Edmund Phelps firmly believes China needs to innovate more if its economy is to progress to the next stage of development.

The Nobel Prize-winning economist says if it sticks with an infrastructure investment-fueled [Businesses Registration]economic model it risks being stuck in the middle-income trap, the fate of so many developing nations.

"I strongly believe that to enter the next phase of its development, it will have to embrace a radical increase in indigenous innovation.

"The data suggests that the rate of return of investment in China is declining and that it has sunk rather faster over the past five years. There is such a thing as diminishing returns and at some point the economy comes to a rest unless there are fresh ideas of how to use capital."

Phelps, 80, was speaking in the lobby of the Beijing Airport Hotel, where he had stayed overnight before taking an afternoon flight back home to New York.

He had spent the earlier part of the week at Fuzhou University, where he has been dean of New Huadu Business School since 2010.

He makes about four trips a year with his wife Viviana, who also acts as his personal assistant.

"I don't have much to do with the operations. I make speeches to students. If there is a fee I haven't seen it," he says.

"I was the commencement speaker earlier this month for the graduating students of the business school. In the early evening the students - many of them expert song and dance performers - put on a show. [Hong Kong Company Formation]It was amazing. This is the flamboyant exuberance about China I like very much."

Such exuberance he does not see much of in either Europe or the United States in his new book Mass Flourishing, in which he argues that despite Silicon Valley and the likes of Google and Facebook, we are not living in an innovative age.

Progress today, according to Phelps, pales into comparison to what happened during the British Industrial Revolution or in the United States from the mid-19th century to around 1940.

He uses as his measure of innovation the growth of productivity, which he says is now at a standstill in countries like Germany, which many otherwise see as economically successful.

"Germany exhibits a slowdown, [Hong Kong company registration]verging on a full stop in productivity. How many German companies can you think of that you would call creative? I have heard it said about Siemens that the management understands technological change but don't understand about creating new products.