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  • InduQin

China’s New Innovation Advantage

The future of the Chinese economy lies in innovation, and everyone in China knows it. But that hasn’t always been true. Innovation didn’t drive the manufacturing miracle that has unfolded in China over the past half century, during which some 700 million people have been raised—or lifted themselves—out of desperate poverty. Instead the driver has in large part been what might be called brute-force imitation. Relying on a seemingly limitless supply of cheap labor, provided by the hundreds of millions of ambitious workers born during the postwar baby boom, China devoted itself prodigiously to the production of other countries’ innovations. The effort enabled a country that missed the Industrial Revolution to absorb the world’s most modern manufacturing advances in just a decade or two. Fittingly, China earned a reputation as a global copycat.

Now times are changing. China’s Baby Boomers are being replaced by its Millennials, born under the country’s one-child policy, which was officially launched in 1979 and designed to get birth rates below replacement level. It worked—but it also created a new demographic reality: China today doesn’t have enough people in its rising Millennial and Gen Z workforce to replenish the ranks of its disappearing Baby Boomers. According to its National Bureau of Statistics, China will have 81 million fewer working-age people in 2030 than in 2015; after 2030 that population is projected to decline by an average of 7.6 million annually. This has profound implications. With its pool of younger workers shrinking, China can no longer rely on imitation if it hopes to grow and support its aging population. It will have to rely on innovation instead.


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