Industrial Innovation in China Overview
Putting the Conference in Perspective
by Dr. Denis Fred Simon
China’s top leaders and members of its technical community have placed great faith in the development of Chinese science and technology in the 21st century. The science and technology system has undergone two decades of extensive structural reform. The human resource base of the S&T system has been expanded and improved as a result of domestic educational reforms and extensive overseas study programs. And, the inputs into formulation and implementation of science and technology policy have become more sophisticated and globally oriented. After a long period of underinvestment in science and education, China is now committed politically and economically to increase its funding of both such that these expenditures represent an increasing percentage of an expanding GNP. Multinational corporations now see it in their strategic interests to have a research presence in China as indicated by increasing numbers of MNC R&D centers being established. Chinese scientists and engineers are becoming important participants in the global science and technology system and are contributing an increasing share of papers to the world’s scientific and technical literature. In many ways, it appears as if 20+ years of preparation for national scientific and technological distinction are beginning to come to fruition, with China poised to become a major international player in science and technology if not, in the longer run, a scientific and technological superpower.
It was against this backdrop that over 50 experts from China, the US, Europe and Asia came together in July 2006 to examine the current and future trajectory of the Chinese industrial innovation system. For two and one-half days, intensive and extensive discussions were held in and around the issues of China’s innovative capacity and potential. The Chinese leadership sees ongoing progress in science, technology and innovation as critical to addressing three of the most important policy problems facing the country: national security, competitive success in the global economy, and the creation of the conditions for ecologically sustainable development. These also are policy problems that engage China’s international partners and competitors, including United States. Coming to a better understanding of the challenges facing future Chinese scientific and technological development is thus of considerable importance for evaluating and managing the prospects for China’s political, economic, and social evolution in the coming decades. This point was reinforced several times throughout the meeting, especially in terms of the remarks offered by Vice-Minister of Science and Technology, Shang Yong. Vice-Minister Shang used the occasion of his welcome speech as well as his keynote speech at lunch during the first day to emphasize the strategic importance of China’s continued engagement with the global innovation system and evolving international knowledge networks.
The significance of the conference quickly became apparent during the initial sessions as even the most seasoned Western and Asian observers of China’s innovation system expressed concerns about the uneven performance of the country’s R&D-to-production nexus. Even though there has been much hype about China’s potential emergence as some sort of “techno-superpower,” the reality that surfaced from the presentations and discussions suggested something much different—at least in the short term. Various presenters commented on the apparently complex nature of such vexing problems as the country’s immature capital markets and underdeveloped Chinese regime for developing and protecting intellectual capital. Other issues that drew attention had to do with the problems of talent availability and utilization. The notion that China actually might have a serious talent shortage in terms of qualified scientists and engineers appeared strange to many in view of the huge number of young people being trained in Chinese universities, especially since 1999. Yet, the talent issue is one of the greatest limitations on the country’s innovation potential. Not only are many graduates coming out of the university ill-equipped in terms of advanced technical skills to take on the needed assignments inside Chinese companies and research institutes, but they also lack the type of creative, entrepreneurial instincts that lie at the heart of innovation success in places such as Silicon Valley in California and Route 128 in Massachusetts. Finally, the PRC innovation system remains confronted by the stark reality that it is trying to attack a steadily and rapidly moving target; the so-called cutting edge of innovation—technological, organization, and business innovation—is shifting and evolving at break-neck speed as the imperatives of international competition have moved innovation capacity to center stage in the globalized economy of the 21st century.
The announcement in January 2006 of China’s new 15 Year Medium-to-Long-term Science and Technology Plan highlights the fact that Chinese leaders realize that they cannot be complacent or adopt a passive attitude about these global changes at any time in the near future. Chinese participants emphasized the strategic nature of the new plan, and suggested that this was China’s most ambitious step forward in science and technology since the “1956 12-Year S&T Plan” launched under the leadership of Nie Rongzhen. The new plan is conspicuous by the fact that it tries to merge two visions together into one action program. First, there are those aspects that are designed to ignite greater attention and activity in and around the performance of industrial R&D and the commercialization of new know-how. According to this vantage point, the “enterprise” must become the new focal point at the heart of the Chinese innovation system. The shift in focus to the enterprise represents the on-going efforts to make enterprises more responsive to the growing demands of markets and their customers. Yet, at the same time, the plan also is conspicuous by the fact that it does not depart from the big government driven, mega-project philosophy manifested in the “liangdan yixing” (two bombs and one satellite) mentality, that is often seen as the key success formula for China’s early military progress in the 1950s and 1960s. Government clearly sees a role for itself in helping to integrate, coordinate, manage and monitor progress towards building “a truly innovative nation.”
With the central government mobilized and with China’s enterprises in the innovation driver’s seat, one also can see a tremendous amount of activity occurring at the local and regional level across the Chinese S&T system. With 53 nationally approved high tech parks around the country as the catalyst, China’s localities are taking a deeper interest in meeting the demands for more indigenous innovation. Cities such as Tianjin and Jinan along with Qingdao and Dalian were identified at the conference as the new hubs of innovation for everything from biotechnology to software development. Local governments are going abroad to scout Chinese talent, providing attractive offers to attract persons with several years work experience and overseas education to return to China to play a leading role in helping China to move to a higher innovation trajectory. The search for this type of talent has already proven successful in a number of cities and has helped to jump start local technological entrepreneurship across a variety of industries.
One more place where innovation also seems to have become the new watchword is inside the Chinese Academy of Sciences in the form of the Knowledge Innovation Program, which originally was launched in late 1998. The CAS, which traditionally has been at the center of China’s basic research effort, is seeking to enhance its capabilities in basic science while at the same time play a more active role in helping to create new, commercially-relevant know-how that can be linked to the development of new products and services. Towards that end, the CAS has gone through a major restructuring effort that has included closing down several institutes and the merging of several others to enhance overall R&D efficiency and mission effectiveness. And, like many of the local S&T agencies, the CAS too has been engaged in a major talent recruitment campaign overseas to ensure an adequate talent pool to meet the expectations of those who look to the CAS to play a more dynamic role in China’s national innovation system. Of course, one of the CAS’s strengths will continue to be its linkages with overseas counterpart organizations and the individual relationships developed between foreign and Chinese scientists, including those ethnically-Chinese who have assumed permanent residence or citizenship in the US, Europe, etc. The proliferation of Chinese articles in foreign, refereed journals and the higher representation of Chinese cited articles in the Citation Index all suggest that in fields such as nanotechnology, biotechnology, etc. we are bound to see China start assuming a more critical role in the global knowledge networks that form the underpinning for the international S&T community.
The conference participants, Chinese and foreign, were all cognizant of the large role played by foreign technology over the last two decades in helping to fortify the economy and advance the state of Chinese technological know-how and equipment. Without the benefit of foreign technology, it is clear that China’s domestic innovation system would have not been able to make up the gap that would have been left in terms of enhanced productivity, better process engineering and quality control systems, and the upgrading of the overall industrial infrastructure to support the rapid growth of the last twenty-plus years. However, with some exceptions such as Huawei, Haier and Lenovo, it also is clear that the presence of foreign technology, while not necessarily stunting the development of an indigenous local R&D effort, has allowed for a more modest level of activity regarding local R&D spending inside most Chinese enterprises. This is the case despite the launch and implementation of high-level government programs such as the Torch Program, the 863 Program, the 973 Program, etc. Everyone at the meeting seemed to agree that for China to achieve a breakthrough in terms of IPR, technical standards, general brand building, and overall economic competitiveness, it will have to change the current state of affairs and stimulate more indigenous innovation on a sustained basis.
This is what makes the Medium-to-Long-Term Plan so critical to the future growth of the Chinese economy. If all of the 99 major policy initiatives contained in the MLP get carried out to fruition, China will be positioned for a rather significant re-configuration of its domestic innovation system. The combination of proposed tax and financial incentives and benefits, supplemented by the injection of increased government spending on R&D and the step-up in training for scientists and engineering talent will help to incentivize new behaviors and ideally new thinking about the critical role of innovation. Whether or not China can pull this off is the major burning question as it is clear that the MLP is not just another government-driven plan for promoting science and technology. At stake is the future course of Chinese economic and technological development and the nature of the role China will play in the evolving world order of the 21st century. If the MLP is largely successful, it will offer benefits on both the civilian and military sides to the Chinese nation, thereby strengthening the foundations of growth for the future. Moreover, as the comments by Vice-Minister Shang Yong suggested in his main speech to the conference, the course of the MLP will help define and shape the quality and nature of Chinese economic growth in the coming years as well. From the perspective of energy, environment, and resources utilization, the consequences have implications far beyond the confines of China’s political borders.
Most critical, however, as the respective presentations by Mel Horwitch (on global innovation and competition) and Leonard Lynn (on global innovation and cooperation/collaboration) suggested very early on in the meeting, China’s rise as a more innovative nation could change the dynamics regarding new knowledge creation and commercialization on a global scale simply because of the huge market power and talent base that China can bring to the table. The conference helped to highlight some of those fields and areas where Chinese influence could make itself felt sooner rather than later. Even more significant, however, the conference served to give pause to those who have started to see China as some unstoppable industrial or technological goliath capable of asserting unlimited influence across the international system. Clearly, China’s innovation system has many problems to overcome before it can claim to be “an innovative nation.” We need to know much more about the operation of the Chinese innovation system before we can offer confident assessments about what is working and what is not. We need to understand more about the interplay between civilian and military R&D, especially regarding issues surrounding budgets, R&D performance, and talent availability. And, we need to better understand the potential for actually fostering the emergence of a more creative society, and how President Hu Jintao’s call for forming an harmonious society relates to and interfaces with his similar calls for China to become an innovative nation.
Nonetheless, that said, China indeed is on the march. The underlying motivations driving the MLP and other innovation related initiatives are pointed in the direction of enhancing appreciably China’s role as a source of new IP and as a more influential player in global negotiations on international technical standards. Whether movement in these directions suggests that China might play a more disruptive, even more acerbic role in the future remains to be seen. Based on policy pronouncements coming out of Beijing since the early 1980s, there was never any doubt or lack of clarity in terms of China’s strong intentions to close the technological gap with the West and Japan. As the overall discourse at the conference indicated, China remains firmly committed to maintaining its cooperative approach to its international S&T relationships and partaking of the benefits that globalization has to offer. As noted by many of the Chinese presenters, the call for more “independent” or indigenous innovation (zizhu chuangxin) in no ways implies a return to the self-reliance policies of the 1960s and 1970s.
Still, should Beijing’s worst fears come to pass and the world does become more protectionist, perhaps in response to the Chinese ascendancy in economic, scientific and technological terms, the character of the PRC’s engagement with the world might take on a different , less positive tone. This would be highly unfortunate as the net addition of Chinese “brainpower” to the world of scientific inquiry and technological problem-solving holds great potential in terms of improving the overall human condition. Therefore, as the conference participants concluded, it is rather clear that encouraging China to become more fully committed, fully engaged, and fully participating in (and contributing to) the global innovation system as a productive member is a much better response to the PRC’s rise than policies and actions that might be aimed at constraining or limiting the Chinese place in the emerging new technological order over the coming years.