Assessing China's Economic Catch-Up at the Firm Level and Beyond: Washington Consensus, East Asian Consensus and the Beijing Model

Abstract

This paper takes a new Schumpeterian economics approach in examining firm-level technological catch-up strategies in China. We focus on the strategies for learning and gaining access to a foreign knowledge base. We also underline unique Chinese features, including forward engineering (i.e. the role of university spin-off firms) in contrast to reverse engineering, acquisition of technology and brands through international mergers and acquisitions (M&A), and parallel learning from foreign direct investment (FDI) to promote indigenous companies. These features comprise the Beijing model because they were not explicitly adopted by either Korea or Taiwan. At the macro and aggregate levels, we find that China follows the “East Asian sequencing” rather than the Washington Consensus. We also discuss several challenges facing China, such as design capabilities and localization of intermediate parts. We conclude that the Chinese industry will not remain a low-end original equipment manufacturer (OEM) economy but will rise to the level of high-end or brand producers.