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China’s source of creative growth

China’s premier, Li Keqiang, offered a simple solution this week for his country’s biggest problem, which is that the world’s second-largest economy is growing at its lowest rate in a quarter century. The solution, said Mr. Li, is to boost innovation among its large pool of scientists and engineers.

“Having reached the current stage of development, China can now advance only through reform and innovation,” he told the National People’s Congress on Sunday. He compared the economy to a butterfly trying to break out of a cocoon. And indeed, China is experiencing its lowest growth in funding of research and development since 1998.

Yet despite the premier’s call for scientific breakthroughs to stimulate Chinese industries, it is not clear if the government has much faith in the creativity of the country’s researchers. An official plan called “Made in China 2025” sets out an industrial strategy that appears to call for attaining even more technology from advanced economies. Last year, for example, Chinese firms invested heavily in European companies, up by 77 percent from the year before and more than four times the flow of investments by European companies in China.

Despite the economic slowdown, China remains the world’s largest manufacturer. Yet it faces more competition from countries with lower wages. In 2015, India surpassed China for the first time in foreign investment. And foreign firms have grown cautious about investing in China because of widespread theft of intellectual property.

The ruling Communist Party feels pressure to create jobs, which may explain why its leaders are impatient toward a quick boost in Chinese export industries, preferring to continue the practice of buying up foreign firms and technology. Yet there is an alternative, as the European Union Chamber of Commerce in China states in a recent report: “Ultimately, perfecting the market would do far more to ensure that China reaches its full potential for economic development and innovation than more old-school, expensive industrial planning ever could.”

China needs to allow more freedom of thought for researchers to come up with new ideas for industries. Creativity “is not a stock of things that can be depleted or worn out, but an infinitely renewable resource that can be constantly improved,” notes a report called the Global Creativity Index by a group of international scholars.

The simplest solution to China’s slowdown is to have more faith in the innovation of its people.

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