Hanh has a Master's Degree in Economics. She spent six years studying and working in the United States.
Current Context for Innovation in China
Since China is entering a new phase of development as a middle-income country, it is time for the country to identify and utilize new sources of growth to avoid the middle-income trap and economic stagnation. With rising wages and higher awareness of sustainable development, China urgently needs strategies to move up the value chain and transform its economy into a knowledge-based and innovative one. Within this context, innovation, which is one of the main exogenous determinants of economic growth, comes to light to present itself as a drive for further growth.
Innovation refers to the discovery and application of new ideas to existing technologies or practices to improve productivity and efficiency. It also refers to adding more value to the final product. Innovation does not necessarily happen overnight; it is a gradual process that builds on previous discoveries and past procedures. The ultimate goals of innovation are stimulating growth and improving people’s quality of life.
Since the Chinese government initiated its bold reforms in the 1980s, the country has enjoyed continuous economic growth and substantial increases in living standards. The country’s growth rate over the period from 1990–2010 averaged 10% per year. However, since then, China’s economy showed signs of a slowdown, with a growth rate of 6.7 percent for all three quarters of 2016, the weakest growth since the first quarter of 2009. In the past, China’s economic development has been mainly driven by the “open door” policy boost, ambitious top-down economic plan, low investment costs, and rich natural resources. Now as those selling points are weakening, innovation comes into play as a new driving force to boost China’s growth.
What Is Innovation’s Role in China’s Growth?
First, innovation would help manufacturers reduce costs of production by offering new means to exploit and utilize its resources more effectively. In addition, due to China’s aging population and low population growth rate, new technologies can be developed to replace human labor and increase productivity. Last, innovation can help to change the role of China from the world’s factory to the world’s center of innovation and allow China to maintain one of the world powers.
Challenges Slowing Down China's Pace of Innovations
To begin with, lax intellectual property (IP) rights and lack of means to enforce them are the biggest concerns that China is facing. IP protection lies at the heart of innovation. In order to come up with new discoveries and ideas, firms and individuals have to invest in capital, human resources and time. Without means to protect the results of their hard work, they will be discouraged from making those investments. IP right enforcement also protects consumers from consuming fake and low-quality products and enhances consumer confidence.
In China, the incidence of IP violations is rampant. Major studies estimated that China accounts for about 50 to 80 percent of international IP thefts. China is the world’s number one source of counterfeit products which are not only distributed in China but also exported all over the world. Almost any product, from household items, design clothing to sophisticated electronic devices can be forged in China. Violations are committed not only by individuals and small Chinese businesses but also by seemingly ethical multinational companies, government entities and educational institutions.
What’s more is that the current IP right legal framework in China, though being improved to reflect international standards, proves to be insufficient in protecting and enforcing IP rights. In dealing with IP violations, the Chinese government uses administrative action and civil litigation instead of criminal measures. Coupled with local protectionism and corruption, infringers can easily get away from piracy charges. Besides, the local culture is still tolerant towards forgery and counterfeit products due to ignorance of their adverse effects on the economy and society.
While during the “catch-up” period, imitation is a shortcut to renovate the economy, as China moves into a new phase of development, innovation is crucial to surpass the transition process. However, without proper respect for IP rights, innovation cannot thrive.
Can China Become the World’s Leading Innovator?
China has commonly been perceived that it is incapable of innovation and thus forever remains as the world’s manufacturing base. However, China does possess potential to become a giant innovator.
First, China is home to some of the greatest inventions of human beings through time. The ancient Chinese gave the world paper money, silk, clock, gunpowder, paper, printing, umbrella, and the compass, etc. At present, many Chinese companies are leading global innovation in such fields as space exploration, artificial intelligence, clean energy, and computer science. China also ranked first globally in the number of patent applications with 1,010,406 applications in 2015, surpassing the United States for the very first time. This demonstrates that Chinese people are smart and that creativity is in their blood vessels.
Second, the Chinese government has the capability to mobilize resources and implement policies to propel innovation. According to World Bank, in 2015, China’s research and development expenditure was 2% of its GDP, making up 20% of total global R&D spending. The state policies also improve China’ educational system, recruit overseas Chinese talents and foreign scientists to come and work in China. China has set goals that by 2020 it will become an innovative society, and by 2050 it will be a world leader in science and technology. While top-down innovation remains controversial, let’s not forget that China’s miraculous economic growth is also the result of top-down initiatives.
Last, with its fascinating culture that places great emphasis on Confucianism, collectivism, patriotism, rigid social hierarchy and trust, China has its unique way of innovation. For example, although the tradition of rote learning is often criticized for stifling innovation, rote learning is key to mastering the foundation of any science. Without the foundation, innovation is only the result of luck or coincidence and thus very fleeting. Hence, as for China, imitation will pave the way to long-lasting innovation.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
Ashutosh Joshi from New Delhi, India on February 26, 2017:
I just had a question with regards to what you mentioned about laxity of IP norms. While I can completly relate to it with reference to my own country where situation is more or less the same but in refrence to China, since fortunately or unfortunately it is the biggest global market for counterfeit or cheaper variants of almost every commodity. Would you not agree that there will be a huge impact on the export volumes if the norms were to be made stringent?