A Study of Economic Sophistication of China by Using Principle Component Analysis

Following the Global Recession in 2008, European countries and U.S. recognized irreversible changes resulting from financial shock that lead their own countries into a new stage of economy, called "New Normal". Since the Chinese economy is not independent of the global economy, China also recognized that its own economy was entering the "New normal", or "Xin Changtai" in Chinese. Furthermore, to suit their economy to "Xin Changtai", new economic growth policy was necessary. During the 2014 APEC meeting, President Xi Jinping declared that China aimed to change their engine of economic growth from foreign trade and investment to innovation and consumption, in addition to the harmonious upgrade of the region and society between each province to achieve sustainable economic growth. Although existing literatures suggest the use of Genuine Progress Indicator (GPI) to evaluate the sophistication of society, there is no consensus on the construction of the components or the evaluation of each component of GPI, therefore, a more objective evaluation index is needed. This study employs the principle component analysis method to calculate an indicator to evaluate the sophistication of society. This indicator reflects the degree of the characteristics readily used in developed countries, and in the present study it is applied in the evaluation of China's 31 provinces. Empirical results show that a few provinces in coastal areas developed their society, while most inland provinces were left behind. Moreover, as a result from the examination of the correspondence between the geographic distribution of the index and China's seven geographic divisions, it is shown that a disparity in social sophistication occurred in each division.