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China has witnessed tremendous economic growth over the last 30 years and the country's business landscape has dramatically transformed. Today mainland China has 85 companies in the Fortune Global 500 list of the world’s largest corporations.
Foreign investors have flocked to China’s shores and many of the world’s iconic brands dot the shopping districts of the major cities. In the process, China has become the world’s 2nd largest economy.
The country's growth to date has been built largely on the twin bedrocks of a growing labor supply and rapid capital accumulation. However, as the influence of these factors begins to wane, it will be become more difficult for China to sustain its previous rapid rates of economic growth.
A scenario analysis shows that the only way for China to successfully transition to a more balanced economic model is to improve its productivity.See more Changing Geo-Economics articles.
China now faces two major bottlenecks:
First, China’s population is getting older, and the size of the labor force is set to plateau sometime around 2016.
Second, the pace of investment growth is also expected to slow as China’s government works to reduce the economy’s reliance on capital-led growth and increase consumption.
Many sectors in China are facing pressures on profitability, and the situation seems to be related to poor productivity.
Productivity improvement is therefore critical to both economic growth and better business performance.
In this report, China’s productivity performance is examined through three lenses: macro, sectoral, and firm.
China’s productivity growth surpasses that of many other countries in the world. However, that impressive trajectory began from a very low baseline. As a result, China’s productivity in absolute terms still lags that of many mature economies.
In addition, there are wide variations in productivity performance across firms and industries in China. Sectors which used to be the backbone of China’s economy performed poorly.
Our analysis showed that the most highly productive firms were those that had a larger scale, bigger investments in research and development, better use of technology, and higher levels of internationalization.
In order to rebalance its economy and close the productivity gap, China needs to shift its focus from simply accumulating labor and capital to improving their quality and distribution.
More specifically, China should focus on the following three things:
Mark Purdy is managing director of Economic Research with the Accenture Institute for High Performance. He is based in London.
Research Team: Accenture Institute for High Performance colleagues who contributed to the report:
January 23, 2014
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