China’s industrial transformation and the ‘new normal’

Abstract

China’s industrial transformation faces four big roadblocks: the loss of traditional comparative advantage, weak domestic demand, low-end locking of the value chain, and structural and institutional obstacles. The shift of economic growth to structural upgrades, innovation and a service-based economy is the primary driving force required. China should implement four strategies. The first is to cultivate a new dynamic comparative advantage and inject new vitality for industrial transformation. The second is to let the market play a more decisive role and establish a long-term mechanism to expand domestic demand. The third is to promote the convergent development of global and national value chains, upgrading the value chain in horizontal and vertical axes. The fourth is to create an upgraded version of Chinese reform, manage the market with a pattern of negative listing and supervise the government with a pattern of positive listing.