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China: Its Global Ranking on Competitiveness 2010
China ranks 27th in Global Competitiveness Report from 29th last year



China moved up two places to No. 27 in rankings of the Global Competitiveness Report 2010-2011 published by the World Economic Forum (WEF).  "China has been rising and rising in recent years," said Jennifer Blanke, chief economist of the WEF, to China Daily newspaper.   She said the gap between China and other BRIC nations (Brazil, Russia, India and China) is also increasing.  Brazil, India and Russia were ranked 58, 51 and 63 in the WEF report.  Robert Greenhill, managing director and chief business officer of WEF said, "Most of the BRIC nations have been improving. But China's improvement has been more faster," reported the paper. Mr. Greenhill commented that the global economy still faces uncertainties, as the present economic downturn is something that the world has never experienced before. But in areas such as higher education and training, technological readiness and financial market development, the country still needs to make more advances.



China's Results from the Global Competitiveness Report 2010
by the World Economic Forum (WEF)
(Source: The Global Competitiveness Report 2010)

The “Global Competitiveness Report 2010-2011”, released by the World Economic Forum (WEF), has rankings that are based on the Global Competitiveness Index (GCI), developed for the World Economic Forum (WEF) by Professor Salai Martin, and introduced in 2004. The GCI is based on 12 pillars of competitiveness: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, market efficiency, labor market efficiency, financial development, technological readiness, market size, business sophistication, and innovation. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of partner institutes (leading research institutes and business organizations) in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies. The report also lists the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.

China's positive outcomes according to the report:

The two-rank improvement is almost entirely attributable to:
  • The advances made in the financial sector. China this year has better assessment of its financial market (up 24 places to 57th), which has historically been a notable weak point.This is the result of easier access to credit and financing through equity markets, banks, and venture capital.  Also, a slight improvement in the perceived soundness of the banking sector (60th, up six places).
  • China's massive infrastructure construction - the country is quickly catching up on infrastructure
  • The biggest strength of China is its large and growing market (ranking second)
  • Microeconomic environment and macroeconomic stability (ranking fourth)
  • Market efficiency
  • Expanding market size.  China main strengths its large and growing market size.
  • Technological readiness is another area where China has traditionally underperformed (78th), with low ICT penetration, although rates are surging. In 2009 alone, China added over 100 million mobile telephone subscriptions and some 86 million new Internet users. Mobile penetration has reached more than 50 percent, and about a quarter of the population uses the Internet on a regular basis.
  • Relatively sophisticated and innovative businesses.
Venture capital availability
In the country, how easy is it for entrepreneurs with innovative but risky projects to find venture capital (a smaller number is better here) (2009–10)


Internet access in schools
Based on level of access to the Internet in schools in the country (a smaller number is also better here) 2009–10




China's main challenges according to the report:
  • Very low innovation. China has made rapid advances in shifting its economic focus to innovation rather than efficiency, but it will take some time before the efforts bear fruit, according to Greenhill.
  • Policy instability, and corruption and access to financing are still the major issues confronting investors in China
  • China shares with mid-range European countries the relative handicap of rigid institutions
  • Other areas for improvement are related to its human resources base. China has made small strides in the quality of higher education and training (60th), but there remains considerable room for improvement in what constitutes an important area going forward.
  • In addition, "although the labor market is indeed quite efficient, a lack of flexibility (96th) constitutes a major challenge", according to the report
Apart from the rankings, respondents to the WEF survey were also asked to select the five most problematic areas for doing business in their country, on a list of 15 factors. Below are the results.

The most problematic factors for doing business in China:
  • Access to financing
  • Policy instability. Corruption
  • Inefficient government bureaucracy
  • Inflation
  • Tax regulations
  • Inadequate supply of infrastructure
  • Inadequately educated workforce
  • Tax rates
  • Poor work ethic in national labor force
  • Restrictive labor regulations
  • Foreign currency regulations
  • Government instability/coups
  • Poor public health
  • Crime and theft
Availability of scientists and engineers
Based on what extent are scientists and engineers available in the country (a lower number is more favorable here) 2009–10 weighted average


Total tax rate
This variable is a combination of profit tax (% of profits), labor tax and contribution (% of profits), and other taxes (% of profits) | 2009.  A high number here which China has is a negative.



Government acknowledgement on the country's competitiveness

According to Xinhua News, China's spending on research and development (R&D) rose last year, yet the figure is still less than that of developed nations, a survey showed.  China spent 580.2 billion yuan ($87.4 billion) on R&D in 2009, 6.5 times the investment in 2000, according to a survey conducted by the National Bureau of Statistics (NBS) and five other ministries. It was equivalent to 1.7 percent of the country's gross domestic product (GDP), up 0.8 percentage points from the level in 2000, the NBS said in a statement. The figure for developed countries is above 2 percent on average.  In the government's 11th Five-Year Plan (2006-2010), China aims to increase its R&D spending to two percent of GDP by the end of 2010.

China's forthcoming 12th Five Year Plan, to be released in March 2011, is expected to define seven strategic industries for development, including energy efficiency and high-end manufacturing, commented Sean Darby, Asia strategist for Nomura international (HK) Ltd. to Asia Sentinel.  No official announcement has been released till now regarding the exact investment amount, he said.  The paper reported that other sectors of China investment are to include environmental protection, next generation IT, bio-technology, new energy, new material, and clean-energy vehicles. The R&D to GDP ratio in China would be increased from around 1.5 percent now is to rise to 2-2.5 percent in the next five years, which will be very large amount of investment.   According to Hugh Peyman, the managing director of Research-Works, the leading independent equities research firm based in China, told Asia Sentinel that, China has 1,160 research institutes in place, producing 2 million engineering and science graduates, four times as many as in 2000 and five times the number the US is producing.

Our View:

China continues to make impressive improvements.  Infrastructure in many areas of the Eastern Seaboard area which were the first to change in China, Chinese infrastructure is good even by western standards.  China continues to invest in improving infrastructure but is now also targeting improvements in education and human resource management that bode well for its future competitiveness.  China is a force for change in the international economy and Western nations need more to pay attention to the change happening there and learn to adapt to the new conditions that it is creating.
 




About the Author:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations.




 
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