Innovation, China Style
From China Law Blog:
Innovation, China Style: According to Mr. Hout, China is having considerable trouble moving from a production economy to an innovation economy. Though the Chinese government is "pouring money into research and development institutes and subsidies for Chinese companies . . . . the kind of innovation China wants can't be bought -- and the kind the country needs to acquire can't be invented by the government."
China still spends relatively less on R&D than either the United States or Japan. China spends 1.6% of its GDP on research and development, while the U.S. spends 2.6% and Japan spends 3.2%. Only 12% of all patents awarded to Chinese companies in China "are for genuine inventions" while the corresponding number for foreign companies in China is 80%." I am not sure how genuine inventions is defined.
Though high-tech exports from China have increased 42% per year since 2000, Chinese companies make up only 12% of those exports and that number is actually falling:
"Multinationals account for the other 88%, and are continually building state-of-the-art R&D facilities in China to link up with their laboratories elsewhere, bringing even more innovation into the country. Only one of the top ten Chinese-registered U.S. patent holders in information technology, Huawei, is a domestic company. The rest are Western, Taiwanese and Japanese companies, most of which were funded by venture capital, not public money. "
Chinese innovation tends to be opportunistic and focused on quick payoffs. Technology innovation, on the other hand, typically requires these other characteristics....China is falling short in technology innovation because most of its companies seem unable to follow up their "good business-model innovation" with "technology-based product innovation." Mr. Hout sees the "core problem" as being that "Chinese companies are rarely rewarded for taking the long risks that new technology entails:"
New intellectual property is often at risk, making it difficult for Chinese companies to share information and collaborate. State-owned companies are paid to keep doing the same things, even in the face of global technology change directly affecting them. A good example is telecommunications and financial services, where Chinese companies have seen their boundaries tightly maintained by government policy to protect other companies.
Too few Chinese companies have a management culture of experimentation, or boast small teams that take responsibility for new ideas. Management buyouts of state-owned companies, which could reward maverick turnaround managers with new ideas, are typically forbidden
Mr. Hout does see some change having come to China in the form of technology clusters in and around Beijing and Shanghai, but he views most of this as "immature." For China to generate innovation. . .
Yeah, and good luck with that. The reality is that China (along with just about everywhere else) presently has very little of what it needs to be another Silicon Valley.
Hout's understanding of innovation in China is dead on and the next time someone acts as though China is soon going to be the world leader in every product and service, show that person Mr. Hout's article. I also urge you read this thoughtful post, entitled "China's R&D Spending Controversy," over at the China Hearsay blog, comparing China's R&D spending with that of other countries.
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