Why is the second largest economy only 16th in global competitiveness? Size and state dominance may still be partly to blame, but the People’s Republic is moving in the right direction, writes Arturo Bris
China’s achievements over the past 30 years have been impressive. The changes that the country has enjoyed, and the resulting increases in prosperity, have no historical reference of similar magnitude. Between 1990 and 2016, the number of people living under the poverty line of $1.90 per day fell from 750 million to 7.2 million (only 0.5% of the population). Today, 14 out of the 100 largest companies in the world by market capitalization, and 23 out of the 100 largest unicorns, are Chinese.
The country’s rise has been attributed to several factors. After decades of poverty, political repression, and inefficiency of the public sector, in one sense, the only way was up. Also contributing to the Chinese miracle were the country’s large population and the related deep and powerful internal market. Some government decisions, such as significant investment in infrastructure and education, together with a more tolerant approach to private property and enterprise, have definitely contributed as well.
However, there is still a long way to go. This year China ranks 16 out of 64 economies in the IMD World Competitiveness Rankings, up four points from last year. Our rankings combine statistical data in areas of economic performance, government and business efficiency, and infrastructure (two-thirds) and survey data (one third) to evaluate the performance of these 64 economies across the globe.
China’s ranking often raises questions because it is not obvious why the second largest economy in the world cannot yet be considered very competitive. At our center, we also rank Hong Kong and Taiwan. These economies with Chinese roots, but operating in different political and social environments, rank higher. Indeed, this year Hong Kong is ranked seven and Taiwan eight. One success factor is their small size, which allows them to implement effective policies, find the required social consensus, and specialize in technology and human capital. Another reason they are in the top 10 is that both Hong Kong and Taiwan have exploited the capitalist model of free enterprise, private property, and little intervention by the state in business. The model of the People’s Republic of China is quite different.