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In Pursuit of Invention
Innovation becomes the primary force driving the Chinese economy
By Chen Qiqing | NO. 14 APRIL 5, 2017
 

Visitors play with a phone produced by Chinese technology giant Huawei at the 2018 Consumer Electronics Show in Las Vegas, the U.S., on January 9 XINHUA

In recent years, China has been committed to the principle of innovation-driven development and has implemented an innovation-driven development strategy across the board while promoting the creation of an innovative country. Great achievements have been made through this focus on innovation.

Committed to innovation

Innovation was highlighted multiple times in the Report on the Work of the Government delivered by Premier Li Keqiang at this year's annual session of the National People's Congress, China's top legislature. The report reviewed the results of innovation-driven development over the past five years, partly attributing those social and economic achievements since the 18th Communist Party of China (CPC) National Congress in 2012 to the nation's commitment to innovation-driven development. It also proposed moving more quickly to make China a country of innovators and to stay abreast of the trends occurring in the latest global revolution of science and technology and industrial transformation, doing more to implement the innovation-driven development strategy, and continuing to make the Chinese economy more innovative and competitive.

In recent years, major progress has been made in important science and technology undertakings which serve the requirements of national strategies, including manned space missions, manned deep-sea submersible operations, and the development of super computers, earth observation satellites, the BeiDou Navigation Satellite System and large passenger aircraft.

China has taken the lead in technologies concerning people's livelihoods and social progress, such as high-speed railways, e-commerce, mobile payment and the sharing economy. The country has also established itself as a force in the development of cutting-edge technologies. According to Research Fronts 2017 released by the Chinese Academy of Sciences (CAS), China excels in 25 out of 143 global frontier research fields, accounting for 18 percent of the total and ranking second only to the United States.

Innovative enterprises in China are thriving. China has encouraged businesses to independently formulate strategies related to innovation, invest in research and development, and apply their scientific and technological results. A large number of innovative Chinese enterprises have emerged and become major global players. There were 230 unicorns—startups valued above $1 billion—spread across 23 countries at the end of February, of which the United States had the most with 113 and China had the second most with 62, according to statistics released by CB Insights, an American venture capital research firm.

Innovation has become a widespread trend. The Chinese Government has upheld innovation as the main driver of growth and now regards talented people as the most important force for driving development, elevating innovation to the center of the national development strategy. The government has persistently pushed for theoretical, institutional, scientific and technological, and cultural innovations. All kinds of market entities have been motivated to innovate, their awareness and abilities pertaining to innovation significantly improved. Innovation has become the preferred strategic choice of enterprises.

Reshaping the economy

Driven by innovation, the Chinese economy is undergoing profound changes, which have led to fundamental alterations of the country's model of economic growth. The Chinese economy is shifting from one driven by investment to one driven by innovation. As all kinds of innovative developments, especially in technology, unfold, the contribution of investment to economic growth is decreasing while that of science and technology increases. In February, Wan Gang, then Minister of Science and Technology, told reporters at a press conference held by the State Council Information Office that the contribution of science and technology to economic growth had reached 57.5 percent, compared with 52.2 percent in 2012.

Innovation has also driven the optimization of the economic structure. The makeup of China's economy has undergone historic changes since 2012. Consumption has replaced investment to become the largest driver of growth and services have grown from a tertiary industry to become the centerpiece of China's economic model. These changes could not have been made possible without innovation. New consumption models are emerging in telecoms, education, culture, entertainment and healthcare, while emerging service industries are utilizing e-commerce, mobile payment, the sharing economy, big data and cloud computing to great effect. According to data from the National Bureau of Statistics, strategic emerging service industries increased by 17.3 percent in 2017, much higher than the growth rate of 6.4 percent for traditional industries, which has promoted the overall transformation of China's industrial structure.

The primary engines of economic growth have also been redefined by innovation. A number of key technological breakthroughs have been applied to the products or productivity of strategically important industries in recent years, providing new growth engines for the economy. China's latest generation of high-speed railway technology, which stands at the forefront of the global industry, supports a world leading high-speed railway network. The 4G telecommunications technology known as TD-LTE, co-developed by a coalition of Chinese and international companies, has formed a complete industrial chain with over 650 million users, while the sale of new-energy vehicles exceeded 690,000 in 2017, up 51.2 percent year on year.

Driven by innovation, the Chinese economy is transforming from an old-fashioned model which relied on high input, high consumption and environmental degradation to an innovative, green, efficient and sustainable development path.

Competition and reform

Although China has seen remarkable technological achievements in recent years, the country's overall capacity for innovation falls short of the standards of other science and technology superpowers. Compared with developed economies, China faces challenges in the form of poor capability for basic research and original innovation, a lack of quality domestic talent and a low application rate for science and technology research, which must be resolved by accelerating the implementation of the innovation-driven national development strategy.

Two basic questions should be asked in the implementation of this strategy. First, who should drive innovation? The answer is market entities, which should be motivated to pursue innovation through competition and reform.

President Xi Jinping, also General Secretary of the CPC Central Committee, once pointed out that many of the new technologies, new industries and new products which have emerged under the circumstances of a complex supply-demand relationship and an upgraded and optimized industrial structure were not discovered or nurtured by the government, but are in fact the result of market competition. Restrictions on market access should therefore be further removed, with monopolism and protectionism eliminated in order to create a fair market environment.

Reform is the other driving force of innovation. Xi once remarked that if scientific and technological innovation is the new engine for China's development, then reform is the ignition switch for that engine. The reform of scientific and technological systems must be extended, and old regulations which hamper innovation should be adjusted or abolished altogether. The intellectual property rights (IPR) system should be improved to strengthen the protection of IPR, and the research project management system should be improved to allow researchers more autonomy in their work.

The second question is how innovation can drive development. The results of innovation will only be able to drive growth through their successful application to economic expansion. However, although investment in scientific and technological research is increasing, a lot of research has failed to produce useful or marketable technologies, and of those technologies that have been developed, many have not been converted into saleable products. Economy and science remain two highly disjointed fields in China.

According to a survey conducted by CAS, only 2.03 percent of the patents invented by Chinese universities have been transferred or licensed. A market for the transfer of results in science and technology should therefore be established to enable better determination by the market. The reform of rights and interests regarding scientific and technological achievements must also be deepened to explore the possibility of according researchers with the rights of ownership or the long-term use of scientific and technological results so as to motivate them to pursue innovation based on market demands and take the initiative in commercializing their results.

This year marks the 40th anniversary of the launch of China's reform and opening-up policy. China has achieved rapid growth through the implementation of the policy over the past four decades, creating what will forever be known as the China miracle in the economic history of mankind. Four decades on, the Chinese economy has entered a new era where innovation has become the major driver of growth. Many hope that with these changes, another miracle may be on the way.

The author is a professor of economics at the Party School of the Central Committee of the Communist Party of China

The article was first published in China Pictorial

Copyedited by Laurence Coulton

Comments to yanwei@bjreview.com

 

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