment environment and to improve the soft environment of innovation.

Table 4Economic Comparisons among Bay Areas in 2015

Tokyo Bay Area / San Francisco Bay Area / New York Bay Area / Grand Bay Areaof Guangdong, Hong Kong and Macao / 9 Cities in Pearl River Delta Area / Hong Kong / Macao
Population (thousand) / 43470 / 7150 / 23400 / 66710 / 58740 / 7320 / 650
GDP (trillion US dollars) / 1.8 / 0.8 / 1.4 / 1.36 / 0.99 / 0.32 / 0.05
Land Area (thousand square kilometers) / 36.8 / 17.9 / 21.5 / 56 / 54.7 / 1.1 / 0.03
Container (thousand TEUs) / 7660 / 2270 / 4650 / 65200 / 44940 / 20110 / 150
Airport Passengers (million) / 112 / 71 / 130 / 175 / 100 / 69 / 6
Tertiary Industry (%) / 82.3 / 82.8 / 89.4 / 62.2 / 54.6 / 90 / 89.5
World Top 100 Universities / 2 / 3 / 2 / 4 / 0 / 4 / 0
World Top 500 Firms / 60 / 28 / 22 / 16 / 9 / 7 / 0

III.Strengthen Sino-Europe Innovation-driven Cooperation to Invigorate Economic Development

  1. Cooperation between China and Europe in complementary, open and multi-win innovation. In 2017, Global Innovation Index shows that China has become the bellwether of innovation among moderate-income economies, ranking 22nd amongst 130 economies. China has scored high marks for its business maturity and knowledge and technology output, and has been doing very well in terms of global distribution of R&D companies, R&D personnel of commercial enterprises, patent application quantity and other correlated IP variables, etc. With its 15 economies ranking among top 25 around the globe, Europe is doing quite excellently in terms of human capital and research, infrastructure and business maturity, and ranks first in terms of knowledge-intensive employment, research collaboration between universities and industries, patent application quantity, patent articles and quality of scientific publications. Therefore, innovative-cooperation between China and Europe will open up a broader market and prospect for the application of European innovation advantages, inject new knowledge and technologies for China to boost its green development, harmonious development and shared development, and provide a fresh driving force for the growth of the world economy.
  1. New industry growth points cultivated jointly by China and Europe. A research made by China (See Table 5) shows that by 2020 new growth points in China’s industries concerning public health, culture, energy conservation and environmental protection, new energy, new-generation information technology, high-end equipment manufacturing and tourism are likely to generate an output value of 60 trillion-80 trillion Yuan. There are broad prospects for cooperation in such fields between China and Europe. Currently, China has a population of 150 million aged 65 or elder, making up 10.8% of the country’s total. Old-age health and medical care will become the fastest-growing rising industry in China, which will also be one of the most important fields for cooperation between China and Europe. In 2016, China’s tourist income totaled 4.7 trillion Yuan, up 13.6%. Of total tourists, 4.44 billion traveled at home, while those touring abroad reached a total of 120 million. Sino-Europe cooperation in tourism and leisure has become one of the fastest-growing fields, and will bring forth greater economic vitality and contribution. Cooperation between China and Europe in addressing global climate change and the like is of vital importance. A study shows that given the proactive low-carbon policy China will see its carbon emission to reach its crest value by 2030 and, the crest value can be realized in advance with carbon emission being further reduced if more proactive strategies are adopted.

Table 5Cultivation of New Industry Growth Points

New-generation IT Industry / Output value reaching 5 trillion Yuan in 2014，and is estimated to reach 11-14 trillion Yuan in 2020 / Rising Oceanic Industry / Added value reaching 1.23 trillion Yuan in 2014, and is estimated to reach 3.6 trillion Yuan in 2020
Health Industry / Output value reaching 6.6 trillion Yuan in 2014，and is estimated to reach 14-16 trillion Yuan in 2020 / Bio-industry / Output value reaching 3.8 trillion Yuan in 2014，and is estimated to reach 10 trillion Yuan in 2020
High-end Equipment Manufacturing / Output value reaching 2.6 trillion Yuan in 2014，and is estimated to reach 8-10 trillion Yuan in 2020 / Cultural Industry / Added value reaching 2.4 trillion Yuan in 2014, and is estimated to reach 5.5 trillion Yuan in 2020
New Energy / Output value reaching 1.2 trillion Yuan in 2014，and is estimated to reach 3.8 trillion Yuan in 2020 / Tourism / Annual income reaching 3.25 trillion Yuan in 2014, and is estimated to reach 7-8 trillion Yuan in 2020
Energy Conservation and Environmental Protection / Output value reaching 3.8 trillion Yuan in 2014，and is estimated to reach 8.5-10 trillion Yuan in 2020

Source：Institute of Industrial and Technological Economics of Chinese Academy of Macroeconomic Research, Dec., 2015.

  1. “Belt and Road”and capacity cooperation strengthened between China and Europe. Overcapacity is a world phenomenon. Nonetheless, severe capacity shortage still exists among economies bound up with the“Belt and Road Initiative”. Reallocation of excess production capacity in capacity-shortage places through Sino-European cooperation helps realize the rebalance of the world economy. Not only will the cooperation be embodied in investment and economic benefit, but it will also be reflected in green and environmental protection standard and practice and in people-to-people bound and sharing of opportunities and achievements as well. The cooperation is a golden key for addressing the shortage of demand, impetus, cooperative development facing present world economy, and is as well a sovereign remedy for cultivating and enhancing emerging industries and for transforming and improving traditional industries. So long as the aspiration of contributing efforts together prevails, matters of vital importance with regard to cooperation can be discussed, constructed and shared together to bring about the forceful, balanced, sustainable and inclusive growth.

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[1]Li Peigen et al.: Blue Book of China’s Society, 2017，Dec. 2016.