Setting some records straight

The takeover of Volvo by Chinese carmaker Geely is a case in point. It has given China little access to technology, because all the innovation engineers in the company are non-Chinese. Furthermore, the M&A strategy deflects attention from the need to develop strong Chinese brands, which would command respect abroad and restore the credibility of the made-in-China label, to which safety scandals have dealt frequent blows.

Lenovo, the fourth largest computer-maker in the world, is perhaps the only Chinese company that comes closest to a truly global brand. Yet the headline of a recent profile of Milko van Duijl, Lenovo's senior vice-president, in the UK-based Daily Telegraph read: "Lenovo: the biggest computer-maker most people have never heard of".

It is the responsibility of Chinese officials to translate the ambitious promises set out in the 12th Five-Year Plan (2011-2015) into action. China's rapid economic development has been largely based on exports and low-level manufacturing of consumer goods, thanks to cheap labor and technologies imitated or imported from the developed world.

The officials should start implementing the promises by establishing an incentive mechanism to encourage greater domestic competition and allowing private enterprises to compete fairly with SOEs. The government should take measures to make it easier for private companies to get bank loans, and set up a tough regulatory regime to ensure SOEs do not enjoy unfair monopoly.

Can China succeed in hauling itself up the technological ladder? It can, but the process will be painful and lengthy. The country still has a large reserve of cheap labor in rural areas, which means the pressure for innovation and technology upgrade has not reached its peak.

China's total GDP may well surpass that of the United States by 2020, but its per capita GDP will still be less than one-fourth of the US. In other words, even when China becomes the largest economy in the world it will remain a developing country.

For China to become a rich and truly powerful nation, Chinese multinationals have to flourish overseas. Without respected brands of its own, China will always languish at the lower end of the value chain. And its future will ultimately depend on its ability to create, not replicate.

The author is a professor of economics at the University of Nottingham.

(China Daily 06/18/2011 page5)