Interview: China's innovation, entrepreneurship to benefit global economy, China-U.S. relations: U.S. expert

Innovation and entrepreneurship have become the driving forces behind China's transition to a more domestic-consumption based economy, which will not only put its growth path on a more sustainable trajectory, but also ultimately benefit the global economy and China-U.S. relations, a U.S. expert has said.

FROM GOVERNMENT-LED INVESTMENTS TO PRIVATE SECTOR INNOVATION & ENTREPRENEURSHIP

"I think China is doing extremely well" in encouraging innovation and entrepreneurship as the country makes "an enormously difficult transition" from government-led investments with focus on infrastructure and exports to "the creation of the real private sector and the domestic oriented economy built on consumption" , said Geoffrey Garrett, a management professor and the dean at the Wharton School of the University of Pennsylvania.

"If you just read the Western media, they concentrate on the (Chinese) stock market and currency, but I think what that misses is this transformation happening in the domestic economy, and being in China is really essential to understand that," said Garrett, who has been to Beijing, Shanghai, Hangzhou and other cities in China over the past year.

"It has just struck me how important innovation and entrepreneurship is in China today," he told Xinhua in a recent interview, as China's 13th Five-Year Plan for 2016-2020 has clearly listed supply-side structural reforms as its top priority, an indication that Chinese policymakers understand that the country's next stage of economic growth will have to be driven by private sector innovation and entrepreneurship.

Chinese Premiere Li Keqiang has urged government agencies to enhance support for mass entrepreneurship and innovation to add new impetus to the country's growth. China's innovation concept has also been integrated into traditional manufacturing and booming Internet industry, with the establishment of the plan "Made in China 2025" and "Internet Plus" strategy.

While Western people tend to discount Chinese internet firms, Chinese tech giants BAT, namely Baidu, Alibaba and Tencent, are "incredibly innovative", Garrett said, citing the example of online bank services launched by the e-commerce firm Alibaba for its clients who are underserved by traditional banks.

In his view, it's also "a very smart development strategy" for smartphone maker Xiaomi and other Chinese companies to catch up to the global technology frontier through rapid innovation and adoption of new technologies.

Based on a unique customer-centric innovation strategy, Xiaomi has become the world's most valuable startup and one of the world's leading smartphone makers in less than six years.

It's quite extraordinary for Xiaomi to release improved versions of operating systems "every week" based on online customer feedback, Garrett said.

He said he is also struck by the rise of entrepreneurial spirit in China, saying that Yu Gang, one of the Wharton alumni and the co-founder of the online store Yihaodian, is an "incredibly successful" Chinese entrepreneur.

Founded in Shanghai in July 2008, Yihaodian aims to establish an online supermarket that provides a variety of products such as food and beverage, cosmetics, clothing and consumer electronics. It has enjoyed a rapid growth and currently has over 90 million registered users.

Since Yihaodian was fully taken over by U.S. retailer giant Wal-Mart in July last year, Yu turned to online healthcare and became the board chairman and co-founder of Yiyaowang, a leading online pharmaceutical and healthcare portal in China.

On that online healthcare website, "you can turn to the doctor who can write prescriptions for you, and then he can send you the medicine, that's not happening in the West," Garrett said, adding that there're elements of innovation and entrepreneurship in China that "we don't know much about as we should."

Internet-based healthcare has become an emerging trend in China in recent years. Patients can now go through the entire process from online appointment, diagnosis, prescription to online payment and medicine delivery at home.

"Chinese industry is more innovative than is generally acknowledged," Global consultancy McKinsey said in a recent report, noting that Chinese companies have established strong positions in two types of innovation-developing new products and services that address consumer needs, and process innovations that make manufacturing more efficient.

The Penn Wharton China Center, launched in Beijing last year, is really about "two-way learning", according to Garrett, as the Wharton School has a lot of business expertise that would be valuable to executives of Chinese corporations and the school has also a lot to learn from China.

While China's economic transition would not be easy and faces challenges, Garrett believed it's in everyone's interest for "the soft landing" of the world's second-largest economy to happen, as China becomes an important engine of global economic growth.

"We want to see China make this transition, because we recognize that China's success ultimately benefits our own," said Nathan Sheets, undersecretary for international affairs at the U.S. Treasury Department, adding that this transformation would allow China to solidify its status as a driver of global demand and offers the best formula for China to achieve an orderly transition and put its economy on a more sustainable footing for healthy growth in the future.

FROM OLD CO-DEPENDENT MODEL TO MORE BALANCED NEW NORMAL

Garrett said the U.S. and China have been "co-dependent economically" for a very long time, but the old model of bilateral economic relations that China lent the U.S. money and the U.S. bought Chinese goods was very "asymmetric" and "imbalanced".

"A lot of political debates today still assume that as the reality, but I am just struck by this more balanced, new normal for U.S.-China relations," he said, noting that Chinese market and investment becomes increasingly important for the U.S. economy to go forward.

On the one hand, the Chinese market with emergence of over 500 million middle class consumers becomes so important for American firms like Apple and General Motors.

China has become both the fastest growing and largest market for mobile phones of Apple. Meanwhile, General Motors sells more trucks and cars in China today than it does in the United States.

On the other hand, Chinese investment to the U.S. will continue to grow following the Chinese currency renminbi (RMB)'s large appreciation against the U.S. dollar. The RMB has risen around 30 percent in nominal terms against the U.S. dollar since the exchange rate regime reform in 2005.

Chinese investment in acquisitions, new operations, and expansions in the U.S. could reach 30 billion U.S. dollars this year, following a record high of over 15 billion dollars last year, according to a report recently published by the National Committee on U.S.-China Relations and the Rhodium Group, which tracks Chinese direct investment in the United States.

Citing Japan's experience of investing in the U.S. in 1980s, Garrett said Chinese firms should also learn to be patient. "If we go back 25 years, the initial American reception to Japanese investment in the U.S. was also not very positive," he said.

Despite of a rising politicization in the U.S. presidential election year, Garrett believed the next U.S. administration would show "much more openness" to China than what "we're seeing in presidential campaign trail."

"There has been incredible continuity of U.S. approach to China" since former U.S. President Richard Nixon in 1970s and the two sides have been committed to more engagement in the past more than 40 years, he argued, noting that both sides understand the complexity of the China-U.S. relationship.

"Chinese government speaks to Chinese people, American government speaks to American people, what they often do is letting a little air out of the balloon," he said. "They don't want tensions to grow so intense that it bursts. It's better to let some air out."

However, the U.S. and China are building alternative visions for the Asia Pacific economy at this moment, Garrett said, noting that "we're lacking an institutional architecture for the Asia Pacific Century because the architecture must both have the U.S. and China involved in it."

China currently is not a member of the U.S.-led Trans-Pacific Partnership (TPP) agreement, and the U.S. is not included in the China-backed Regional Comprehensive Economic Partnership (RCEP), another major free trade agreement in Asia, he argued.

As most TPP members have China as their largest trading partner, Garrett believed "it would be a mistake" not to include China earlier in the TPP deal, which was formally signed by ministers from 12 Pacific Rim countries in February.

He suggested the proposed Free Trade Area of the Asia Pacific (FTAAP) is potentially a much better institutional vehicle than the TPP or RCEP to include both the United States and China.

Members of the Asia-Pacific Economic Cooperation (APEC) have agreed to conduct a collective strategic study on the FTAAP, and the study, led by China and the U.S. with participation from all APEC economies, will be submitted to the APEC leaders by the end of this year along with recommendations.

Garrett said U.S. and Chinese policymakers should focus on the big picture of bilateral relations, in which a good China-U.S. relationship will be a win for China, a win for the U.S., and a win for the world.

"The U.S.-China relationship is the most important relationship in the world. If it works well, we can see a picture of prosperity for everyone. That's in everyone's interest," he said. Enditem