Human Capital Investment: The Fundamental Means to Promote Enterprise Competitiveness

Abstract

China's NGEs have developed and grown under a dual track system in the process of reform. Judging by their initial conditions, NGEs did not have any particular developmental advantages in technologies, funds, or institutions. Experience shows that it has been the country's cheap labor that has most contributed to the large-scale development and expansion of China's NGEs. On the processing and OEM chains of the labor-intensive industries, China's NGEs have completed their period of capital accumulation and leapfrogged development by use of the cheap labor available at this particular stage of China's development. Even in the capital- and technology-intensive industries, China's NGEs are still inclined to use labor in place of capital and technology. In 2004, the major economic areas-such as the Pearl River and Yangtze River Deltas-were faced with a looming labor shortage, and cases of labor disputes repeatedly appeared in some areas. In the long run, China's NGEs will unavoidably face a new challenge of labor costs arising concurrently with the ongoing trend of China's demographic transition, which will undoubtedly hinder their competitiveness. In understanding the source of Chinese NGEs' competitiveness, we have paid scant attention to the theory of human capital. Under the condition of an unlimited supply of labor, the objective pressure for more investment in human capital has not been felt by either SOEs or NGEs. For a long time, the dual economy of China has featured an unlimited labor supply, and the more-than-sufficient labor force has indeed been feeding the country's rapid economic growth with a demographic dividend. At present, there is still no sign of diminishing capital returns (Bai Chong'en et al. 2007), a fact which has broken the “YoungKrugman's Curse.” What China has formed and maintained, however, is an input-driven model of economic growth, which relies merely on capital and labor inputs to function. In such a model of growth, the contribution of technical progress, industrial structural upgrading, and improvements to productivity are relatively insignificant to economic growth (Cai 2008). In terms of demand-pull factors, this manifests as an over dependence on exports and investment, while the driving force of consumptive demand is relatively weak and limited. In the distribution of the national economy, the government and its enterprises possess the lion's share, leaving a small part for the people. With China's entry into the new stage of economic development, as the source of China's economic vitality and reservoir of its employment, NGEs are expected to sustain and promote their competitiveness with the new engine of human capital investment.