China
Expert: To truly innovate, China must embrace ‘creative destruction’
By Li Wenhan  ·  2023-03-25  ·   Source: Web Exclusive


 

Cai Fang, Chief Expert at the National Think Tank, the Chinese Academy of Social Sciences, speaks at the China Development Forum (CDF) 2023 in Beijing on March 25. The annual event, themed "Economic Recovery: Opportunities and Cooperation" this year will conclude on March 27 (CDF)

While pursuing innovation, a key growth strategy in China, failure should be acceptable, Cai Fang, a research fellow with the Chinese Academy of Social Sciences, said at the China Development Forum 2023 running from March 25 to 27 in Beijing.   

The senior scholar stated that allowing anyone to have the right not to acknowledge failure may perpetuate the operation of zombie companies--companies that are unable to stand on their own feet and require bailouts. 

In the 1940s, Austrian economist Joseph Schumpeter first coined the term creative destruction, the underlying theory of which assumes long-standing arrangements must be destroyed to free up resources to be deployed for innovation.  

According to Cai, today’s economists are once again turning to this concept. Its contemporary, upgraded version calls for new product development, technological applications, new organizational forms and the introduction of new funding. 

“As for the Chinese economy, this issue raises concerns given that China is already seeing negative population growth, indicating the country’s demographic dividend may be depleting,” Cai explained.  

A demographic dividend means a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.  

The expert added, “Therefore, economic growth must be driven more by innovation. But the dilemma lies in the fact that, in many cases, failure is not allowed. Without the possibility of failure, there is no creative destruction, in turn undermining economic growth.” 

“To innovate, we must embrace creative destruction. Excess capacity should be eliminated, outdated technologies should be replaced and businesses should be allowed to bow out. And at the social level, a safety net should be in place, which is the top prerequisite to prevent the ‘cannot and must not fail’ mantra from becoming an excuse not to innovate,” Cai said. 

“I believe a social security system that covers the entire population can provide safeguards for creative destruction,” he added. 

“Innovation is no easy task. It happens only when market and government play their due roles and requires constant exploration and different approaches at different stages of development,” Cai concluded. 

The China Development Forum is an international forum aimed at fostering a dialogue with the world about common development. It serves as a platform for senior Chinese Government officials, global business executives, international organizations and scholars from China and abroad to exchange ideas. Since its inception in 2000, it has hosted 22 sessions, positively contributing to the promotion of policy exchanges and international cooperation. 

Copyedited by Elsbeth van Paridon  

Comments to liwenhan@cicgamericas.com  

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