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Innovation Changes Economy
New technology helps China shift toward more sustainable development
By Sheng Chaoxun | NO. 15 APRIL 12, 2018

Robots construct new energy cars at a factory in Tianjin on December 5, 2017 (XINHUA)

Driven by an innovation-oriented overarching plan, Chinese society is vibrant and exhilarating. A profusion of startups have emerged, fledgling industries developed, and the industrial structure as well as quality and efficiency improved. From a holistic view, the economy is steering toward mid- and high-end levels of development.

Innovation matters

Innovation is undoubtedly the major force driving the Chinese economy. In the last few years, a batch of hi-tech outcomes have been unveiled, marking symbolic breakthroughs in key fields such as manned space flights, lunar exploration, quantum communication, radio telescopes, manned submersibles, and supercomputers. In 2016, the number of patent applications surpassed 1.33 million, twice that of 2012, putting China in pole position for a sixth consecutive year.

Along with the streamlining of China's commercial registration institutions and related management, innovative outcomes have been widely applied in business, which have in return inspired entrepreneurship among scientists, college graduates, returned overseas personnel and even migrant workers. In 2017, around 16,500 companies were established every day, which doubled the 2012 number.

In this context, the new economy, including new industries, new businesses and new modes of business, has emerged, which is best represented by its digital, network, platform and sharing aspects. The online-offline fusion has also been accelerated, trans-border e-commerce has prospered, and the concept of smart homes has prevailed. In a recent survey, high-speed trains, mobile payment, bike sharing, and online shopping were chosen as China's "four new inventions" in modern times.

According to the Global Innovation Index 2017, China came in at 22nd, up from 34th in 2012, leading the middle-income economies. Many international organizations, including the World Bank, spoke highly of China's economic restructuring and innovation, commenting that the innovation-powered nation would be a driving force in the world.

Coexistence of companies

In China, it is not unusual to see the impact of disruptive innovations, represented by all kinds of "black technologies." Quite a few companies have provided constant and substantial input in innovation, based on their own experience. Innovation is diverse in its style and size—big or small, revolutionary or progressive; and its means of turning ideas into reality shows increasingly more flexibility.

According to the nation's overarching plan, strategic emerging industries and hi-tech industries serve as the pillars of innovation-driven development. Meanwhile, Internet Plus and Made in China 2025 have been introduced to traditional manufacturers of light industry, textiles, iron and steel, petrochemicals and agriculture and services, directing these industries onto a more digital, network-driven, smart and high-end development path.

By improving digital infrastructure, China is able to develop next-generation telecommunication products and technologies, new businesses and new modes; thus promoting the connection of new and old industries and enhancing coordinated development between innovation and these industries.

For now, strategic emerging industries account for more than 8 percent of China's GDP, and play a leading role in industrial upgrading. In 2016, equipment and hi-tech manufacturing made up 32.9 percent and 12.4 percent of all industries, up 4.7 percent and 3 percent respectively from 2012 levels. The market also saw a surge of new products such as industrial robots, new energy vehicles and smartphones. The prevailing mobile Internet boosted e-commerce, which in 2016 reached 26.1 trillion yuan ($4.2 trillion) in business scale, 3.4 times that of 2012. The so-called happiness industries, like tourism, culture, healthcare, and elderly care, have developed quickly as products' quality has improved, quantity has increased and the consumption model has become more sustainable.

Pro-innovation policies have been extended from hi-tech fields to the real economy, especially the information, healthcare, energy and green industries. The service and manufacturing industries have seen coordinated development, with the service industry achieving rapid growth. In 2015, the value added of the service industry accounted for half of the national economy for the first time, with the ratio rising to 51.6 percent in 2016. Regarding contribution to economic growth, the service industry accounted for 44.9 percent in 2012, and surged to 58.2 percent in 2016.

Seizing the opportunities generated by the Belt and Road Initiative, China attaches great importance to innovation and international cooperation. On the one hand, it strives to facilitate transnational enterprises and prestigious research institutions to set up research and development centers in China. On the other, domestic companies are encouraged to build global research and development systems by establishing research centers and bases for innovation abroad, which has steadily enhanced the country's industrial competitiveness in the world. China's economic indicators in certain aspects stand at the forefront of the world. For example, the output of major industrial products and the global manufacturing competitiveness index have been ranked the highest in the world. According to the Global Competitiveness Report 2017-18 released by the World Economic Forum, China stood at 27 in 2017, up two places compared with 2012. In addition, 115 Chinese companies hit the Fortune 500 list for 2017. The figure, up from 79 in 2012, ranked second in the world. To date, the country boasts 13 companies with annual revenues that have exceeded $100 billion, nearly a quarter of the global figure.

Green and inclusive

At the 19th National Congress of the Communist Party of China last October, building a beautiful China was established as a new goal for the Chinese people. Enterprises will be further supported to make their development modes cleaner, safer and more energy-efficient. In the meantime, a green industry system featuring energy conservation, environmental protection and the recycling of resources will be built.

As a new growth point, green development is stimulating rapid technological advancement in such fields as new energy automobiles and clean energy. New technologies are expected to play a bigger role in these areas, including solar and wind power, efficient energy storage techniques and distributed energy resources, among many others.

Administrators at every level are embracing green development as the country endeavors to achieve a balance between economic and ecological progress. Today, considerable areas of green space can be seen in more and more cities, adding to the draw of these places vying to attract investment from high-end industries.

Innovation-driven development, instead of involving and benefiting just a small number of people, has reached the wider public. The benefits are being shared by innovators, manufacturers and consumers of all kinds.

In addition, companies, regardless of their size, have much more room to advance. Guided by the new vision of development, many large enterprises have rapidly grown into giants in their respective fields. At the same time, the number of startups is rising exponentially. Micro, small and medium-sized firms have significantly increased their investment in R&D, and the number of unicorn companies is mushrooming. In 2016, one fourth of the world's 200 unicorns—startup companies valued above $1 billion—were from China.

Nevertheless, more efforts are needed to improve independent innovation, core technologies and key components of development, human resources management, and brand building. Therefore, a national-level network for innovation should be constructed in order to pool resources to shore up weak links in the industry.

Efforts should include making breakthroughs in key technologies, setting up a batch of alliances to promote industry innovation, launching projects to make the foundation of industry development more solid, and introducing measures to further improve the quality of Chinese products.

The author is a researcher with the Chinese Academy of Macroeconomic Research

This article was first published in China Today

Copyedited by Laurence Coulton

Comments to yanwei@bjreview.com

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