China Climbs Up in Global Competitiveness

The World Economic Forum published the latest 2014-2015 Global Competitiveness Report， in which the Switzerland takes the championship for six straight years. It is followed by Singapore. The ranking of U.S. goes up two places to the No. 3. Noticeably， China ranks at the 28th place， much higher than its peers of the “BRICS”.

More broadly， China， Japan and the five largest economies in Southeast Asia have got impressive progress in the Global Competitiveness Index （GCI）. Three economies in Asia got into the Top 10， which are Singapore （2nd）， Japan （6th） and Hong Kong（7th）， the WEF looks into two aspects： boosting the longterm economic development through the structural reform which does not see substantial progress and deciding the competitiveness with the innovation， talent development and systematic security.

In recent years， the innovation has become the spine for the sustainable development. According to the report， China is continuously improving its innovativeness but it is not still an innovation powerhouse. So， it cannot be conceited and self-satisfied. Olivier Schwab， executive director of WEF China， says that “China is standing at the same starting line of innovation with developed countries. Against the new backdrop featuring technological innovation， China， which has been relying on the low labor cost for long， should attach great importance to the automation and enhancement of supply chain management”.

The Cases of Powerhouses

A look at the rankings in the past few years could reveal that the Top 10 places in the GCI were always taken by none other than the Switzerland， Singapore， the U.S.， Finland， Germany， Japan， Hong Kong， Holland， Great Britain and Sweden.

A source says that these developed economies share one common feature： they are good at fostering， attracting and using the talents and spending a lot on the R&D and technological innovation so as to gain the impetus to keep their originality.

The Switzerland， the six straight years’ champion， got the achievements thanks to its transparent and efficient system， the well-run market， the strong innovation power and the world-leading education and R&D.

Singapore took the second place with its commodity market efficiency， labor market efficiency， financial market development and good infrastructure.

Hong Kong， which took the seventh place， got its competitiveness from its efficient market， especially its labor force market with high-efficient human resource allocation and its position as an international financial center.

The Global Competitiveness Report made the rankings based on the GCI. The concept was created by the WEF in 2004 to measure the comprehensive competitiveness of a country/state from 12 aspects. In another word， it used 12 measurement indexes， which are the system， innovation， macroeconomic situation， healthcare and basic education， higher education and training， commodity market efficiency， labor market efficiency， financial market development， technological readiness， market size， market maturation and innovation.

China’s Joy and Pain

In 144 countries and regions， China’s ranking improved to the 28th place， one slot higher than a year ago. It further consolidated its position as the most competitive BRICS country. In comparison， Russia took the 53rd place； South Africa ranked 56th； Brazil was the 57th one and India occupies the 71st place.

The report spoke highly of the advantages of China in the “hardware” yet it did not conceal its disappointment at its defect in the “software”. The huge market is the standing advantage of China since its competitiveness in that field ranked No. 2. In comparison， the technological readiness （83rd） and higher education （65th） became the major defects of China in its “soft power”.

The report also listed five factors that have the biggest influence over China’s commercial environment： the fundraising problem， corruption， taxation rules， infrastructure and complicated examination and approval procedures.

Adam Smith once said： the bigger the market is， the more efficient it is. However， China seemed to fail to make best use of its market size. According to the report， the vulnerability of the banking industry， the limitations and trade barriers in market access and the investment code also greatly limited the competitiveness of China.

Therefore， the improvement of China’s competitiveness lies with the reform. The core of the reform mentioned in the 3rd plenum of 18th CPC Congress is to build up a market system featuring universal openness and orderly competition， which is the base for the critical role of market in the allocation of resources. In addition， cutting off the sources of corruption is also the key to the reform.

In spite of the problems， China’s progressive part cannot be ignored either. As the report pointed out， the macroeconomic condition of China took the 10th place in the world. Its inflation rate was lower than 3%. The budget deficit got slightly lower and the public debt accounted for 22.4% of its GDP， the lowest range in the world. Yet， China’s savings rate was has high as 50%， which is still too high given the need of rebalance of shifting China’s economy from investment to consumption.

The report also pointed out China is generally good and is getting better at innovation. However， it is still far away from an innovation powerhouse. Presently， China is no longer able to enjoy the cheap labor force. It is forced onto the path of creating high value-added jobs to meet the ever improving living standards.

The Challenge from the U.S.

The U.S. improved its ranking again for two straight years. This year， it surpassed Finland and Germany and won the third place. The rise of the U.S. in the competitiveness is noteworthy but this country is far from being free of worries.

The report showed that the rise of the U.S. was attributed to the high scores in the system and innovation. The improvement in the financial market also made some contributions. In addition， its excellent university system encouraged the commercialization of scientific research， which further boosted the creativity. The U.S. is walking on the way of rehabilitation with the drastic decrease in the unemployment ratio. This allows the U.S. to further use the structural advantages and expand the production power.

However， the U.S. still has a long way to go. “For the U.S.， the biggest challenge waiting for them in the future is to seek breakthroughs in two sectors. the improvement in system and the increase of investment in infrastructure and education，” says Margareta Drzeniek， a senior expert of WEF.

She pointed out that the investment into infrastructure only took 0.6% of the U.S. GDP， lower than any OECD member. In addition， the education quality of the U.S. has its problems too： it ranked 36th in the health and primary education while took the 51st place in the math and science education. This is a huge threat against any innovation powerhouse.

There are hurdles for the U.S. to solve the problem. In the aspect of system， the U.S. is still haunted by the defects in useless governmental budget， misdoings of governmental officials and the creditability of the public. Its poor macroeconomic condition （113th place） somewhat ripped the country of the opportunities of striving for better. The serious problem in governmental debt（134th） squeezed the space for the investment into infrastructure and education.

Apart from the U.S.， the competitiveness of European countries took on a new outlook： a great gap appeared between the countries undergoing reforms and those rejecting reforms. Spain （35th）， Portugal （36th） and Greek （81st）， which were blown hard by the economic crisis， have got improvement in the market operation and allocation of resources for production. In comparison， France （23rd） and Italy （49th）， which were hesitant in the reform， has their “economic tumors”left uncured.

Mario Draghi， president of European Central Bank， says that the struc- tural change needs to be treated with all seriousness. Without significant structural changes， the financial and monetary policies will have no grand impact. The structural reform should include the reform to product and labor market and the improvement in the business environment.

Conclusion： the Innovation and Structural Reform

Generally speaking， the two key words of the report are innovation and structural reform. The two work with and complement each other， forming the main drive for the global economic development.

“The strained geographical relationship， the widening income gap and the possible shrink of the financial situation will pose a threat against the temporary recovery. Thus the structural reform is needed to ensure the inclusive and sustainable growth，” says Klaus Schwab， founder and executive chairman of WEF.

Presently， the global economy is still driven by the easy money monetary policy. In order to realize the long-term economic growth， improve the employment quality and achieve the sustainable prosperity， the structural change is indispensable.

For developed countries， the demand for the reform to the labor market and the re-training of technicians is rising sharply. In developing economies， the stress of structural reform is much larger than the developed economies. After a period of fast development， they have met bottlenecks in both the economic and social development. With the in-depth， broad or even painful structural reform， they are hard to get any progress in the economic development.

“A common characteristic for the rapid growing economy is that it can get competitiveness from the structural reform，” says Prof. Xavier Sala-i-Martine with University of Columbia.