A NOTE TO THE READER
This booklet contains an overview of China and the Knowledge Economy: Seiz-
ing the 21st Century. The full-length study has been published by the World Bank.
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Copyright © 2001 The International Bank for Reconstruction
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Manufactured in the United States of America
First printing September 2001
WBI DEVELOPMENT STUDIES
China and the Knowledge Economy
Seizing the 21st Century
Carl J. Dahlman
The World Bank
Foreign direct investment
Gross Domestic Product
Research and development
World Trade Organization
(As of June 4, 2001)
Currency Unit = RMB
$1.00 = RMB 8.2770
RMB 1.00 = $0.1208
For a large part of the last two millennia, China was the world’s largest and
most advanced economy. Then it missed the Industrial Revolution and stag-
nated. Only after opening to the outside world in 1979 was China’s econom-
ic performance again impressive (figures 1 and 2): its achievements in
increasing welfare and reducing poverty are unparalleled. But China cannot
sustain such progress without major changes in its development strategy, as
elaborated recently in the tenth five-year plan.
China faces daunting internal challenges compounded by the knowledge
and information revolution. To overcome these challenges the Chinese gov-
ernment must take on a new role to quickly exploit the knowledge revolu-
tion—architect of appropriate institutions and provider of incentives to promote
and regulate a new socialist market economy based on knowledge.
China’s strategy will have to build solid foundations for a knowledge-based
• Updating the economic and institutional regime.
• Upgrading education and learning.
compounded by the