NCPA - National Center for Policy Analysis


December 9, 2004

Currently, China's economic power relies on cheap labor that mass-produces simple goods. However, a new article from the Milken Institute argues that China can do more. It has the potential for high-end knowledge-intensive industrial output.

China is heavily investing in technology and human capital. It is quickly outstripping the developed world in professional engineers, says Milken:

  • In the mid-1980s, the United States produced some 80,000 new engineers, while China produced only 70,000.
  • Today, China graduates over 200,000 engineers annually -- equal to the output of the United States, Germany and Japan combined.
  • In the 1990s, three of four mainland Chinese graduates of Stanford University remained in the Bay Area -- now that ratio is reversed.

The authors estimate that information technology's share of China's economy will reach 7 percent of gross domestic product (GDP) by 2010 and create 20 million jobs. To facilitate this, China created 53 tech parks (business clusters that are home to knowledge-intensive industries) to convert its scientific abilities into industrial muscle. Additionally, local governments are managing their own projects. For example, the local mayor organized the Dalian Software Park in northeast China independently of central control.

Despite its technological progress, China still needs to develop its management structure, says Milken:

  • In the past, the norm was to evaluate management performance according to how well state-owned enterprises met centrally planned output.
  • Consequently, the nuances of market-oriented management strategies are still alien concepts in China.
  • The Shanghai Education Commission estimates that China needs some 40,000 new MBA graduates per year, but only 10,000 such students are currently enrolled at recognized business schools.

Source: Rob Koepp, "Institute View: China on the Brink," Milken Institute Review, Milken Institute, December 2004.


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