Chinese Technological Growth

President Hu Jintao of the People's Republic of China (China) in his tenure promulgated Scientific Development Concept as one of the key policy which governed the development of China during the decade from 2002 to 2012. This Scientific Development doctrine has been subsequently written into the Communist Party and State Constitutions in 2007 and 2008 respectively, which inevitably would be the guiding policy of China's future development for years to come. The scientific development concept is a socio-economic ideology of the Communist Party of China which stems from the basic premise that it is possible for the state to "engineer" sustainable development through tested and proven methodologies of governance. This sustainable development plan was realized through the Tenth Plan (2001-2005) and Eleventh Guideline (2006-2010), within which, technology development was its main initiatives. The Tenth Plan tasked to optimize and upgrade the industrial structure, improve the national economy and social IT levels, kick-start the operations of more infrastructure facilities, raise research and development funding to more than 1.5% of GDP, and strengthen sci-tech innovation capabilities. In the Eleventh Guideline, the technology progress goal set is to raise share of research and development (R&D) spending out of total GDP up from 1.3% in 2005 to 2% in 2010. With all these inputs for technological development, did it translate to the economic growth? This essay aims to examine the theoretical base of technological development towards economic growth and any empirical evidence in China.

Government policy and the China's economy

China's economy is a mixed economy of command economy and market economy. It's economic development is largely influenced by the five-year plans . But on the other hand, although government aims to regulate the prices and quantities, the prices and quantities are mostly determined by the market force.

From 2001 to 2010, the GDP grew 3.6 times at an average rate of around 10% . While many will argue that the Five-year plans are wishful plan or guidelines and there are many attributes, like China joining WTO that resulted in the growth, the fact that the Five-year plans are the most influential guideline for China's social and economic growth is undeniable. The technological change encouraged as policy in these plans on the productivity is also paramount.

Literature review of theories of technological change and economic growth

In the neoclassical growth model , capital deepening and technological change are considered two major drivers of economic growth. Technological change means that more output can be produced with the same inputs of capital and labor. Technological change shifts out the Production-Possibility Frontier. As a result of technological progress, capital per worker, output per worker, and wages per worker grow over time, yet the real interest rate does not decline. That means it increases the overall productivity.

The Growth-Accounting Approach suggested a way of exhaustively accounting for the ingredients that lead to the observed growth trends. Based on the neoclassical growth model, the Growth-Accounting Approach assumes that there are factor of growth other than labor and capital stock. That factor was referred as Solo residual or Total Factor Productivity (TFP). Mathematical formulae were provided for calculating this TFP.

Literature review for articles on Growth-Accounting in China covering the 2001 to 2010 period was conducted. It was found that even using the Growth-Accounting Approach, different author may be based on different set of data for different period and end up different proportion of TFP. Bosworth and Collins (2008) attributted over 40 percent of China's post-reform growth to TFP and 3.6 percent annual TFP growth for 1978-2004. Powers(2012) provided a table of the contribution of different factors to GDP growth during different period of time. It is interesting to note that the calculation showed that capital stock increased its contribution while TFP decreased its contribution moving from 1978-1999 to 1999-2008 period.

R. Herd & S. Dougherty (2007) compared the growth prospects of China and India through a growth accounting analysis during the 1995 to 2005 period. Their comparative analysis of the Chinese and Indian economies reinforces the view that capital formation has been the key factor behind the rapid growth of these two economies rather than growth of total factor productivity.

Wu(2011) has similar result for the period 2002-2008 as showed in the captured table but with a lower TFP growth of around 2 percent.

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Brandt & Zhu (2010) provided a table comparing different authors Growth-Accounting of China's economic growth. It ranged from 36.9 to 45.9 percent for the period 1993-2004. They also provided a sector specific TFP of non-agricultural, non-state and state, arguing that non-state sector have a lower capital stock yet with similar TFP as state sector.

The sources of China's economy growth have been long debated and there are many different findings based on different approach. However, based on the literatures and assuming the calculations are correct, the TFP attribute around 36.9 to 45.9 percent for the period 1993-2004 and we can assume it will also be around this figure for 2001-2010 period. So we know that technology change is one of the factor contributed the