World Energy Outlook 2007

investing in China have combined world-class management skills and
technology with local labour to increase exports and improve the overall
dynamism of the economy. Meanwhile, in response to foreign competition,
domestic companies have been increasing the share of sales revenue devoted to
research and development (Hu et al., 2005).
100%
Figure 7.3: Source of Chinese Growth
80%
60%
40%
20%
7
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Aziz (2006).
Capital
Labour
Productivity
Further productivity gains are on the way. The structure of China’s trade is
shifting to higher-value goods and services and new products are emerging.
This trend will be reinforced by government efforts to increase the share of
research and development spending in GDP to 2% by 2010 and by foreign
companies’ investment in local research. In addition, the government is placing
ever greater emphasis on encouraging the private sector. A constitutional
amendment in 2004 reinforced private business rights and a property law,
designed to protect private property from arbitrary seizure, was adopted in
March 2007. These moves, along with other measures to deregulate the
economy, are expected to enhance the growth of domestic private firms.
Moreover, there is still much scope for shifting around 170 million surplus
labour 6 from agriculture to industry and services. Some 40% of China’s labour
force is still employed in farming, whereas the figure is less than 5% in most
developed countries.
6. Agricultural labour productivity is 80% lower than industrial labour productivity in China
(OECD, 2007a).
Chapter 7 - Political, Economic and Demographic Context 249