With memories from the Covid-19-stricken Chinese New Year of the rat, 2020, we are approaching the new year of the ox – with cautious optimism and a strong desire of something new, hopeful, and uplifting. With a bit of a linguistic twist, the year of the ox, can also be interpreted as a year of “changing course”, i.e. Niu Zhuan Qian Kun,in Chinese.
According to forecasts from, for example, the IMF and the World Bank, China’s economy has been the first to begin to “normalise” already in 2020. The recovery will accelerate in 2021, given that the Covid-19 pandemic can be under control. Indeed, by both looking back and ahead, 3 words can describe the “course-changing”, which was already under way in 2020 and will take off – with speed and scale in 2021, namely recovery, rebalance and transformation.
A snapshot of a challenging and intense year of the rat…
As a Chinese New Year’s gift, we have prepared 3 “red envelopes” (hong bao) for our interested and engaged readers:
From these highly simplified and stylised summaries and selections, we can already see that, despite the constraints and difficulties imposed by Covid-19, it has been a productive year for China’s science and innovation development. For instance, Chinese researchers published 219 papers in CNS journals (Cell 44, Nature 100, Science 75) in 2020, making particularly significant progress in the field of life science according to iNature.
After years of effort to lift from quantity to quality, Chinese researchers are showing growing confidence and capacity to catch up with and to lead the scientific frontiers. From a global perspective, it is an increasing and intense competition – which makes China both hard to underestimate and more interesting to watch and engage.
From a broader perspective, 2020 has turned out to be a “pivoting” year of strategic policy choices and new market dynamics in the fields of innovation and sustainability – driven by both China’s own transformation needs as well as in response to external competitive and “de-coupling” pressures.
A few thoughts on the course-changing year of the ox…
As the starting year of the 14th Five-Year-Plan (2021 -2025), we have identified 3 “courses” that we need to watch carefully in order to catch and grasp the new dynamics and strategic implications when China is embarking on its “course-changing” journey.
- A dual-circular economic system for recovery and rebalance
Before the Covid-19 pandemic broke out, the McKinsey Global Institute’ s China-World Exposure Index showed that China’s exposure to the world in trade, technology, and capital has fallen in relative terms. At the same time, the world’s exposure to China has increased. In the post-Covid-19 world and in an increasingly complex global environment, what will the relationship between China and the world look like?
As part of the answer to this one-million-dollar-question, we know that it will be too simplified to say “engaging” or “disengaging”, “coupling” or “decoupling”.
As part of the answer to this one-million-dollar-question from China’s side, we have heard that, instead of being export-driven and investment-driven, “dual circulation” will be the way forward.
Accounting for 35% of the global manufacturing output, but only 10% of the global household consumption. Having the world’s largest Research and Development (R&D) expenditure, but still heavily relying on imports of core technologies. Just by looking at these two facts, we see the imbalance and challenges, but also the potential and opportunities underlying the new “dual circulation” development strategy. Domestic market and innovation are the two vital parameters, that will define a changing China and the changing relationship between China and the world.
- A-whole-of-nation innovation system for high-quality transformation
While science and innovation are considered both strategic and instrumental for high-quality enhancement of the domestic circulation, “choke points” for core technologies and innovations in the international circulation are re-shaping the narrative of and approach to China’s science and innovation policies.
More often than ever, we hear words, like “self-resilience” and “self-strengthening”. But at the same time, we also hear words, like “openness” and “globalisation”. Will China’s ambition of becoming an innovation powerhouse survive from those “choke points”? Will China’s innovation system be more or less open to the world?
The answer to these one-million-dollar-questions will be found in China’s new approach to a-whole-of nation innovation system, where the role of basic research, the role of innovative enterprises as well as the reform of innovation governance and ecosystems are evolving and advancing…
Beyond the policy perspective, the answer to these one-million-dollar-questions will be found from how China’s enterprises ser their future innovation development. Here is a telling example:
“We need not only to scale up “from 1 to 10” to make our products better and cheaper, we need also, persistently move forward with science and research of “from 0 to 1”. It will not be possible – without globalisation…”
- Carbon-neutrality and biodiversity as keystones for systemic sustainability transformation
Alongside with innovation, it is doubtless that the other strong transformational driver is China’s new target, or more precisely, the new long-term development framework of “carbon-neutrality” by 2060. As the UN Biodiversity Conference (CBD COP15), with China as host, will hopefully take place this year, climate and biodiversity as keystones for China’s sustainability transformation could be stronger than ever. Is China ambition high enough? How fast and efficiently will China manage the transformation?
The answers to these one-million-dollar-questions will probably be beyond only “numbers”. Instead, we need to look more deeply into the market fundamentals and structural dynamics that are already underway. Their quality and depth – are the true ambitions and changes, for instance:
- China’s national emission trading system (ETS) – does it only put a price on carbon, or does it also internalise sustainability-driven competitiveness into market behaviour and corporate governance?
- China’s green and carbon finance – does it only green a few financing instruments, or does it green China’s financial institutions and systems as a whole?
- China’s carbon-neutrality transformation – will it still be mainly a focus on the production-side? Or will it include an early integration with consumption and citizen-engagement?
2021 is a challenging year for China and for the world. In the search for vaccines, for recovery and for a new way forward beyond the Covid-19 pandemic, let us bring the lessons we have learned and our common questions with us. From the perspective of international cooperation on science, innovation and sustainability, particularly for the EU-China cooperation, two “course-changing” processes are already underway, namely the EU-China High Level Dialogue on Research and Innovation and the EU-China High-level Dialogue on Environment and Climate. These important processes will also define and inspire our monitoring, analysis and strategic promotion under 2021. We are looking forward to updating and sharing our observations, insights and actions with all of our interested and engaged readers. We are even more looking forward to having our exchanges and deepening our joint actions, together in this year of “course-changing”.
On the “course-changing” journey in 2021 and beyond, there will be many complexities, uncertainties and difficulties. But our common interest and belief in science, innovation and sustainability – will change the course – for the better, and for us all.
We wish you a very happy Chinese New Year of the Ox!
Nannan Lundin, Linnea Yang, Jessica Zhang and Matilde Eng
 China and the world -Inside the dynamics of a changing relationship, McKinsey Global Institute (MGI), 2019.