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China's innovation campaign: dos and don'ts
Updated: 2006-03-19 08:44

China has launched a national campaign to enhance its capability for innovation. But experts advise that does not mean China always has to be the original inventor.

China has been exporting a large amount of commodities to overseas markets. While Chinese people feel proud that "Made-in-China" is everywhere around the world, it has long been a sore point when it comes to the label's profitability.

A Chinese DVD player exporter can make only 1 dollar from each machine priced at 32 dollars, while 20 dollars goes to the foreign patent owners. That's 60 percent of the total value. And according to the Minister of Commerce, Bo Xilai, China must export 100 million shoes or 800 million shirts in exchange for the value of one Boeing aircraft.

To change this situation, the Chinese government has made it a top priority to enhance the country's innovation capability.

"The 11th Five Year plan makes an important step forward. It's a major change, that is, it seeks to establish a basis of what it calls independent innovation." renowned U.S. economist and Nobel Prize winner, Joseph Stiglitz, made the comment at a seminar recently held by the China Center for Economic Research of Peking University: "in the past, China has been basically borrowing ideas, trying to close the gap."

"What it recognizes that enormous amount of the rents that exist in the world associate with knowledge rents, the returns to the control of knowledge. So if China's income is going to be raised, it has to create a basis of independent innovation," Stiglitz added. 

The Chinese government plans to allocate over 70 billion yuan, or more than 8 and a half billion U.S. dollars, this year for investment in science and technology. That represents an increase of nearly 20 percent year-on-year.

According to the Minister of Science and Technology, Xu Guanhua, China has to maintain an investment rate of 40 percent from now on, while the contribution rate of science and technology to GDP growth is slated to grow from the current 39 percent, up, to hit 60 percent. Otherwise, it is not possible for us to meet the target of quadrupling the current per capita GDP by the year 2020.

But despite the increasing input, Justin Yifu Lin, Director of the China Center for Economic Research, insists that China cannot merely pursue original innovations.

He said:" There are three types of innovation. One is the original innovation, which enables you core technologies; another is called integrated innovation, which refers to incorporating various features into different types of products; and the third is introducing and absorbing advanced foreign technologies and inventing new products out of them."

Justin Yifu Lin added that innovation is a production and investment activity. China needs to consider the cost and risks during the process. Developed countries have made many innovations, especially original innovations, because they have abundant capital and strong risk-taking capabilities, where they hold comparative advantages. But for the Chinese mainland, if it overly stresses on original innovation, it is very likely that the benefits brought about may be overshadowed by the cost we pay."

Ho-Mou Wu, a new comer to the China Center for Economic Research, cites the experience of some Taiwan companies as an example:" The contention for patents has a bearing on the life or death of a country's industries. Independent innovation is a very challenging task. Take the Taiwan Semiconductor Manufacturing Company Ltd as an example. TSMC is a very important conglomerate in Taiwan. It has invested a huge amount of money in independent original innovation while the outcome has proved not necessarily as good as it was intended to be."

He urged to draw up a patent map first and find out where there is room for self-innovation and whether the country is able to afford such innovation.

However, even if an innovation is worked out, it still can hardly be widely adopted if others know little about it. In that case, the innovator needs to be a global citizen, speaking the globally acknowledged language.

Professor Joseph Stiglitz said:" one of the advantages China has of being a large economy is that you can set your own standard. If they want to come in to China, they have to pay you. And if you have a global standard, you then have a bargaining chip in the global debate that says 'Ok, maybe we won't use our standards. But if you don't accept a lower fee, we'll go to our standard. This is part of the globalization today and it's only by having independent innovation, will you be able to enter into this global bargaining game on the basis of some degree of equality."

The International Organization for Standardization has just rejected adopting a China-developed wireless encryption standard called WAPI for global use. But China says it will firmly support the technology and that failure in the international standard application will not affect its use domestically.

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