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Tuesday, 14 September 2010

Finding the Balance

Yesterday saw Premier Wen Jiabao addressing the World Economic Forum's 4th summer Davos in the northern Chinese city of Tianjin. Xinhua picked out one of the key themes of Wen's speech as encouraging scientific innovation in China- a policy that is aimed at shifting away from a 'made in China' economic ethos towards a 'created in China' mentality. According to the Premier, this will be realised by approaches including promoting an open and fair investment environment in China for foreign companies, and developing the education system to ensure a flow of creative talent into the workplace.

Wen's statements follow similar lines to those of Vice-President Xi Jinping's made at the Second World Investment Forum of the United Nations Conference on Trade and Development (UNCTAD held in Xiamen Special Economic Zone. Xi was keen to emphasise the impact and benefit of the foreign investment that has come into the PRC since Deng Xiaoping's reforms, and also stressed the need to create a beneficial environment for further outside businesses to come into China. Wen Jiabao's comments similarly echo those made by Hu Jintao in a speech on education in July, when he outlined a programme of increased investment in education in the future, with China's private sector being invited to become involved.

Wen's Davos speech demonstrates how keen China is to move away from being the world's manufacturer and instead occupy a new position as a country who's economic strength is in innovation. This year saw four Chinese universities in the top 50 of QS' 2010 university rankings (these being the University of Hong Kong, Hong Kong University of Science and Technology, the Chinese University of Hong Kong, and Peking University), and it is likely that more Chinese institutions will start to creep up the rankings as government continues to invest in them. With students graduating from ever-better establishments, China will find itself increasingly well-placed to compete in the world market for ideas.

However, Wen's speech also featured elements that might put too rapid an end to China's status as a haven for manufacturing. The Premier admitted that the average Chinese labouring wage was too low, and he suggested that they would have to rise in the future as China's development continued, although wages should still be competitive. This latter points indicates in fact that the CCP does not want to completely discard the 'made in China' label from its industrial profile. The country's status as a manufacturing centre brings with it lucrative foreign investment and provides employment to millions of Chinese. Yet, if increased labour costs are on the horizon for outside businesses operating in China, there is a risk that the world will find a new place (where labour is cheaper) in which to concentrate its manufacturing. Such a risk is almost inevitably associated with a rapidly developing country such as the PRC, but this fact should not make it any less of a concern for the CCP. Wages will have to rise, but the Party should be careful that it doesn't take China's economic status too much for granted.

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