In China, Innovation Cuts Both Ways

China is in a bind. The heavy industry that propelled the country’s economy through three decades of dizzying growth has reached its limits. To escape the dreaded middle-income trap, China will need to shift its focus from low-end manufacturing to other economic industries, namely the technology sector. Beijing has put tech at the center of its long-term economic strategy through campaigns such as Made in China 2025 and Internet Plus. But these initiatives alone won’t push the Chinese economy past its current plateau. The tech sector is notorious for relentless innovation. And innovation requires flexibility.
For the Chinese government, flexibility is an unsettling prospect. Giving tech companies the leeway they need to keep up with – and, ideally, get ahead of – their competition is the only way Beijing can achieve its goals for economic growth and development. However, granting tech firms and their influential leaders the autonomy required to compete on the global stage could undermine the central government’s power over the economy and set an uncomfortable precedent for the rest of China’s industries. Faced with the seemingly incompatible tasks of promoting innovation and maintaining control over the economy, the Communist Party of China is struggling to figure out how to regulate the tech sector without stifling it.

This post was published at FinancialSense on 10/24/2017.