Rapid economic growth propels innovation

By Anil K Gupta (China Daily)
Updated: 2007-09-20 10:05

As the 17th National Congress of the Communist Party of China convenes in October, domestic issues related to China's emergence as a major stakeholder in the global economy are destined to unfold.

As China's leaders ponder such questions as intellectual and private property rights, education and further economic reform, a fundamental and central theme is how these agenda items will further impact the nation's maturation as a world leader.

As impressive as China's growth has been, there are still acknowledged barriers to the global market being led by Chinese innovation and ideas. But perhaps not for long, due in no small part to contributions at a very individual level.

China is a society of entrepreneurs in a landscape poised to become the world's dominant economy over the next 30 years. The people of China are constantly trying to figure out where the next opportunity lies. With the swelling economy and the culture of entrepreneurship, opportunity is everywhere.

In terms of sheer market size for most products and services, China's economy is already one of the largest in the world and rapidly growing. By the end of this year, China will have the third-largest economy, behind only that of Japan and the US, and within 30 years it is expected to surpass the US.

As China further integrates with the global economy, it is not just 1.3 billion customers who have joined the rest of the world, but also nearly 800 million workers. China has already become the world's factory - at least for a large number of consumer goods - significantly impacting prices of manufactured goods globally.

And though there have been some recent recalls regarding product safety and quality, as these issues get addressed over the next year or two, the Chinese economy is likely to emerge stronger. Companies and economies learn from their mistakes, and Chinese companies and China's economy will learn, in particular because the government sees quality and safety controls as major issues - not to be avoided, but to be addressed, head-on.

The government's latest five-year plan is committed to building China's competitive advantage, not just on manufacturing efficiency, but also on science, technology and innovation. Most observers as well as business and political leaders openly accept that China is lagging behind on innovation, but the rapidly evolving economy is pushing innovation forward.

The government has greatly increased research and development budgets at universities, specifically in science and engineering departments. The Chinese Academy of Sciences has also dramatically increased the number of students sponsored through one-year, post-graduate fellowships to study at US and European institutions.

Government agencies are putting an increasing amount of money into venture capital investments. The government is also providing more funding to hi-tech science parks and providing no- or low-interest loans to start-up ventures that are located in the parks.

For example, a recent alumnus of the University of Maryland's Robert H Smith School of Business in China founded an information technology start-up and located his new company in a science park in Beijing. He has received a US$50,000 investment from local authorities and if his company is able to return the investment within three years, it will be a no-interest loan. If not, the investment will convert into equity.

There are other signs, too, that innovation is catching on. The government has become quite serious about enforcing intellectual property regulations, which increases the incentives for people to develop new technologies, to get patents and to create tech companies.

For the wealth of entrepreneurial drive there is no shortage of venture capital in China. Even American VC firms, which typically invest in IT or biotechnology firms in the US, have been known to invest in various viable opportunities in China.

There is, however, a shortage of angel funding. The challenge many entrepreneurs face is how to get from concept to prototype, and eventually to market.

The author is Ralph J Tyser Professor of Strategy and Organization at the University of Maryland's Robert H Smith School of Business

(For more biz stories, please visit Industry Updates)

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