Innovation-driven Development in China: Strategy, Policy and Practices

MU Rongping

During the past few months, the leadership in China has changed, and resulting changes in orientation toward new policies may be of great interest to researchers. With this in mind, the title and topics for today's presentation have been chosen. It is hoped that some light will be shed, and new information revealed in relation to innovation-driven development in China.

Over the past 10 years, the Chinese government has introduced a series of national development goals. During the last leadership period, President Hu Jintao raised the issue of designing a new way of industrialization in 2002. At that time, the Chinese government had already recognized the problems associated with the way in which industrialization was being handled, such as environmental pollution, the decline of resources through consumption, and the overreliance on exports. Second, China introduced goals in relation to the scientific outlook on development in 2003. This new philosophy on development emphasized the harmonization of human beings with the environment and society. Whereas the goals on the new ways of industrialization had the narrow perspective of only focusing on the economy, goals on the scientific outlook on development offer a broader perspective by considering sustainability issues along with the environment at large.

In 2004, the Chinese government raised a new goal of building a resource-saving and environmentally-friendly society in fairly specific terms, and in 2005, proposed the goal of developing a harmonious society for all people living in the country. In 2006, it released a long-term plan for science and technology development with an ambitious goal to become an innovation-driven country by 2020. Finally, under new leadership in 2012, the Chinese government announced the goal of building and developing an ecological civilization. All of these goals emphasize economic and social indicators, therefore implying that the public is an integral part of all processes. Such fundamental concept and policy changes have enjoyed significant recognition due to having been backed and supported by leaders in China.

Recently, a revised developmental picture predicting the future of China toward 2020 was created. Key points highlighted included those of globalization, where it is expected to be more open than ever by 2020 due to increased mobility within the country as well as an increase in the flow of goods. China is also predicted to develop as a new industrialized and urbanized society, where public service systems would need to be improved in order to support people moving from rural to urban areas for employment. The investment in and development of infrastructure to aid informatization and promote information and communication technology (ICT) is also expected to increase, along with China turning into a consumption-driven society, caused by a shift from being an export-reliant country to one which relies more on local consumption. Finally, China is also believed to become a more environmentally-friendly and recycling-conscious society in accordance with initiatives. All of such predictions are likely to relate to fundamental changes in science, technology, innovation, management and administration. In other words, its vision is to be a nation of innovation by 2020.

During the past 20 years, China has proposed several national strategies such as the Strategy for National Sustainable Development in 1992, the Strategy for Reinvigorating Nation through Science, Technology and Education in 1995, the Strategy for Reinvigorating Nation through Talents in 2004, and the Strategy for Innovation-driven Development in 2012. The Strategy for Innovation-driven Development is new and is based on the notion that science, technology and innovation (STI) are the strategic support for increasing social productivity and overall national strength. Therefore, it is necessary to integrate all of the wisdom and strength of the whole society to build an innovation-driven nation. In short, STI has become an increasingly important issue in policymaking procedures and must be accounted for in national development strategies.

Although the targets for the Strategy for Innovation-driven Development are clear, there are still several issues which must be further discussed and defined in the policymaking process. An example of this is in precisely defining innovation, and to what innovation-driven development specifically refers. Politicians, scientists, economists and journalists all refer to innovation, yet appear to have no common understanding or concept of its exact meaning. This lack of unity could in turn lead to the development of different policies and potential problems. Politicians often emphasize the spirit behind innovation rather than specific details. Scientists often refer to innovation as the creation of something new, regardless of whether or not there is economic value. Economists tend to focus on the commercial effect of innovation over other associated factors. Taking this into consideration, precisely defining innovation is worthwhile. Innovation can be described as a complex process of value creation, including scientific and technological value, economic and social value, and cultural value concerning activities of scientific discovery, technological invention, methodological innovation, and their commercial application as well as social diffusion.

Another concept worthwhile of defining more clearly is innovation capacity. Innovation capacity is the ability to conduct scientific discovery, technological invention, methodological innovation, and related commercial applications as well as social diffusion under certain institutional environments and infrastructure. Although innovation as an ideal is important, the methods behind it and the capacity for it are also of great significance. There are many policy issues associated with capacity building in relation to innovation.

Innovation-driven development is another term which could benefit from a concise definition. For the sake of convenience and ease of understanding, it is more simply known as innovation development. Innovation development refers to both a development pattern as well as a developmental level. Innovation development could refer to the status of innovation becoming the major driving force behind development. However, it could also refer to the associated patterns of a high level of science and technology, economic, social, and related infrastructure development.

Innovation-driven countries usually have a powerful national innovation capacity and a high level of development based on the efficiency and effectiveness of innovation activities. In association with this, the Indicator System for National Innovative Development has been created, which is still gradually being improved, and five indexes which measure different levels of development fall within this system. The indexes included are the Industrialization Development Index, Informatization Development Index, Urbanization Development Index, Education and Health Development Index, and the Science and Technology Development Index. Regarding the overall innovative development of China through the use of this innovative development index, there has generally been a gradual increase over the last nine years. In breaking down each individual index, growth has generally steadily increased every year, and is expected to increase more rapidly over the next five years due to government investment. In terms of the level of overall innovation-driven development as an international comparison between 2000 and 2009, however, China has only risen one spot, and its level is still low. Improving its national innovation development depends on the systematic integration of science and technology, economic, and social development, as well as on improving the efficiency and effectiveness of development in science and technology, industries, education and public health, infrastructure, and urbanization. This will undoubtedly take as long as 20 years before reaching the high innovation development levels of countries such as Sweden, Switzerland, and Japan.

The Indicator System for National Innovation Capacity (NIC) is another system which has been developed. Such a system not only emphasizes efficiency or effectiveness, but also takes the strength of innovation activities into consideration. In China's case, although overall national innovation capacity grew quickly between 2000 and 2009, the major contributing force behind this has been due to the increase in the scale of innovation activity brought about by increased expenditure in research and development (R&D), as opposed to improved efficiency and effectiveness. Looking only at the current innovation development index of China, this rating is very low. However, by focusing on innovation capacity levels, China ranks highly on a global scale, in particular with regard to innovation capacity strength. Therefore, low levels of the efficiency and effectiveness of innovation in China are key factors to be improved upon and overcome in order to promote innovation development.

In order for China to become an innovation-driven nation, policies need to be implemented. In the past, enterprises often wanted to be acknowledged as the major driving force behind innovation and therefore receive resources and funding. However, universities and research institutes argued that enterprises often lack top scientists and researchers necessary to fulfill the role of an innovation development leader. It is possibly more accurate to suggest that innovation-driven development and NIC is a complex system which is closely tied to several sub-capacities including activities such as scientific discovery, technological invention, commercialization, production and marketing, and the capacity of social diffusion and application. There are in fact several key players who each fulfill their own unique and important roles. Universities may be able to carry out the role of scientific discovery, with inventions being provided by research institutes and enterprises.

National innovative development could also be associated with several key innovation elements for policymaking, such as resource acquisition and allocation, intelligent informatization, and capacity building for social innovation. Both innovation-building actions and policy elements interact through different combinations of factors, and it is extremely important to synergize this whole complex system to aid innovation development. Specifically, there are several weaknesses in the current innovation development system, such as the issue of marketization and the linkage between science and commercialization. Solving such issues could greatly benefit from the creation of new policies.

In the past, there have been many reports on how to measure NIC. However, one problem is that most of those reports do not account for any form of direct linkage between policies and measured indicators. It is vital to translate such indicators into policy issues. Taking this into consideration, there are several current major policy issues which are important for innovation development. One such policy issue relates to science and technology mega-projects. In fact, the Chinese government has initiated 16 science and technology mega-projects in its long-term plans, along with national science and technology programs which focus on high tech development plus R&D. There are also currently several technology innovation programs which focus on developing technology innovation alliances, cities, and firms. Other key issues include the commercialization of science and technology achievements and innovation for modern agriculture. In recent times, many workers have moved from the rural to the urban areas, leading to a shortage of working-age people to support agriculture in China. As a result, developing agricultural technology which requires less manpower is essential. Innovation for strategic emerging industries is another significant policy issue. Two years ago, the Chinese government issued plans to select seven industries which are to support the future of China's economic growth. However, it also places emphasis on upgrading key industries, as they are the present economic force. Finally, policy issues related to innovation for modern service industries, which refers to the development of innovation allowing for the provision of higher quality services at a lower cost, and innovation for urbanization and urban development, are being treated with great importance at present.

Based on the number of large-scale plans which the Chinese government is funding in relation to innovation development, this is a matter which is being taken seriously. The five-year plans of the National Strategic Emerging Industries, National Science and Technology Development, National Innovation Capacity-building, and National Major Innovation Base Construction are all examples of this. National innovation capacity-building not only focuses on science, technology and industry, but also on social innovation development. This refers to enterprises as well as the public service sector. An example of innovation development in the public service sector could be creating new resources to support a higher quality of education system or improvements in the health care system. All of such plans and policies are sure to bring about some rather fundamental changes in the future.

In the next five or 10 years, there will likely be some very important changes in policies regarding science and technology innovation. It is crucial that the policies for innovation development should focus on four key issues so as to explore and energize the people's potential for innovation. The first issue is that of innovation capacity building. The second issue is that of developing linkage and coupling among all of the key players in associated with the development of innovation. The third important issue is innovation in the field of human resources on a multilevel and diverse scale. Finally, it is important for China to focus on developing the institutional environment in order to improve the levels of motivation and the sense of security in the public.

Q1: In 2003, there were some interesting seminars on Chinese science and technology. A question was raised as to whether China could catch up with Japan within 10 years, and I predicted that China would actually surpass Japan in terms of scientific capability and scale. In fact, China surpassed Japan in this respect in about 2008 and in terms of scientific quality in 2009. However, the gap between China's innovation capacity and the actual state of its economy is large. The general opinion in Europe is that innovation-driven development can never fully bloom without the support of political reform. What are your thoughts on this subject?

MU Rongping
It is true that China has surpassed Japan in terms of the number of scientific publications and also in gross domestic product (GDP). The number of publications has been doubling approximately every five years since the late 1990s, and it was believed that if this trend were to continue, China would surpass Japan. Regarding political support, in the past, only top politicians would emphasize pollution issues. However, nowadays, everyone from the general public to the Chinese government has reached a consensus regarding such issues. Even though it is not possible to solve such a difficult problem within only a few years, the general shift which will bring about gradual change has started to emerge very recently due to changes having been made on a political level. With this in mind, it is likely that other political reform or policy change could bring about further positive changes such as in innovation-driven development in China in the near future.

Q2: One observation of the difference between China and Japan in terms of innovation is that of speed. In China, the pace appears to be much more aggressive than it is in Japan. Japan could possibly benefit from having a faster pace and procedural process in the field of innovation. Looking at industries in Japan, what is your advice or comment on how they can be more innovative in the future?

MU Rongping
Many years ago when the Japanese asked me for similar recommendations, I mentioned a comparison which I had made between the behaviors of European, U.S., and Japanese companies based in China. What I found was that Japanese companies tended to be the most conservative and the least innovative. In comparison, U.S. companies such as Microsoft Corporation and Intel Corporation actually established R&D centers in China to help to expand from a global perspective. It is perhaps the case that the majority of Japanese companies tend to focus more on the local market rather than the global market. This could be a factor in relation to the rate of innovation.

Q3: It was mentioned during the introduction section of today's presentation that integrating all of the wisdom and strength of the whole of society is necessary for building an innovation-driven nation. This kind of project must be undertaken on a nationwide scale, and success on cooperation of a similar nature can be observed in the European Union (EU). How far is this integration being implemented and delivered in China at present?

MU Rongping
The systems in the EU and China are quite different. In China, talks on integration have been continuing over the last 20 years. However, in the past, there have been several problems and issues between different government institutions. It is hoped that some changes will come about through the recently changed leadership, and it is expected that the specifics on the allocation of functions and responsibilities of each ministry will be established in June 2013. This should help to promote harmonization and cooperation. At the same time, the public also appears to recognize such issues, which is of great importance as this can further lead to reaching solutions. One advantage of the Chinese system over that of the EU is that, in the latter, discussion on policies is carried out at the top EU-wide level, yet is implemented at the level of individual counties. It is often the case that individual countries have different ideas on how to carry out policies, which can slow down and complicate the process of integration. As China is only one country, it should be easier theoretically to carry out policies and develop integration.

Q4: Many economists emphasize the function of the market as a driving force for development strategy. China seems to be heading toward becoming a market-oriented economy. What kind of policy agenda has been proposed to the Chinese government to accomplish a national strategy for innovation-driven development?

Second, regarding innovation capacity-building for development, education is an extremely important factor, and CAS appears to play a significant role in research and offering policy proposals to the Chinese government as a think tank along with functioning as an education-related entity. How does CAS expand and develop the role of innovation capacity building?

MU Rongping
Regarding the first question, in recent years, in looking at the construction of market-related factors such as intellectual property rights (IPR) protection, not only foreign companies but also local Chinese enterprises are increasing the number of patent applications. Therefore, the Chinese government is being pressured to protect local enterprises. In response to this, antitrust laws have been developed. Regarding innovation, tax credits policies have been established where companies which invest in R&D can receive a 12.5% tax credit refund regardless of whether they are public, private, or foreign. This kind of system helps to encourage innovation in enterprises.

To answer the second question, CAS needs people with a strong theoretical background along with those with a strong methodological background. There are three key factors for the success of an institute such as CAS in achieving its goals. The first is that it is important to have an influential scientist who is experienced in his/her field of study. Second, it is useful to have a good ambassador to communicate with government officials in order to promote the institute's ideas and to communicate with academia to promote the progress made in the institute. The third key factor is the importance of having a good administrator to ensure effective work is carried out smoothly. An institute which can carry out all of those three functions well can operate very successfully, and CAS strives to be such an institute.

WAKASUGI Ryuhei

Today's presentation emphasized the capacity of scientific discovery, technological innovation, commercialization, production, marketing, and the capacity of social diffusion and application. It also covered existing policies along with future issues in relation to innovation-driven development in China. Although the process is expected to take some time, in the future, the synergizing of the many aspects associated with developing innovation appears likely to be realized in the Chinese market. At the same time, China at present appears to be well on the way to becoming a market-driven economy, and it also seems to be convincingly accomplishing national innovation-driven development.