3

Experimental China

HONG KONG – Five years ago, few would have expected that China would produce four of the top ten global Internet companies (by number of visitors) – Alibaba, Baidu, Tencent, and Sohu – as well as innovative multinationals like Huawei and Xiaomi. Nor would most have anticipated China’s increasing provision of global public goods, including its “one belt, one road” strategy, which aims to provide the infrastructure needed to knit Eurasia into a single vast market.

More remarkable news has just emerged: despite slowing economic-growth rates, China, together with Hong Kong, has recorded $29 billion in initial public offerings so far this year – almost twice the funds raised in US markets.

By any measure, the pace and scope of innovation in China has begun to increase. How has this happened, and why is it happening now?

The answer lies in the unprecedented challenges that China faces, including corruption, pollution, unsustainable local debts, ghost towns, shadow banks, inefficient state-owned enterprises (SOEs), and excessive government control over the economy. Certainly, no one would argue that these are positive developments for China; nonetheless, they have arguably been a blessing in disguise. They have imbued reform efforts with a degree of urgency that has had a far-reaching impact; indeed, conventional GDP data do not reflect the scale of the transformation that they are driving.