【原创】Economic Competitiveness of China and the US...

Economic Competitiveness of China and the US: Comparison, Dynamic Change and Global Position

Ni Pengfei and Wang Haibo

National Academy of Economic Strategy, Chinese Academy of Social Sciences

Abstract: Research of competitiveness of China and the United States is of great significance to enhancing China’s economic competitiveness and achieving the objective of national rejuvenation. By creating a competitiveness framework and a system of heterogeneous indicators, this paper investigates the competitiveness of China and the US in terms of current status, historic change and global environment. Our research led to the following findings: core factors determine the level of competitiveness for China and the US; the national competitiveness of both countries is evolving towards structural homogeneity; and China and the US lead most countries in many common areas. China has the potential to overtake the US in competitiveness in the future. We suggest that China increase its competitiveness by promoting its advantages, addressing its weaknesses and focusing on core areas.

Key words: national competitiveness, comparison between China and the US, factor heterogeneity

JEL Classification: N90；O51；O53

1. Introduction

As countries increasingly compete and cooperate with one another in today’s world of globalization, competitiveness has become a key topic of research for academia and decision makers. While an economy must stay competitive to achieve lasting prosperity, competition is not a zero-sum game; instead, an economy may derive its competitiveness from cooperation with other economies for win-win results. In formulating a competitiveness strategy to achieve lasting prosperity, it is important to analyze and compare the competitiveness, strengths and weaknesses of different countries, as well as the opportunities and challenges they face.

By launching its reform and opening-up program in its strategic period of opportunities over the past four decades, China has vastly enhanced its economic competitiveness and created a development miracle. In the face of a complex environment, China must keep abreast with the trends and patterns of world development, analyze the key factors in the rise and fall of nations, and formulate a competitiveness strategy based on a proper understanding of its strengths and weaknesses, a strategy that aims to achieve the goal of building a moderately prosperous society in all respects by 2020 and basically achieving modernization by 2050.

The rise of emerging economies is transforming the world economy. For the US as the largest advanced economy and China as the largest emerging economy, their relative competitiveness will greatly shape the pattern of global competitiveness and their own competitiveness as well. Comparative studies on their relative competitiveness, both at present and in the past, are of great significance to unraveling future tendencies, enhancing China’s competitiveness and promoting mutually beneficial cooperation between both countries.

Competitiveness is both an old and a recent topic. In the Romance of the Three Kingdoms, an ancient Chinese classic, the legendary strategist Zhu Geliang revealed the competitiveness of the three warring states under an analytical framework of “opportunity, geography and people’s support” and advised his king Liu Bei on how to establish and govern his kingdom. In the context of today’s globalization, competitiveness has become a major topic of research for academic institutions and think tanks. Since the 1990s, the World Economic Forum (WEF) and the International Institute for Management Development (IMD) have been committed to the research of international competitiveness of advanced and emerging economies. Since 2001, the Institute for Industrial Policy Studies (IPS) based in South Korea has been publishing the National Competitiveness Research Report. Similar reports on competitiveness are also published by think tanks from major countries and economies including the US, the EU, Japan and the UK. Comparative studies on national competitiveness and comprehensive strengths between China and the US have been carried out by some scholars from different dimensions (Hu et al., 2012, 2015; Lin, 2015; Yin, 2015; Lyu et al., 2010; Chen et al., 2009; Zhao et al., 2007).

Nevertheless, serious disagreements still exist regarding the competitiveness of China and the US. According to the IMD’s World Competitiveness Yearbook, in 1995 the US ranked first and China ranked 34th in international competitiveness among 46 countries, whereas in 2015 the US still ranked first and China ranked 22nd among 61 countries. According to the WEF’s Global Competitiveness Report, the US ranked first for 20 years from 1995 to 2015 and China moved from 40th to 28th from 1995 to the recent three years. According to Hu, Zheng and Gao (2015), China swiftly narrowed its gaps with the US in terms of comprehensive national power from 1990 to 2013. But China’s level of development still has great gaps with the US. However, Hu, Gao, Zheng and Wang (2017) believe that China has outranked the US in comprehensive national power. Using a structured dynamic analytical tool, Zhao and Wang (2016) conducted systematic analysis on the 342 indicators of the IMD International competitiveness database and the result shows that since 1995, China has increased its international net competitiveness and reduced its competitive disadvantage, while the opposite is true for the US.

Based on our definition and analytical framework and following the principles of data availability, systematic and comprehensive analysis and general comparability, we have designed the two sets of indicators, the revealing indicators (display competitiveness) and  explanatory indicators (compose competitiveness), to create a national competitiveness appraisal system, of which the revealing set has three indicators (Table 1) and the explanatory set has 45 indicators (Table 2) including 12 tier-1 indicators and 33 tier-2 indicators. Based on data of 1985, 1995, 2005 and 2015, we took the natural logarithms of GDP aggregate and per capita GDP for 100 countries and regions and conducted standardized treatment for these two indicators and economic growth rate to arrive at three competitiveness indicators, including per capita GDP index (PGI), GDP index (GI) and GDP growth index (GGI), and determined the following weight coefficient based on the expert subjective rating approach to synthesize the national competitive index (NCI): 

Of the 45 explanatory indicators, 33 will not be synthesized, but will be indexed and ranked to explain the competitiveness index and ranking. We will then analyze and compare the current status and past change of competitiveness of China and the US, as well as the competitiveness of both countries in the context of global competitiveness. On the basis of such analysis, we will forecast the future competitiveness of China and the US and propose policy recommendations.

2. Factor Heterogeneity: Golden Key to Competitiveness Analysis and Forecast

In the analysis and forecast of competitiveness, it is important to unravel the determinants of competitiveness.

Economic competitiveness means the ability of a country to create wealth and provide for national welfare. A country’s wealth, welfare, economy and growth are determined by its national industrial system shaped by factor endowment and its environment. Due to non-heterogeneous factor distribution in today’s world of globalization, the industrial systems and value creation of countries are different and interrelated. Following this analytical framework, this paper decomposes economic competitiveness into three levels: output (value and wealth), process (industries) and input (factor environment). A country’s overall competitiveness consists of numerous interrelated factors. The following 12 critical factors (see Table 2) reflect an overall picture of competitiveness. These factors are heterogeneous in terms of effect and nature.

Talent, education, science and technology and finance are the core factors of competitiveness. Measured at quantitative and qualitative dimensions, talent is the most important core factor and takes time to foster. High quality education is hard to duplicate and move, so any change is also slow. Innovation is also an important source of competitiveness. While general science and technology innovation is reproducible, movable and fast-changing, cutting-edge innovation is much less so. Finance is a critical factor of competitiveness. A high quality financial system, which comprises capital as a highly liquid quantitative factor and the financial system as a qualitative factor, is unpredictable and hard to create.

The industrial system and the quality of firms are also pillars of competitiveness. As the backbone of an economy, the industrial system takes time to develop but changes slowly. As the cells of an economy, firms share similar traits with the industrial system.

Business cost and market demand are basic factors of competitiveness. Business cost is a subtraction from wealth and welfare creation and is changeable and reversible. The size and level of market demand are changeable and such change is dependent on wealth creation itself.

The cultural environment, infrastructure, global connectivity and government competence are environmental factors that determine competitiveness. Infrastructure is artificially created and immovable and may change at different speeds. The ecological environment is immovable, fragile and irreparable but is also reversible. Institutions and culture are not quantifiable. Relative to systems, culture is immovable, inimitable and more vulnerable to deterioration. The social environment also has the features of being immovable, unrecoverable and unchangeable. Global connectivity, i.e. the degree to which a country is able to access resource factors and strategic markets, is changeable and imitable. The government is the primary participant, administrator and public service provider for economic and social activity. Government competence is qualitative, immovable but inimitable and is thus changeable.

3. Finding 1: The Level of Critical Factors Determines the Competitiveness of China and the US

As can be learned from the analysis of competitiveness ranking and index, absolute gaps between China and the US are greater than relative gaps as far as the 100 sample economies are concerned. In 2015, the US ranked first among 100 sample countries and China ranked third. However, the competitiveness index of the US was 1, which far exceeded China’s 0.89.

The analysis also found that US competitiveness is mainly reflected in its economic size and performance. In 2015, US GDP reached 18.0367 trillion US dollars, ranking first in the world with per capita GDP reaching 56,115.72 US dollars, ranking fifth in the world. China’s competitiveness is mainly embodied in its scale and growth. In 2015, China’s GDP reached 11.065 trillion US dollars, ranking second in the world, while its per capita GDP was only 8,069 US dollars, ranking 43rd in the world. But China’s GDP grew by 9.58% on an annual average basis for the past decade, ranking second in the world and making China the largest and fastest-growing emerging economy. China’s GDP is only 61.35% that of the US and its per capita GDP only 14.38% that of the US. However, China’s GDP growth over the past decade was tenfold that of the US.

3.1 Critical Factors Determine the Level of Competitiveness

Among 33 competitiveness indicators in 12 categories, China underperforms the US in terms of 21 indicators and the US underperforms China in terms of 12 indicators. In the most critical areas, China’s indicators generally fall behind. Table 2 shows a specific analysis of the nature of the explanatory indicators.

Quantitative competitiveness is similar for both countries. Among eight quantitative competitiveness indicators, China exceeds the US in three indicators, including population, FDI and patent applications, and falls behind the US in five indicators, including new firms, Fortune 500 companies, aggregate domestic demand, IMF voting right and net number of immigrants.

The US beats China in terms of qualitative competitiveness. Among 19 qualitative competitiveness indicators, the US leads China in four indicators, including tax revenue as a share in GDP, PPP current dollar GDP/current dollar GDP, export of finished goods as a share in the total export of commodities, and fiscal cash surplus or deficit as a share in GDP; China falls behind the US in 19 indicators, most of which are core and critical indicators.

China beats the US in terms of growth competitiveness. Among six growth competitiveness indicators, China leads the US in five indicators, i.e. average demand growth rate, growth of logistical performance index, number of R&D and technical personnel per 1 million population, growth rate of export in high-end services as a share in the total export in services, as well as growth rate of college graduates as a share in the total population. The US leads China in one indicator, i.e. average population growth.

3.2 The US Has an Upper Hand in Core Competitiveness

The US possesses absolute advantage in finance. In 2015, China’s share of IMF voting right was 6.1% and that of the US was 16.5%; the number of commercial bank branches and subsidiaries per 100,000 population in China was 8.45, which was far below 32.87 for the US. In 2015, China ranked third in terms of income savings, next only to Qatar and Kuwait, whereas the US had one of the lowest savings rates in the world.

The US has absolute advantage in the number of firms. In 2015, 722,800 new firms were created in the US, while this number was 306,600 for China. The US had 128 Fortune 500 companies and China only had 106; among them, 32 innovative companies were in the US, while only five were in China.

The US boasts absolute advantage in the field of education. In 2015, China’s educational spending as a share in GDP was 3.67%, while this figure reached 4.49% for the US. Considering that China’s GDP is below that of the US and population is over four times that of the US, China has tremendous gaps with the US in terms of per capita educational spending. 

The US also possesses advantage in talent. Although China’s adult literacy ratio of 96.36% is close to 97.04% for the US and its total numbers of R&D and technical personnel is similar to that of the US, the number of R&D and technical personnel per 1 million population for China is 1,113.07 people, which is far below the US number of 4,018.64.

The US enjoys certain advantages in infrastructure. In 2015, China’s sustainable environmental system and policy assessment index was 0.26, which was below 0.40 (full score is 1) for the US. This indicates that China has significant ecological environment gaps with the US. In 2015, the percentage of broadband users was 19.77% for China and 31.02% for the US. In this regard, China falls far behind the US in terms of information infrastructure. However, China’s basic infrastructure has approached or even exceeded the US level. Regarding the logistical performance index that reflects the infrastructure level, China was rated 3.66 in 2015, which was close to 3.99 for the US.

3.3 China Is Superior to the US in Terms of Basic Competitiveness and Other Areas

China still outperforms the US in terms of cost advantage. Despite the rising cost of labor in recent years, China’s hourly wage is still far below the US level. Even if productivity is taken into account, the US still does not have any advantage of labor cost. Measured by tax revenue as a share in GDP, China’s overall tax burden reached 9.67%, which is below 11.42% for the US. As for PPP current dollar GDP/current dollar GDP which reflects the comparative prices of goods and services, the US index was 1 and China’s was 1.79, i.e. China’s price level is significantly below that of the US.

China enjoys tremendous potential advantage of market size. In 2015, China’s domestic aggregate demand reached 2.05 trillion US dollars, which was below that of the US in terms of current price dollar. However, after PPP deflation, China’s market demand has surpassed that of the US. With a much larger population and rapidly growing per capita GDP, China possesses tremendous market potentials.

China is also edging closer towards the US on the front of innovation. In 2015, although China’s share of R&D spending (2.01%) was smaller than that of the US (2.73%), the total number of patent applications in China amounted to 968,300, which far exceeded that of the US and the number of patent applications per 10,000 population was 8.45, which was close to the US level.

3.4 China and the US Have Respective Pros and Cons in the Business Climate

At the industry level, China outperforms the US in general manufacturing but the US has an indisputable advantage over China in high-end services. In 2015, China’s export of finished goods accounted for 94.318% of its total export in goods, which was 30 percentage points higher compared with the US. However, China’s export of high-end services accounted for 46.509%, or 13.442 percentage points below that of the US.

In terms of global connectivity, the US enjoys significant leadership in making use of global demographic dividends. In 2015, the US had a net population inflow of 5.07 million and China had a net population outflow of 2.2 million. However, China beats the US in access to global capital dividends. In 2015, China attracted 62 billion US dollars in foreign capital, almost twice the amount for the US.

The US boasts a far superior business climate compared with China. According to the Global Business Environment Report published by the World Bank, China ranked 80th and the US ranked seventh in terms of business climate in 2015. While some institutions reported that the US leads China in entrepreneurship, the reality is that the Chinese nation’s spirit of hard work and enterprise far exceeds that of the US and ranks highly in the world.

Regarding government performance, huge fiscal deficits and government debts are the greatest weakness of the US, while China boasts relatively sound fiscal status and capability. In 2015, China’s fiscal deficits as a share in GDP reached 2.815%, which was below 3.216% for the US. This is due to the ability of the Chinese government to mobilize social resources under its unique political system and push forward policy implementation. The US lacks a political environment conducive to resolving issues and problems. According to the World Bank’s Global Governance Index, however, China’s government regulation index was -0.219, compared with 0.846 for the US.

In a nutshell, the US beats China in terms of competitiveness yet China’s growth has outpaced that of the US. Despite China’s superior fundamental factors and business climate strengths and weaknesses, the US outperforms China in more important core factors that underpin its greater competitiveness over China.

4. Finding 2: Profound Changes in the Structure of National Competitiveness of China and the US

As can be found in the analysis of competitiveness gaps between China and the US in 1995, 2005 and 2015, China’s growth is changing the balance of China-US competitiveness and the gaps are dwindling (see Table 1). China was behind the US by 41 positions in 1995, 28 positions in 2005 and five positions in 2015. In terms of the competitiveness index, the difference was 0.444 in 1995, 0.283 in 2005 and 0.110 in 2015.

4.1 The US Leads in Core Competitiveness but Its Advantage Is Falling

The US leads China in the quality of talent with significant advantage. The ratio of China’s number of R&D personnel per 1 million population to that of the US has maintained an upward momentum except for certain volatility resulting from the macroeconomic situation. The US relative advantage over China has declined, down from 7.06 times in 1995 to 4.34 times in 2005 and further down to 3.61 times in 2015. However, the absolute gaps between China and the US did not significantly reduce: absolute gaps between the two countries increased from 2,679.8 people/million population in 1995 to 2,849.3 people/million population in 2005, which further increased to 2,982.6 people/million population in 2012. The absolute gaps increased instead of reduced.

China is swiftly catching up with the US in higher education (see Table 3). In 1995, college graduates only accounted for 4.461% of China’s total population, which was far below that of the US. After the dawn of the new century, however, China’s higher education has developed rapidly. In 2005, the share of China’s college graduates in its total population increased to 19.336%, which further rose to 39.39% in 2015. With a high base and growing at a slowing speed over the past 30 years, this ratio of the US is almost twice as high as China’s.

China has made rapid progress in infrastructure and narrowed its gaps with the US. Thanks to rapid progress in broadband connection, the number of broadband users per 1 million population in China increased from 0.00177 persons in 2000 to 19.77 persons in 2015, while this figure grew from 2.5 to 31 for the US. The size of China’s infrastructure was one sixth that of the US in 2005, one third that of the US in 2010 and three fifth that of the US in 2015. During 2005 and 2015, China’s logistical performance index reflecting the level of infrastructure grew by 2% on an annual average basis, which was far above 0.79% for the US. Yet currently, the difference of this index is only 0.33.

4.2 China Outperforms in Basic Competitiveness Yet Its Advantage Has Been Falling

China boasts superior human resources, defined by the sum of the intellectual and physical workforce that contributes to economic and social development. Compared with the US, China enjoys an overriding advantage in terms of the quantity of human resources. In 1995, China’s population reached 1.205 billion, which was 4.52 times that of the US; in 2005, China’s population totaled 1.304 billion, 4.41 times that of the US; in 2015, China’s total population reached 1.371 billion, 4.27 times that of the US. Over the past two decades, China’s absolute size and growth of population far outpaced those of the US despite a slight dec 47 37094 47 17625 0 0 7971 0 0:00:04 0:00:02 0:00:02 7967rease in the degree of difference.

China’s business cost has been outperforming that of the US but the advantage is falling. As can be seen from Figure 3, China’s PPP current dollar/current dollar GDP ratio has been on the decline since 2003, which means that China’s price level and business cost have been on the increase. Specifically, this ratio slightly dropped during 1995-1997 and slowly increased thereafter, peaking in 2003 (3.07) and then dropped significantly to 1.75 in 2014, followed by a certain increase. It needs to be noted that in our calculation method, US PPP current price dollar GDP/current price dollar GDP is constantly 1, i.e. the benchmark ratio.

The percentage of finished goods in the export of commodities is an important component of industrial performance. On this indicator, China enjoys significant advantage, which benefits from China’s status as the factory of the world. In contrast, this ratio is dwindling for the US, where an industrial vacuum is increasingly striking (Figure 4). As can be discerned from historic trends, the gaps between both countries in terms of the share of finished goods exports swiftly expanded. In 2007, this ratio was 93.1% for China and 77.6% for the US, i.e. China outperformed the US by 15.5 percentage points. In 2009, this ratio was 93.6% for China and 66.2% for the US, i.e. China’s advantage increased to 27.4 percentage points. By 2015, this ratio stood at 94.3% for China and 64.2% for the US.

4.3 US Advantages in Some Key Areas Are Turning into Disadvantages

Despite the unremitting inflow of elites, US entrepreneurship is on the decline as revealed by the financial crisis. The spirit of hard work and enterprise is diminishing; a culture of speculation and profiteering is spreading among the elite class. What is worse, trade unions are evolving into a tool for maintaining privileges and extracting profits from monopoly.

In the face of competition from emerging economies, the US has strengthened its high-end services yet its manufacturing has lost momentum. Overexpansion of the virtual economy is in discord with the real economy.

Although China still falls behind the US in innovation in frontier areas, China has outpaced the US in terms of the overall output of innovation results. In 1995, the number of patent applications in China was only 10,011, which was far below 123,962 for the US and equal to 8.1% that of the US. With China’s rapid economic development, China’s gaps with the US in the number of patent applications narrowed and in 2009, China overtook the US in terms of patent applications, with 229,100 patent applications in China as compared with 224,900 patent applications in the US. Thereafter, the number of patent applications in China has been growing exponentially, leaving the US behind. In 2015, the number of patent applications in China reached 968,300, which was 3.36 times that of the US.

4.4 China’s Advantages in the Social and Ecological Environments Are Turning into Disadvantages

With rising competitiveness, China’s social environment has deteriorated. China’s Gini coefficient, which used to be smaller than that of the US, is now higher than that of the US. China’s Gini coefficient was 35.47 in 1995, which was far below 40.34 for the US. In 2005, China’s Gini coefficient rose sharply to 42.64 with widening income gaps, exceeding 40.36 of the US. In 2015, China’s Gini coefficient fell to 41.45 but was still above that of the US. Meanwhile, China’s ecological advantages turned into significant disadvantages due to environmental degradation in the process of economic development.

4.5 China’s Industrial Competitiveness Improved Slowly

China’s industrial transition determines whether China is able to cross the middle-income trap and become a truly competitive country. Slow industrial upgrade is a major barrier for China. As can be seen from available data, China’s improvement of industrial structure is much slower compared with the US. As an important indicator of a country’s industrial performance, the export of high-end services as a share in total export is defined as the sum between the “share of insurance and financial services in the export of services” and the “share of computer, information, communication and other commercial services in the export of services”. The share of China’s high-end services in its total exports has increased since 1995, up from 34.443% in 1995 to 46.509% in 2015, up 12.066 percentage points, while this figure increased from 40.031% in 1995 to 60.067 in 2015 for the US, up 20.036 percentage points.

5.1 China and the US Lead Most Countries in Many Critical Areas

As can be seen from Table 5, in 2015, China and the US both ranked high in terms of GDP, demand, population, R&D spending and patent applications. Specifically, the US ranked first in terms of GDP aggregate and total domestic demand and China ranked third. These groups of data also suggest that China is more dependent on the external market than the US and its domestic demand is disproportionate to GDP. China is much more populous than the US and the two countries have the largest and fourth largest population respectively. In terms of the number of patent applications, China and the US ranked first and second respectively but the number of patent applications in the US was only 30% that of China. Both countries ranked high in terms of R&D spending and the number of patent applications per 10,000 population. For this indicator, South Korea ranked first, developing rapidly in R&D inventions over the years. China’s R&D spending as a share in GDP was 2.01% and the figure was 2.73% for the US and 4.15% for South Korea. The number of patent applications per 10,000 population was 7.06 for China, 8.97 for the US and 33.05 for South Korea. Considering the large economic and population base of China and the US, however, China and the US lead South Korea in the aggregate.

5.2 China and the US Fall Behind Most Countries in Some Important Areas

In business cost, China and the US both face threats from emerging economies like India. In 2015, China’s GDP current dollar GDP/current dollar GDP was 1.79 (65th in the world) and this figure was 1 for the US (92nd in the world) and 3.93 for India (first in the world). From historical data , business cost in India is much lower than in China and the US. Despite specific problems, both China and the US face challenges in their social environments. In 2015, China’s Gini coefficient was 42.16, which was slightly above 41.02 for the US. Both countries have significant wealth gaps.

5.3 The US Beats China in Certain Critical Areas of Competitiveness

In terms of the soft environment, the US leads the world with its business climate index ranking seventh in 2015 and sixth among the samples selected in this report. China ranked 80th in business climate index and 50th among the samples in this report and is in the middle compared with other countries. Regarding ecological environment, the US was rated 0.4 in sustainable environmental system and policy assessment, ranking third in the world and China’s score was 0.26, ranking 50th in the world. However, both China and the US fall behind Japan, which ranked first. Japan continues to lead with significant advantages. In addition, the US also far surpasses most countries including China when it comes to the attraction of global talent dividends.

5.4 China Outperforms the US Compared with Most Countries in Some Important Areas

China outperforms the US in industrial manufacturing capabilities, which is consistent with China’s status as the “factory of the world”. In 2015, China’s export of finished goods as a share of total export was 94.32%, ranking first in the world. This demonstrates China’s powerful industrial manufacturing capabilities. Yet it needs to be noted that the technology content of China’s industrial goods is low. US export of finished goods as a share of total exports was 64.19%, ranking 34th in the world. This shows that US industries are highly virtualized.

6. Forecast: Relative Economic Competitiveness between China and the US Is Likely to Reverse

Relative competitiveness between China and the US determines the present and future trends of global competitiveness. The momentum and pattern of world development will also affect the future competitive pattern between China and the US. Changing factors in global competitiveness will bring about more opportunities for China and US. Science and technology are at the dawn of revolutionary breakthrough. Major progress in artificial intelligence, life sciences and new energy will profoundly change the way of life and level of welfare for human society, endowing both countries with more advantages for innovation. Rapid development in science and technology will bring about irreversible and continuous transition and upgrade in globalization. While China assumes more global responsibilities, it will also share in the dividends of high-end factors. The changing pattern of global competitiveness will present China and the US with a changing environment. Since the Industrial Revolution, world civilization and prosperity started in Europe and then shifted to North America. Today’s center of global economy and prosperity is shifting towards Asia. As early-moving countries face the challenge of decline, late-moving emerging economies are on the rise. Environmental degradation, however, is a major challenge for emerging economies. In the context of globalization, regional political conflicts and social turmoil will undermine the competitiveness of the relevant regions. Reshuffling of global competitiveness will give rise to constant changes to the competitiveness and environment of China and the US.

After two centuries of development and prosperity, the US has now encountered many problems, including a culture that puts a premium on speculation and values leisure over work, political polarization, government inefficiency caused by opposing political parties, growing wealth gaps and social friction, as well as heavy fiscal burdens. Despite its self-cleaning mechanism, the US is facing many problems that are common to countries in their stage of decline. As a country with thousands of years of vicissitudes, China embarked upon a process of industrialization, urbanization and modernization after a century of humiliation and hardship. As an emerging economy, China also faces many challenges in its transition from a traditional to modern society. As a young economy buoyed by numerous growth strengths, China is in a rising period.

In the future, China will maintain sustained economic growth far above that of the US and will thus swiftly narrow its gaps with the US. According to a questionnaire by China Economist in the second quarter of 2017, 39.2% of respondents believed that China will catch up with the US in terms of economic aggregate in the coming decade and that China’s economic competitiveness may exceed that of the US. However, given the US leadership in such core areas of competitiveness including talent, technology, education and finance, these factors may change slowly and it will take a longer time for China to overtake the US in the core areas of competitiveness. On the other hand, China is losing competitiveness in some areas where it used to enjoy advantages. Meanwhile, some critical aspects cannot be changed in the short run for China. More importantly, China’s industrial transition and upgrade have proved very slow. The success of industrial transition and upgrade is vital for a country to achieve modernization, cross the middle-income trap and surpass the US in competitiveness.

7. Policy Recommendations

Based on the above analysis and forecast of competitiveness of China and the US, China must promote its advantages, address its weaknesses and focus on critical areas in order to further improve its competitiveness. Specifically, China must implement the following strategies with the US as its benchmark.

7.1 Catch Up through Innovation

China should strive to build a knowledge-based society with high-quality education, innovation in science and technology and attraction of talents with innovative countries including the US as the benchmark. With reform of the innovation system as an entry point, the Chinese government must provide guidance and improve an innovation investment mechanism to create a pro-innovation environment. In addition, China should adopt a strategy of strengthening the country through science, technology and talent, improving the competence of its citizens and fostering human resources. Technology and talent can be the backbone for China to develop an innovative economy and induce industrial restructuring and upgrade.

7.2 Pursue Cooperation for Win-win Results

According to a questionnaire by China Economist in the second quarter of 2017, 68% of respondents believed that China and the US are highly complementary with great potentials of growth in trade. Given such complementarity and common issues facing both countries, China and the US will be able to achieve mutual benefits and draw upon each other’s comparative advantages through cooperation. China and the US should carry out exchanges in all areas, increase mutual trust and maintain good bilateral relations for the promotion of world peace and stability, particularly in the Asia-Pacific region.

7.3 Address Weaknesses through Imitation

China should address its late-moving weaknesses with late-moving advantages. Knowledge externality has determined the low cost and high return of learning. China has addressed many of its weaknesses through imitation and learning from advanced countries. In the future, this strategy must continue to be followed. China should continue to draw upon the experiences of other advanced countries and regions to make up for its weaknesses and achieve leaps in development.

7.4 Promote Advantages

As an emerging economy, China boasts late-moving advantages, a superior size and institutional advantages. These advantages have built the foundation for China’s competitiveness. It is essential for China to enhance its advantages in business cost and manufacturing competitiveness, boost domestic demand and further increase government decision-making efficiency.

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[13] IMD World Competitiveness Yearbook. 2015. Lausanne: IMD world Competitiveness Center.