One high-value service sector where China has the potential to compete globally is internet services. The Chinese e-commerce sector is expected to overtake the United States’ this year and gross sales by the Alibaba Group, which dominates Chinese e-commerce, exceed those of Amazon and eBay combined at $170 billion. American counterparts often point out that much of the reason for the Chinese companies’ success is that they are insulated from competition by the “Great Firewall of China.” The irony is that if the American internet companies succeed in opening China’s internet services market to foreign entry, Chinese companies will have to become more innovative and this could ultimately make them genuinely formidable global competitors.

While the current glut of graduates presents a challenge for Chinese policymakers, it may be a blessing in disguise. The situation is painful and exacerbates social tension, but as wages adjust to the new system of mass higher education and its quality improves, China will likely not only escape the middle-income trap but also begin to put pressure on the technological advantages the West presently has.

The authors are Senior Associate and Junior Fellow respectively at the Carnegie Endowment for International Peace.

Image:Wikicommons.