The Chinese government needs to remove institutional barriers hindering innovation through deepening reforms in governance, economy and finance, says an article in the 21st Century Business Herald.

Excerpt:

China’s state leaders’ analysis and statement on the economy share some theories of Austrian economist Joseph Schumpeter, especially when it comes to innovation’s role in growth.

Schumpeter thinks innovation is an important driver to push an economy out of stagnation into prosperity.

The global economic crisis makes Shrumpeter’s theory on innovation popular again. The fundamental solution is the government creates a pro-innovation environment, but not on-and-off stimulation. The sustainable development of an economy is not based on the input of factors, but a “creative destruction” of old systems hindering innovation. China’s adjustment of its economic structure and the weeding out of over-capacity industries are such "creative destruction".

Shrumpeter believes entrepreneurs are important sources of innovation. They are not a fixed class, but a group of people, who can conduct innovational activities.

According to him, entrepreneurs have five kinds of innovation: introducing new products, applying new production methods, opening new markets, controlling new raw materials and creating new organizational models.

Yet, only a free environment can promote the growth of true entrepreneurs.

Hundreds millions of people's wisdom, creativity and passion are valuable resources for the rebirth of Chinese economy.