Following decades of strong growth, China needs to shift to new sources of growth to continue catching up with advanced economies. The rapid gains in productivity driven by the move from agriculture to manufacturing, strong investment in physical capital, the integration into the global trade system and the associated technology transfer have largely run their course. China needs to step up investment in knowledge-based capital, allocate resources more efficiently across firms and encourage a more widespread development of skills and human capital. Chinese firms are relatively well integrated in global value chains (GVCs), but the value added generated could be raised by a stronger involvement in knowledge-based and skill-intensive service activities, which currently comprise only a small share of value added in China’s manufacturing exports.
1. The index of GVC participation consists of backward participation, which is the share of foreign value-added embodied in a country’s exports, and forward participation, which is a country’s value-added embodied in other countries’ exports, as the share of its exports. Backward participation tends to be higher for small countries or those engaging heavily in assembly of final goods (ex: China, Mexico and some central European countries). Forward participation tends to be higher for countries exporting natural resource and base material (ex: Norway or Australia) and those participating in GVC as providers of core components (ex: the United States or Japan).
Source: OECD-WTO Trade in Value Added Database (TiVA), October 2015.
Previous Going for Growth recommendations include:
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Recent policy actions in these areas include:
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality). In the case of China, a gradual extension of social services to migrant workers in more cities would unleash their consumption potential, thereby supporting economic growth, and help make growth more balanced and equitable. |
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