Shandong proposed and began to practice the development strategy of new and old kinetic energy conversion, which undoubtedly seized the key of economic development. Up to now, the development potential of China's economic development relying on traditional production factors has been declining. It is necessary to develop new development kinetic energy. However, the new development kinetic energy includes many aspects, including economic reforms such as technological improvement, industrial upgrading, and trade improvement, as well as improvements and developments in the political and social fields such as regional coordination, talent accumulation, and education adjustment. Faced with so many and intertwined issues, for all levels of government, where should the new and old kinetic energy conversion start? The author believes that the fundamental of the conversion of the new and old kinetic energy is to improve the competitiveness of the system. Only by improving the competitiveness of the system can we effectively realize the conversion of the new and old kinetic energy.

The institutional environment determines the transaction cost

For the conversion of the new and old kinetic energy, we need more scientific and technological talents. We must develop more high-tech industries and develop more service industry as much as possible, such as finance, creativity, education, culture, electronic network. These industries are system-intensive industries. The so-called system-intensive industries are industries that are sensitive to the institutional environment. The frequency of these industrial transactions is high, so there will be more contracts for transactions. There are many people involved in the production or trading process, and the moral hazard is relatively large. Therefore, these industries are highly dependent on the system, which protects property rightsnand guarantees the implementation of the contract law. These industries have less sedimentary capital and greater capital mobility, which is also an important reason for their sensitivity to the institutional environment.

In general, developed countries have capital advantages and developing countries have labor advantages. According to the principle of comparative advantage, the best combination should be that capital from developed countries flows into developing countries and is combined with relatively low-cost labor. But in reality, a large amount of international investment occurs between developed countries, and only a small amount of international capital flows into developing countries. The reason is the relatively high transaction costs caused by the institutional environment in developing countries, which offsets the advantage of cheap labor in developing countries.

In the modern economy, traditional factors such as capital, technology, population, and resources have far less impact on economic development than the institutional environment. The reason why the system can have a greater impact on economic development is that a good system can effectively reduce transaction costs. The number of transaction cost is an important yardstick for capital and talent flow. In the era of economic globalization, capital, technology, population, resources and other traditional elements are flowing globally. Where the institutional environment is good and the transaction cost is low, where will these factors flow. Some scholars have found that the four variables that have the greatest impact on the innovation performance of high-tech industries are the institutional environment, internal expenditures, new product development expenditures, and technological transformation expenditures. It can be seen that only the expenditure is not enough, and shaping a good institutional environment is more important.

The economic development in Jiangsu, Zhejiang, Guangdong and other regions is relatively fast, because they are good at institutional experiments and innovations. Many systems are first experimented successfully in the South, then promoted to the whole country. The institutional competition mechanism consisting of institutional experiments and institutional imitation is an important driving force for China's rapid economic development after the reform and opening up. A good system can effectively reduce transaction costs and create a better entrepreneurial and investment environment to attract capital and talent. In the era of economic globalization, capital and talent do not have absolute territories. When we take the lead in creating a better system, can we attract more capital and talents, thus promoting economic prosperity. As a coastal province, the economic development of Shandong is in the forefront of the whole country, but compared with Shanghai, Guangdong, Jiangsu, Zhejiang, there is still a big gap. To a large extent, there is a big gap in institutional innovation. Therefore, in the process of the conversion of the new and old kinetic energy,, we must narrow the gap with the above-mentioned developed regions, and we need to work hard to create a better institutional environment.

The formal institutional environment has greater impact on the investment of enterprises

The institutional environment is divided into a formal institutional environment and an informal institutional environment. The formal institutional environment is institutional constraints mainly formulated and implemented by formal organizations such as the government and enterprises. In particular, government system constraints, such as the rationality of laws and regulations, their implementation status, and the efficiency of government work. Informal institutional environment refers to folk spontaneous system, such as conventions, customs, morals, etc.. The formal institutional environment has a greater impact on investment of enterprises, and the informal institutional environment can also be improved through government management. The elements of the formal institutional environment are mainly in the following aspects. 

First, the protection of property rights. A basic condition for the smooth operation of the market economy is the protection of property rights, including intellectual property rights. The protection of property rights requires not only a complete set of laws, but also the enforcement of laws. At present, not only Shandong Province, but also all parts of the country have weak protection of property rights. For example, the existence of counterfeit and shoddy products is a poor protection of consumer property rights; Debt default can not be solved effectively through legal means, which means that the protection of creditors' property rights is not enough; The enforcement of contract law is not strict, it is not good for the protection of trade parties' property rights; Piracy is not prevented, it is ineffective in protecting intellectual property rights.

Second, the efficiency of government. Because many investment projects require the approval of  government, the government's work efficiency directly affects the operating costs of the company. Excessive procedures for approval and long approval time will bring additional costs to the operation of the company. Although the administrative approval process has been simplified, the current administrative approval is still more cumbersome than in developed countries. 

Third, the degree of marketization. A good market not only needs a good order, but also should be more areas open to the private sector. If the government intervenes or monopolizes too much, it will greatly reduce the degree of marketization. In contrast, the private sector development in Shandong Province is far less than the southern provinces and cities. 

Fourth, the public services provided by the government. The level of government public services also has a great impact on economic development. For example, the infrastructure construction directly affects the logistics cost; Scientific and technological education services affect the potential for sustained economic development; Health care services play an important role in attracting talent. The southern part of Jiangsu has attracted many Taiwanese businessmen. On the one hand, their infrastructure is very good, on the other hand, they provide a sound public service. The infrastructure construction in Shandong Province is very good, but it needs to be improved in other public services. 

Fifth, various preferential policies. For example, land price concessions. China's land price is too high, which undoubtedly raises the operating costs of enterprises. Land price concessions have become an important condition for attracting investors. 

The formal institutional environment mainly includes local awareness and customs. Shandong people are warm and hospitable, which is good for attracting investment. But legal awareness, business awareness and contract awareness are lacking. It is easy to negotiate contracts and it is difficult to implement contracts. This has become a constraint to economic development.

More measures to improve institutional competitiveness

In response to these aspects affecting the competitiveness of the system, Shandong Province needs to take effective measures to improve the institutional environment and improve institutional competitiveness.

First, we should seek institutional improvement suggestions from foreign businessmen or chamber of Commerce, and purposefully improve the system environment. Foreign businessmen are familiar with the foreign system, especially the western system. Zhejiang businessmen, Guangdong businessmen and other chambers of commerce are familiar with the system of Guangdong, Jiangsu and Zhejiang. They can easily see the deficiencies of Shandong's business environment. We can purposefully improve the system according to their opinions or suggestions.  

Second, we should fully introduce several large multinational companies. Large multinational corporations have a strong demonstration effect. Compared with multinational corporations to improve the system, the local institutional environment will be greatly improved. Suzhou City has benefited a lot from the entry of foreign companies. 

Third, we should improve service of government to enterprises and eliminate government’s interference to enterprises. It can be considered to allow companies to conduct anonymous reviews of relevant government departments. We can determine the performance and evaluation of relevant departments based on the company's review.

Fourth, we should strictly protect property rights and create a good market order. We should also strictly enforce the contract law, prevent defaults. We must strictly prohibit counterfeit and inferior products and rectify the market environment. We should vigorously develop the private economy and increase the proportion of the private economy in the national economy; continue to simplify administrative approval procedures, improve the efficiency of government departments, and reduce operating costs. It will also raise the legal awareness and business sense of the people and create a good informal institutional environment. On the basis of hospitality Shandong, we further build integrity Shandong.

(The author is researcher and the director of the Institute of Rural Development of Shandong Academy of Social Sciences)