What makes CEIBS Professor of Economics and Finance Bin Xu bullish on the Chinese economy? His latest research shows that exportation drives productivity, and not vice versa - a startling finding in a country that racked up US$109.66 billion in exports during January 2008 alone - a near 27% increase year on year.

"As China’s private sector continues to expand and become more involved in international trade, its productivity growth will become an important engine for the growth of the Chinese economy," says Prof. Xu in his latest paper entitled  "Trade, foreign direct investment, and productivity of China’s private enterprises." The article was published in the book, Private Enterprises and China’s Economic Development (Routledge, Taylor & Francis Group, 2007). The Chinese version of the article was previously published in the Chinese-language book of the same title (Peking University Press, 2006).

The article outlines Prof. Xu’s research on the productivity growth of private firms in China, which was based on a comparison of 450 private, 488 foreign and 562 public firms from 1998 to 2000. He found that R&D has a positive effect on technology absorption in private and foreign firms. However in public firms, higher R&D intensity is associated with lower productivity growth. "We interpret this as reflecting the inefficiency of state-owned firms, which implies higher R&D spending coexisting with lower productivity growth," Prof. Xu says in his conclusion, where he also outlined his main findings about exports driving productivity.

His findings indicate that exporting would increase a private firm’s productivity growth rate by more than 18 percent over the sample period of 1998-2000. For the same period, a public firm would see an increase of almost 19.5 percent. "Our results show optimism about China’s economic growth in the coming years," Prof Xu says.