China Can Teach About Innovation to the West

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China's innovation
China Industries

Early from 19th Century to 20th Century, the countries in the West have attributed the growth economically to the scientists and navigators’ discoveries. A country’s only requirements to meet the new product demand are commercial applications and a zeal to develop. Even China believed the same thing. China’s innovation leading the business people and entrepreneurs to get adapted to the new opportunities and they believe their capacity to innovate.

It’s quietly different from cut and pastes just like other countries. Moreover, the Chinese companies and China’s innovation have understood one thing to stay ahead of the global economy – to innovate. The companies like Baidu, Tencent, and Alibaba offered the infrastructure meeting current digital age facilitating the activity of innovation. Indeed, the industries made a drift to artificial intelligence and robots.

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However, the government of the country supporting China’s innovation and helping in developing a capacity to make such an innovation. In fact, innovations are turning out as pearls for China as the West remained weak in the field of innovation. The total factor productivity resulting in a drop.

Tencent's rise
Tencent’s rise                                                                                                                    Image: Statista

Recently, the government of China began to initiate with an aim to increase – innovation and entrepreneurship. Further, China has built the schools and their teachings will reflect the world they are going to face and hence forming new companies considerably came down.

The authorities also gave a green signal after recognizing the competition need in the industry. Individuals must start a new company and existing companies must enter into new industries. However, the competition gives a solution to major problems existing in the society. The West lost this point of focus.

Existing Challenge – A Stop to Protections for the Enterprises

At the annual meeting in Davos – World Economic Forum, in January, Chinese officials have taken a point the basic reforms of the government and it has been introduced two years back to exponentially rise competition. The new policy says excess capacity has to be signaled – allowing the supply to prompt redundant forms and contracting them to exit from the market.

This will lead to the entry of new firms. When the existing companies restricted to be making an entry into the market, this leads to less competition and less innovation.

Considering the modern economy, the operation of every industry is all about unknowable and unpredictable future. Thinking and acting on a problem from the industry sector would fetch a potential solution. A company existing out of the industry may know something else while the other companies in a company don’t.

China’s innovation benefits the country as each company thinks and works on its own and hence become free to become competitive. The West, however, may have forgotten this. The protections of the enterprises existing from the early 1930s have discouraged the young entrepreneurs those are having new and innovative ideas. History shows an evidence regarding the competition.

Since 2016, the TFP growth in China is slowing down for a number of years. But since reforms shot up, TFP began to increase. Now, a challenge exists for the West to address its TFP and this has lasted until the 1960s. It’s time to end protections and new innovations will be a good place to initiate.