Development of innovation, particularly transformational innovation, is challenging for developing countries. In this chapter, we first review the major drivers of China's rapid economic growth since the late 1970s and argue for the need for technological progress to sustain the country's long-term growth before the country hits the middle-income trap in 2030.
Next, we discuss the institutional and cultural constraints on China's ability to enhance its capability for radical innovations. Based on our analysis of multinational data that cover recent performance of more than 120 economies over a wide spectrum of innovation outputs (including fluency in idea creation, local economic impact, and global absorption rate of new knowledge), we identify several major institutional and cultural factors that may limit abilities of developing countries in general and China specifically to expand the capacity for transformational innovation.
We acknowledge China's proactive attempts to improve the quality of its human capital through projects that aim at enhancing the quality of Chinese universities (e.g., Project 211 and Project 985) and ambitious global talent recruitment schemes (e.g., the Thousand Talents Program). Nonetheless, our analysis challenges the wisdom of relying primarily on human capital improvement and global talent recruitment as the strategy to promote transformational innovation. We also apply our findings to understand the institutional and cultural constraints on China's ability to expand its capacity for transformational innovation and argue for the necessity of creating institutional and cultural environments that protect individual rights, discourage group centrism, and encourage intercultural learning.
Although China has made tremendous progress in economic development since 1978, it is still a developing economy (see Lin, Chapter 2, this volume). Will the Chinese economy be able to continue its growth after 2030 and escape the middle-income trap? Lin (Chapter 2, this volume) thinks it is possible because some Asian economies (e.g., China, Taiwan, Korea) have developed a new paradigm of sustainable economic development (new structural economics) that allows market to be the basic institution for resource allocation, while at the same time retains state control over growth-facilitating structural changes.
However, deeper probing into the sources of China's rapid economic growth casts doubt on the defensibility of an overly optimistic projection of China's future growth (Fuller, Chapter 6, this volume). Importantly, some of the conditions responsible for China's fast growth (e.g., high domestic investment rate, surplus supply of labor) may not be replicable.