Remarks by Angel Gurría
Beijing, China, 12 September 2017
(As prepared for delivery)
Dear Premier Li, Madame Christine Lagarde, Mr. Jim Kim, Mr. Robert Azevedo, Mr. Guy Ryder, Mr. Mark Carney, Ministers, Ladies and Gentlemen:
It is a pleasure to address this panel on the important issue of the impact of scientific and technological advances upon traditional and new industries.
Every day brings news of technological breakthroughs. We are entering a world of “digital manufacturing” and “the next production revolution” where traditional factory floors are being transformed with new and more efficient processes. These breakthroughs are changing our economies so quickly that their impacts are difficult to capture. They also have implications for people and societies: for example, the OECD estimates that 9% of jobs across OECD countries could be automated in the next 15-20 years, and a further 25% are at risk of significant change.
Take artificial intelligence (AI) for example. This technology, driven by machine learning, big data and cloud computing that outperform humans in some cognitive functions, is going mainstream. Deals to AI start-ups grew from 160 in 2012 to 658 in 2016, with funding growing more than 7 times to USD 5 billion. And that’s not even including China! Today even Elon Musk, after Tesla and giant batteries, is focusing upon building a working brain-machine interface (BMI) with his new firm, Neuralink.
The Internet of Things (IoT) is another game changer. It brings average cost savings of 18% for industry, and up to at least 25% for the top performers. The number of devices and objects connected to the Internet has leapt massively ─ by one count there are now 363 million devices (such as sensors) online, with some 84 million of those registered to China.
The Chinese IoT market has been growing at a compound annual rate of over 30% since 2011, and is expected to become one of the leading markets globally, with nearly one out of every five industrial units connected by 2020!
Robotics is another important area where we are seeing change. China was the world’s largest market for industrial robots in 2013 and 2014, and is expected to have up to 428,000 units this year; the largest number of industrial robots in use in any country! More importantly, an increasing share of those products will be produced in China by 2020. Localisation of the three major parts ─ that jointly comprise 70% of the costs if imported ─ will make industrial robots more affordable worldwide.
But technological breakthroughs also bring challenges, particularly by disrupting established patterns of work and skills, and introducing new dynamics in business environments. In some sectors, we are seeing growing concentration and winner take most dynamics ─ aided at times by AI that is used as a tool for undetectable or unintentional collusion. This is happening alongside a general trend towards productivity divergence, with global leaders outstripping laggards. For instance, the 2000s saw labour productivity at the global technological frontier increase at an average annual rate of 3.5% in the manufacturing sector, compared to just 0.5% for non-frontier firms.
In addition, the breakneck speed at which our economies and societies are changing has given rise to a “Technology 4.0 - Policy 1.0” gap. Unless we close this gap, we will miss out on the many benefits that digital and other technologies can bring, and the digital divide that already exists between certain groups (such as developed vs. emerging countries, large vs. small firms, and young vs. older people) will widen. Here in China, there is also an urgent need to upgrade and restructure productive capacity to make the most of technological and innovation breakthroughs.
In this spirit, China has developed broad and ambitious initiatives, such as “Made in China 2025” and “Internet Plus”, that aim to achieve excellence in applying digital technologies in manufacturing. But more can be done to ensure that all individuals, firms and sectors have the potential to flourish in the new economy. Let me highlight five priorities that we have identified for China.
First, R&D spending and patenting must be translated into faster productivity growth. This will require: enhancing incentives to register innovations by enforcing protection of intellectual property rights, especially for smaller firms; recalibrating the incentive systems for patents to reward quality instead of quantity, to boost patent utilisation and discourage waste and rent-seeking behaviour; and ensuring government support benefits firms regardless of their sector and that industrial policies do not harm competition.
Second, there should be greater support for efficient resource allocation to help firms invest in skills and other intangible assets that can amplify the impacts of technologies. While barriers to business creation have been reduced in recent years, a one-stop-shop for business registration country-wide is yet to be achieved. Significant scope remains to improve business dynamics by ensuring that regulations do not unduly stifle competition, as recommended in the OECD’s Competition Assessment Toolkit.
It is also crucial to dismantle entry barriers in service industries, accelerate the exit of so called “zombie enterprises” (including by making bankruptcy procedures quicker and clearer), and ensure consistent treatment across firm ownership and size.
Third, Chinese standards, regulations and cybersecurity must keep pace with new forms of business and the rapid expansion of industries spurred by new technologies, and take account of their potential benefits and risks for the society and environment.
Fourth, disruptions in the labour market should be tackled proactively to ensure the workforce is equipped with the skills they need to flourish in a hyper digitised world. Notably, this means addressing skills shortages in areas such as programming and management, and expanding continuing education and training to enhance senior management’s understanding of technology and its implications for business development.
Last but not least, there is a need to rethink healthcare and social security policies to address the needs of a new wave of self-employed entrepreneurs.
Premier, Ladies and Gentlemen:
In today’s global and interconnected digital environment, we simply cannot afford to operate in siloes. Seizing the benefits of new technologies will require coherent whole of government approaches, supported by well-coordinated actions by the International Organisations around the table.
There remains much scope in China to better systematise policies and avoid duplicative actions. The OECD would be delighted to include China in our new ‘whole of house’ project, Going Digital, which is taking a hard look at the digital transformation and is helping countries design, develop and deliver the better digital policies for better lives.