Assessing China's quest for innovation

<div>The Chinese economy is at a crossroads. The investment-driven growth model, which the government had relied on for the last four decades, is running out of steam. Fiscal deficits are widening and public debt is rising. Furthermore, population aging is becoming more visible and the pandemic had some scarring effects which have taken a toll both on consumer and business confidence. <br> <br> The very rapid rise in wages since the global financial crisis is pushing China to get ahead in its production capabilities so it will be productive enough to continue to raise wages and avoid the middle-income trap. Pressure on the economy is further intensified by the recent increase in geopolitical tensions and fears of decoupling between the US and China. <br> <br> As the Chinese economy continues to decelerate, the central government is investing heavily in innovation, doubling down on research and development (R&amp;D) spending and STEM-oriented human capital.<br> <br> In this episode of The Sound of Economics, <a href="https://www.bruegel.org/people/giuseppe-porcaro">Giuseppe Porcaro</a> invites <a href="https://www.bruegel.org/people/alicia-garcia-herrero">Alicia García-Herrero</a> and <a href="https://www.bruegel.org/people/robin-schindowski">Robin Schindowski</a> to discuss the challenges China faces, including three potential bottlenecks that might be hindering the translation of China’s innovation efforts into productivity growth, with a specific focus on whether Chinese growth can defy gravity. <br> <br> <strong>Relevant publication</strong> </div> <ul> <li>Schindowski, R. and A. Garcia-Herrero (2023) ‘<a href="https://www.bruegel.org/working-paper/chinas-quest-innovation-progress-and-bottlenecks">China’s quest for innovation: progress and bottlenecks</a>', Working Paper 08/2023, Bruegel</li> <li>Garcia-Herrero, A. (2023) ‘<a href="https://www.bruegel.org/policy-brief/can-chinese-growth-defy-gravity">Can Chinese growth defy gravity?</a>’ Policy Brief 14/2023, Bruegel</li> </ul> <div>This episode is part of the