Breakthroughs needed for innovations

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By Liu Shengjun (China Daily)
Updated: 2009-10-09 08:09

Products made in China are still labeled with cheapness, imitation and low quality in international markets. Why the Chinese are still lagging in innovation against the background that independent innovation has been highlighted and promoted by the Chinese government for so many years? It is with a heavy heart that one observes how few Chinese brands have won worldwide visibility. In order to gain the slender profit at the bottom of the value chain, huge resources were consumed in China as many mainland enterprises can only engage in original equipment manufacture (OEM) for international brands like Apple.

I believe that the cause of lacking innovation lies not only in the fact that the Chinese are not versed in innovation, but also in the problem of the existing "unwillingness" and "disallowance" in the innovation process.

The problem of being not good at innovation reflects the Chinese custom and competence, which are rooted in China's complicated historical and cultural background. In traditional Chinese thoughts, one should strictly follow their ancestors' or saints' words and instructions, which in turn hindered the countrymen's curiosity and the ability for original thinking. When facing new problems, we are used to seeking solutions through reinterpreting classics. Scientific approach needs emphasis on precision while many Chinese are just satisfied with "almost the same". Another restricting factor is China's rigid education system, with its focus on higher marks in examination while neglecting to cultivate students' sense of originality and divergent thinking ability.

The problem of "unwillingness" in innovation refers to the negative encouragement created by the current economic system. In a market economy system, the priority of the rational economic man is to maximize their profits. The smart enterprises are trying to seek the easiest way of making money. Take China's real estate industry for example. Many companies, including more and more large-scale State-owned enterprises, are involved in the profitable housing market because they can easily obtain land (the rarest resource in a city) through their special guanxi (relation) with the governments at different levels. A system rampant with rent-seeking will definitely undermine the motivation and passion of the social innovation.

Another adverse factor is the absence of the strict intellectual property protection measures in China. Traditionally, Chinese only recognize tangible assets while lacking identification of intellectual property. Innovation and invention will be nothing without intellectual property protection.

It seems ridiculous when we talk about the problem of "disallowance" in the innovation process but the phenomenon really exists in China. The inventors will draw back from the innovation process if their risk-return cannot be guaranteed because invention is a kind of adventure in nature. As the head of a State-owned enterprise (SOE), one will face great pressure, and even be removed, if the innovation he promoted failed while his return will be limited even if the attempt proved successful. The imbalance between risk and return on promoting innovation in SOEs disallows innovation attempts. Furthermore, the monopoly status of large-scale SOEs in the fields of oil, electricity, finance and telecommunication has become the biggest hurdle to innovation. On the one hand, with easy and high monopoly profit, SOEs will have no motivation to engage in high-stakes innovation. On the other hand, monopoly means unfair competitiveness, which will further press the living space of the medium- and small-sized private enterprises with innovative energy.

Therefore, China still has a long way to go in the process of independent innovation. It is time to review how to improve the systemic environment for innovation. Through deepening economic and political reform, the authorities can gradually diminish rent-seeking opportunities of enterprises, strictly implement the IP law, break monopoly in certain industries and encourage competition and clear away institutional barriers to independent innovation.

The author is deputy dean of Lujiazui International Finance Research Center (Shanghai), China Europe International Business School. The story first appeared in China Business News.

(China Daily 10/09/2009 page8)