„Power is easier to experience than to define or measure.“ (Nye 1990: 25)
Policy Paper Submission for łhe Cerman Council on Foreign Relałions Workshop: America ˙s Pacific Cenłury – Implicałions for łhe Transałlanłic Parłners Susann Grune (PhD student, 1st year)
Research Field: China-related economic and lobbyism research
Chin a˙s New Economic Crowłh Model
Implicałions for łhe U.S.-China Economic Relałionship
Not only by virtue of its size, China is generally considered to gain even more economical weight in the future. As such, it has the potential to shape business relations worldwide. ¥ith regard to the glo- bal economic interdependence it is worthwhile to ask: How will China's transformation towards an “innovation-based economy” influence the China policy of the United States of America (USA)?
However, at the beginning it is important to explain why China decided to rethink its economic stra- tegy: The growth model of the past 200 years is currently challenged. Over two centuries, industriali- zation and rapid technological advances paved the way for a living standard unimaginable so far. But natural resources start drying up as the global population keeps growing and large parts of the world's population live in countries with an early economic development stage. ¥ithout adopting modern tech- nologies, which can help to decouple growth from resource depletion, developing nations will face severe consequences among them food shortages, climate change and environmental pollution (COM 2010). Many states – including China as it is shown in the 12th Five Year Plan – meet this challenge by modifiying their growth strategy. To reach a more sustainable, environmental friendly and technolo- gically advanced economy 'Green and Clean Industries' (GaCIs) have gained importance (Rock/Angel 2007).
¥hat is just as important to say, though, is that the Chinese government supports GaCIs not just for environmental reasons. From an economic angle, GaCIs are vital for China's effort to augment low- cost mass production with capacities for higher-quality goods. In other words, GaCIs are used to deve- lope technologically leading Chinese firms (National Champions) that enable China to overcome existent technology gaps. Strengthening technological innovation capacities (Conlé/Schüller 2007:
67) is China's way to manage the transformation from 'made in China' to one of 'innovated in China', which is finally needed to avoid the "middle income trap" (Huang/Jiang 2010: 2-3).
Plans are passed by the National People Congress, are legally binding and certain ministries of the State Council are obliged to monitor their implementation (Kubach 2011: 11).
The other side of the coin is that China's technological catch-up process could have negative effects for foreign companies and, in particular, for American firms. Thus, more often than expected foreign firms are facing competitors coming from China. That can be explained by the fact that China succeeded – especially in specific branches such as the solar industry (inter alia: Grune/Kubach 2012)
– in its 'imitation-based' catching up process (Abramovitz 1986). This development becomes compre- hensible when looking at the current intellectual property rights (IPR) situation in China. Although China's IPR legislation is deemed to be compliant with international standards and China has even more IPR laws than Germany, the law enforcement is deficient (Pattloch 2007: 9). This insufficient IPR implementation combined with China's strive for “indigenous innovation (zizhu chuangxin)” favours Chinese firms to get access to know-how and explains the large number of IPR violations in China. More precisely, non-Chinese technological leading firms – especially those ones operating in branches in which China still lags behind in its innovation capacity – were obliged to cooperate with Chinese companies or even forced to transfer their technologies directly (Schüller 2008: 79). Nevertheless, technology transfer to countries with lower technological standards such as the PRC is sometimes even self-inflicted because despite huge investments in their research and development some com- panies are careless in protecting their know-how and innovations (Vahs/Burmester 2005: 32).
Usually economic research on the People's Republic of China (PRC) is strongly influenced by wes- tern theories of neoliberalism. This “'western'-dominated” research approach disregards the sui gene- ris character of China's system (Kennedy 2005: 19). An explanation for this is mainly two-fold: First and less surprisingly, China's political system embodies authoritarian characteristics, which means that the Communist Party (CP) has the independent right to make policy (Schmidt/Heilmann 2012;|‚ Heilmann 2008). Secondly, China's economy is not market-oriented thouroughly because it is driven by specific national conventions and political norms such as the interventionism of the CP (Felipe/Mc- Combie 2010: 1). To illustrate this, it is worthwhile to shed light on the composition of China's business landscape;|‚ well known is that China's economic order consists of a small group of large and political influential state-owned enterprises and of a majority of small-medium-sized enterprises coming from China or from abroad (see Szamosszegi/Kyle 2011: 2, 6). Furthermore, the fact that the market is not the 'invisible hand' coordinating business activities (Smith 1976/1776) explains why "[in China] econo- mic behaviour is extremely sensitive to the institutional and political environment in which it takes pla- ce" (Breznitz/Murphee 2011: 35). To conduct research on U.S.-China relations that go far beyond tra- ditional security studies it is inevitable to accept that China's economic transformation is affected by own trajectories (Huang 2008).
membership (Kennedy 2005: 2;|‚ Fischer 1998;|‚ Yongseok 2012: 66).
 See keynote speech by Hu Jintao (Pattloch 2007: 7).
 The 12th Five Year Plan (2011-2015) calls for “cultivating and developing” seven strategic industries. China's Five-Year
 The technological gap approach is generally linked to the traditional foreign trade theory and is derived from the idea that the country, which has a technological monopoly will also have a competitive advantage and other less technological compe- titive countries will follow this market leader (Schüller 2008: 20).
 China's indigenous innovation strategy was introduced in a 2006 state-issued report called 'Guidelines on Na- tional Medium- and Longterm Programme for Science and Technology Development'. This report contains a mix of top-down policies alongside bottom-up efforts meant to foster technological innovations (Pattloch 2007: 9).
 The number of SOEs is slightly but steadily diminishing since the mid-1990s and especially after China's ¥TO-
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- Susann Grune (Autor), 2013, China's New Economic Growth Model , München, GRIN Verlag, https://www.grin.com/document/211387