Richard Li-Hua on Innovation in China

By: Richard Li-Hua

China’s ambition of become an innovation-oriented country by 2020 is an important part of the nation’s long-term strategic plan. Being the second largest science and technology thesis producer, and running the second largest economy next to the US, a lot of things are happening in China. Innovation Management spoke to Professor Richard Li-Hua, word-leading expert on innovation about his thoughts on China’s innovation.

How would you describe the importance of innovation to China?

The debt crises threat the very future of the Euro and still overshadow the slow recovery of the US economy. The uprising in Middle East and North Africa, in particular in Libya, presents uncertainty and instability. The global economy is at a crossroads. In the meantime, Japan and Europe are feeling uncomfortable with China’s pro-active merger and acquisition strategy. The major fear is that China could embrace the technology-led firms such as Volvo, and manage properly the technology and innovation capacity among multinational companies.

IMF produces even bolder forecast that China’s GDP will exceeds the US by 2016.

Some observers point out that China – being second largest science and technology thesis producer – runs the second largest economy next to the US after surpassing Japan in 2010. Goldman Sachs predicated that the Chinese GDP will exceed the US by 2027, while the World Bank economists forecast that the Chinese economy will continue to create wonder and surpass the US economy in about twenty years – by 2030. IMF produced and even bolder forecast that China’s GDP will exceeds the US by 2016. However, economic scale and innovation capacity are different concepts. The complexity of China’s innovation strategy has not been well understood and explored; this not only pre-occupies Chinese politicians and entrepreneurs, but also leads to the anxiety and misconception of the Western counterparts.

Some observers point out that the Chinese economy relies on foreign technology and FDI. Innovation represents a great leverage in creating economic value. Innovation has never been as important as today, and is closely related with the sustainability of China’s economy. China has been seeking  innovation framework and implementation strategy for sustaining and upgrading its economy. China took 12.3 percent of the world total R&D spending in 2010, second only to the US. China had 200,300 patent applications in 2008, which ranks third next to Japan and the US.

However the accident in Wenzhou in July with the high-speed train system has put China’s innovation strategy under scrutiny. The Wall Street Journal describes China’s innovation as “paper tiger”. Clearly this is an exaggeration by western media. If you look at the product life cycle theory and the technology S curve theory, there is certain risk when a new technology is applied at the very beginning.

What are the goals connected with innovation in China?

This is a big and important topic that attracts world attention. I would like to discuss this topic by starting with China’s technology strategy, followed by innovation strategy and its challenge.

Current Debate on China’s Technology Strategy

Technology strategy is, no doubt an important, but often ignored factor in strategic formation of enterprise development. Technologies by themselves do not establish the overall strengths of a firm or nation. However, the appropriate and effective technology strategy is a key component and driving force in attaining competitive advantage for industries and firms. By integrating proper technology strategy into its overall strategy, a nation can develop a well-defined technology policy towards technology development and innovation.

There has recently been serious and continuous debate on China’s technology strategy about getting technology by sacrificing its market. Many believe that China’s technology strategy has played a significant role in developing its economy and building technology capability, while some critics challenge that China’s technology strategy has failed to secure core technology.

The typical example that has always been cited is China’s car manufacturing industry. The striking phenomena is that the cars made in, and running in China are all almost foreign brands. It has been recognized that the Chinese traditional brand and research and development (R&D) are disappearing. Therefore, this makes people think that it is necessary to re-think China’s technology strategy of market in exchange for technology profoundly. With close examination of the appropriateness and effectiveness of the technology transfer in China, how to provoke strategic thinking of technology and innovation, and how to create sustainability, there are arguably a number of crucial issues on technology and innovation to take into consideration.

As “real core technologies cannot be purchased but can only be achieved by self-innovation”, there is growing need to consolidate the technology capacity building through developing an appropriate technology strategy. However, I believe that the important points are: What kind of technology strategy should China have? Should China take a technology leadership strategy? Should China take a follower strategy to avoid the risk and cost of basic research?  Are the mega-programmes, such as, “211” and “985” launched by the national government effective in technological capacity building?

China’s Innovation Ambition and its Challenges

China’s increased prominence in international and regional science and technology affairs has created a growing need for a deeper and more sophisticated understanding.  A broad range of policies and programs have been put in place over the last two decades to initiate major improvements in the country’s innovation system.  Following the traditional “3I” pattern of innovation strategy, China’s leaders have made “indigenous innovation” a cornerstone of the country’s future development.

China’s leaders have made “indigenous innovation” a cornerstone of the country’s future development.

Many indicators and statistics, such as, number of science and engineering papers that Chinese researchers publish in international journals, the amount of investments made in R&D, and the number of patents, indicate that China’s science and technology capacities have been developing dramatically.

In the meanwhile, China’s research environment has often been criticized as detrimental to individual creativity, and too politically charged. Science and technology policy makers have been regarded as overbearing, and researchers in China face numerous hurdles. It should be noted that the education system in China that has made great improvement in the last two decades, is based on rote learning.  Students, having tradition, tend not to be critical thinkers. However, in the Western educational system, students are encouraged to challenge professors and develop independent thinking, as in the teaching practices of Yale and Harvard in the US. The Chinese tradition of deferring to authority is not conducive to innovation either. As such, how realistic is the ambition to make China an innovation-oriented society by 2020?

What kind of actions are taken in China to increase knowledge about how to increase innovation capabilities?

China’s ambition of “becoming an innovation-oriented country by 2020” is not merely part of the nation’s long-term strategic plan. There have been rising policy initiatives gearing towards the development of science and technology (S&T). China’s science and technology prowess is expanding, and is underpinned by the national network of S&T research of 5,400 national governmental institutions, 3,400 university-affiliated research institutions, 13,000 research institutions operated by large state enterprises, and 41,000 nongovernmental research-oriented enterprises.

According to the Chinese government’s plan, R&D budget is to increase substantially. By 2010, China’s investment in R&D will account for 2 percent of GDP, compared to 1.34 percent in 2005. By 2020, the figure will be increased to 2.5 percent of GDP. If true, this means China will be at the same level with several countries of the Organization of Economic Cooperation and Development (OECD). China would surpass the European Union in R&D investment intensity. However, our recent research and publication on China’s Highway of ICT clearly demonstrates that an appropriate and effective “innovation strategy” will play a vital role in China’s S&T capacity building. Nonetheless, China’s legacy is that China has secured second position next to the US.

Nonetheless, China’s legacy is that China has secured second position next to the US.

China’s remarkable global economic impact presents outstanding and interesting innovation models. How could a small village like Shenzhen become a large prosperous city of 10 million people? How could local collectively-owned firms become global competitors in a mere 30 years? How could local Chinese firms, such as, Haier, Lenovo, and Geely, etc., become world famous brands in such a short period? Some observers believe that these remarkable achievements can only be done in China, as a result of the radical economic reform in the integration of Chinese characteristics and entrepreneurial spirit.

In the meantime, China’s pro-active acquisition strategy and purchasing technology, from green technology to renewable technology from the US, from air bus technology to manufacturing technology from Europe, causes concern in the West. However the major worry for China is if China can get the key technology through procurement and acquisition. International technology transfer is now regarded as a new focus, while the emerging powers and the Western powers are trying to collaborate. It can be beneficial for China, the US and  the EU. Successful technology transfer can not only translate China’s innovation strategy into achievable objectives; it leverages innovation capacity building but also turns EU and US research and technological efforts into profitable business.

The major concern from the transferor is that China has yet to establish an appropriate and robust IP implementation strategy.

Due to fear of losing competitive advantage, it is not surprising that the transferor will block the channels of technology transfer if the transferor feels uncertain of IP protection. Both the transferor and the transferee will lose once the blockage occurs. However, the major concern from the transferor is that China has yet to establish an appropriate and robust IP implementation strategy; this is widely recognized as strategic approach to unblocking the channel of technlogy transfer and boosting innovation.

Kindly give us a brief description of CAMOT, including its goal/purpose and your role in it?

CAMOT is acronym of China Association for Management of Technology that was registered in the UK. CAMOT was initiated in early 2006, with great support from IAMOT, IFTM and Tsinghua University. It has now become genuinely an international academic network organisation, which attracts academics, researchers, practitioners and policy-makers globally in the area of strategic management of technology and innovation in China and the West. It has been well positioned because it has chosen an important topic that not only China has been trying to better understand, but also the other parts of world, like the European Union and the US. CAMOT is a little boat that rises as China’s status rises. For more about CAMOT, please see below.

Questions by Karin Wall, Chief Editor