China’s Innovation Riddle

For years, China has been known for cheap labor and cheap manufacturing costs–that’s why the United States has outsourced so many jobs there. But China’s leaders are trying to change this and to become a more innovative economy. One of their core strategies is to increase the number of college graduates, as Keith Bradsher writes in today’s New York Times:

The aim is to change the current system, in which a tiny, highly educated elite oversees vast armies of semi-trained factory workers and rural laborers. China wants to move up the development curve by fostering a much more broadly educated public.

China is investing $250 billion each year in its universities. In the last ten years, the number of colleges in China has doubled, to 2,409. That’s 1,200 new universities in ten years, which is 120 new universities every year! And Keith Bradsher reports that these are not just phantom campuses–all of the classroom seats are filled. (Their biggest problem is finding qualified instructors.) By 2020, China’s goal is to have 195 million graduates each year (compared to the 120 million predicted in the U.S. that year).

But simply having more graduates won’t automatically result in more innovation:

Much depends on whether China’s authoritarian political system can create an educational system that encourages the world-class creativity and innovation that modern economies require….

The overarching question for China’s colleges is whether they can cultivate innovation on a wide scale–vying with America’s best and brightest in multi-media hardware and software applications, or outdesigning and outengineering Germans in making muscular cars and automated factory equipment.

Bradsher calls this “the innovation riddle” and compares China’s current situation to Japan just after World War II. In the 1950s and 1960s, Japan focused on university education much like China is doing now. In many ways, it was a huge success; Japan has a large middle class and one of the world’s largest economies. “But partly because of a culture where fitting in is often more prized than standing out, Japan hit an economic plateau.” Economists predict that China’s cost advantage in labor and cheap capital will disappear within 10 to 15 years. The riddle is: How can China transform itself into an innovation economy in just ten years?