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China is losing its manufacturing lead

First published: Financial Times, 13/09/2012

China’s leaders are in the throes of an unusually edgy transition. So is the economy. Whether it has a “hard” or “soft” landing, China is bound to become less investment and credit-centric. As the country ages and reaches the limits of physical labour and capital accumulation, its growth model will have to shift towards transformative technology and innovation.
Well-known stresses in the current model are becoming more apparent, including a downturn in total factor productivity, which is the vital, unmeasurable part of economic growth resulting from technological change and institutional efficiency. The transition will require difficult political reforms and an effective response to the competitive threat posed by advanced manufacturing, which is slowly tilting advantage back to the US in particular….more