Porter's Diamond Model and Chinese economy

In today's international business strategy lecture, I learned the Diamond model on the competitive advantage of Nations and Firms, a brainchild of Michael Porter. Despite some criticisim over his model, most of its theory could still be applied to analyse how healthy or competitive Chinese economy is.

Great hype has been given to the economy of China, which could overtake Germany as the third-largest economy in the world, behind the leading United States and Japan. The continued fast growth has kept hitting the headlines. However, going by the Porter's diamond model, Chinese economy is not as competitive as the hype suggests.

According to the model, there are many factors to the competitive advantage: demanding regulatory standards, demanding customers, rule of law, transparency, intellectual property protection, efficient access to capital, and the like. China has scored very low in those mentioned factors.

But China is making progress, although it will be a slow and painful process. For instance, the rule of law is shaping up, with the introduction of a raft of laws in recent years, including the high-profile enactment of property law and the competition law under draft. China will not be satisfied with being only an export of cheap goods, or the status as nothing but a world factory. They are taking steps to increase their competitive advantage.

Interestingly, Porter give high profile to the role of government in the development of a country's competitiveness, saying that govenrment should act as catalyst for the development of economy by prompting competition, and encourage companies to raise their performance. Given Chinese social system, government will continue to play a big role in its economy. The key is will government be a hindrance or a catalyst for the economy development.