China and the Knowledge Economy: Seizing the 21st Century

China and the Knowledge Economy: Seizing the 21st Century, by Carl J. Dahlman and Jean-Eric Aubert. Washington: The World Bank, 2001. xxvi + 170 pp. US$25.00 (paperback). The 1990s witnessed rapid economic growth. But this was achieved despite thorny problems that were left unresolved and even exacerbated. At the turn of the 21st century, these problems have become pressing issues needing to be grappled with in order to boost future development. China and the Knowledge Economy, published by the World Bank, provides the Chinese government with a diagnosis and prescription. It proposes that China should shift from a factor-based to a knowledge-based economy. The Chinese government may well be adopting at least some of the recommendations. The report is divided into three parts. The first contextualizes China's future development by identifying pressing challenges and by positioning China in the emerging paradigm of the "knowledge economy". The second part offers prescriptions to build up the foundations of the knowledge economy, and the third part discusses how to raise the technological level of the Chinese economy. Throughout the book, boxes are inserted containing illustrations that elaborate on some of the key concepts and provide relevant foreign and local examples. In the first chapter of Part I, the investigators identify four critical challenges faced by China during the transition: 1) serious unemployment; 2) maintaining economic growth; 3) growing regional and income inequalities; and 4) the environmental sustainability of development. They suggest that in the short term China should ensure as smooth and efficient a transition as possible, minimizing the unemployment that restructuring will cause and the social tensions that will follow and maximizing the opportunities for growth and for job creation. In the longer term, China should maintain high and sustainable growth that will not exhaust its limited natural resources. The second chapter sets out the significance of the knowledge-based economy for China's further development and puts China in the current global context of the "knowledge revolution", assessing China's weaknesses compared with advanced countries but indicating its potential to exploit the global knowledge base to catch up rapidly. In the three chapters of Part II, the investigators point out the weakness of China's foundations for the knowledge economy and the need to upgrade its economic incentives and institutions. Briefly, China should deregulate and transform its socialist planning institutions into market-based institutions promoting private enterprises; the formal rule of law should be strengthened; the state should become a regulator rather than a producer; intellectual property rights should be protected; labor mobility should be freed up; the taxation and financial systems should match the institutions of advanced countries; and the infrastructure for information and telecommunications should be deregulated and marketized, to foster a knowledge-based economy. Nevertheless, the state should continue to play a crucial part in promoting education. The government should put more resources into non-technical higher education in which "soft" skills, including management, human resource development, foreign language fluency and the ability to work in teams should be accentuated. The final four chapters of Part III propose means for China to raise its technological level. …