4
Innovative Information Economy
By 2000, the information technology sector represented around 33 per cent of the industrial output in Beijing, making it the largest industrial sector in the capital (Dai 2002). At the same time, China's output of information technology manufactures was growing at twice the speed of the rest of the economy, a growth rate that was itself high compared with the rest of the world. Young expatriates returning from the United States or Europe were responsible for setting up most of China's new high-tech companies (Meng and Li 2001). Investment from electronics enterprises in Taiwan, Japan and the United States was helping China make a good transition towards large-scale ICT exports. State ownership in the electronics sector had already been reduced to around 50 per cent (from 100 per cent twenty years previously). Against this background of success, Chinese leaders were by 2000 already very confident that within a decade or two the country would be a world power in the ICT sector in terms of manufacturing goods and providing related services. The leaders were less confident that they would be able to leverage the gains in manufacturing information technology products based on foreign inputs to help create an innovative information economy and society. They knew then that informatization of all sectors in a large developing country like China, with its political history and system, and at its stage of economic development, was going to take a long time. They set a horizon of 2050, a schedule that was neither that firm nor scientifically determined but rather intended to convey a long time in the future. There would be at least another five leadership generations in the Communist Party and government before then.
The new innovative economy ambition represented a quantum leap for China away from a policy setting of gradual economic reform carefully controlled by the government inside strictly managed borders. The new setting was one of fast-paced change, driven by industry and competitive trends outside China and by private capital, in which China's economy had to be fully internationalized and more heavily privatized. The leaders felt they had no choice. This was the character of the global economy in which China would rise or fall. They had to adapt or else fall behind (Jiang 2010; Qu 2010).
This chapter provides an overview of China's leadership values for an innovative information economy from the year 2000 onwards, that is, the second set of ideal values outlined in table 1.2. The chapter sketches how the leaders navigated this commitment at a policy level against their certain knowledge of the dilemmas they faced and the demands of the task. The first section looks at the leaders’ commitment to the goal of transformation through innovation in informatization (information science, IT and information services). The second section traces the evolution of the leaders’ approach to using informatization as a foundation of innovation. The third section looks at their commitment to developing the country's human resources, the creation of a class of information innovators on the one hand and, on the other, of the social environment in which information innovation is rewarded.
To help make informatization a high national priority in 2000, the CCP leaders commissioned the World Bank to offer its advice. The response painted a grim picture: ‘China's R&D effort is only 0.7% of GDP, which is low by international standards, and is barely 1% of global R&D. Its output in terms of international patenting is negligible.’ It warned that China need to shift from its factor-based strategy (understood as industrial and agricultural production) to an information strategy based on knowledge production (World Bank 2000). A follow-on World Bank report one year later, negotiated between Chinese specialists and the Bank, offers some insight into how the Chinese leaders were framing their decisions (World Bank 2001). Its assessment was that the information revolution was exacerbating the country's other challenges in economic catch-up. The Bank advised that China would need to:
The response from government was that informatization would be the ‘key to our country's optimal industrialisation’ (Qu 2010). The 10th Five-Year Plan (2001–5) was the first to include informatization as a strategic priority (one of sixteen such priorities). It set the following goals:
There is a visible mismatch between, on the one hand, the expansive and transformative political character of the goals suggested in the 2001 World Bank report and, on the other, the priorities of the informatization strategy in the 2001–5 Plan. Thus, at the outset, the goal of transformation of the country into an information society took on a more technocratic bias that focused more on physical measures (manufacturing output, network development and throughput of students). In the balance between connectivity and content it was the former that was clear favourite. Some might argue that this was forced on the leaders by the realities of China and that the leaders acted wisely to sequence the technological development ahead of the social innovations that would eventually be necessary.
Throughout 2000, China undertook a number of other measures to kick-start the transformation, especially the reform of laws for venture capital, partial privatization of state-owned telecommunications utilities, introduction of domestic competition in telecommunications, and hosting of the first International Forum on City Informatization in the Asia Pacific. The breakthroughs in policy in 2000 owed a lot to the decision by China in 1999 to finalize negotiations with the United States on terms that would allow China to join the WTO (to which it acceded in 2001). But the consequential positive impacts of the WTO decision that benefited the information society ambition were not necessarily all intended (Mueller and Lovelock 2000).
Of special significance for the time is that China did not have a large corpus of people qualified in information technology. The count of students enrolled at tertiary level with information technology as a main subject or specialization numbered only in the thousands (in a population of one billion). By 2005, after years of expansion, the number was still just under 10,000. This meant that, at the outset, the revolutionary move to an ICT-based innovative economy was being driven by technology that was heavily dependent on foreigners, mostly Americans or American-owned companies, and paid for in US dollars at or near US prices.
Over the next several years, further policies complementary to the industrial transformation vision were introduced. One of the most important was the 2002 approval by the State Council of a suite of policies for setting up viable domestic industries in IT software and integrated circuits. The same year, the Ministry of Education published guidelines on popularizing IT education. The China Software Association (CSA) admitted Microsoft as its first foreign member. Also in 2002, as a further indicator of quite radical change, China Telecom was broken into two regional groups and it listed four regional networks on the stock exchanges in Hong Kong and New York.
In 2004, the leaders made something of a corrective to their technocratic and industry-based approach to the information society when the Central Committee of the CCP issued Several Opinions on Strengthening the Exploitation and Development of Information Resources, which subsequently came to be seen as the ‘first important document in this field’ (Qu 2010). It advocated that development of information resources should be led by market forces and be focused on specific applications (Zhi and Gao 2008).
The breakthroughs now began to be felt with much greater effect in the turnkey area of investment and economic liberalization. In respect of the latter, for example, by 2004, all provincial branches of China Mobile had been listed on capital markets inside China in a further partial privatization: ‘more telecommunication services to more consumers…faster than any other time in history’ (Zheng and Ward 2011). The private sector was forging ahead, with China's Lenovo acquiring IBM's personal computer business that year, thus marking one of the greatest milestones in China's informatization history.
E-commerce was the area with most success in these years. This was because it was least dependent on the government and was driven largely by foreign firms outside China and by foreign-invested firms in the country. In 2003, the Alibaba group (which had been doing business-to-business e-commerce since 1999) set up its eBay lookalike Taobao. From 2003 to 2005, the National Development and Reform Commission invested around RMB100 million (a tiny fraction of the net value of the trade) in 181 e-commerce projects to stimulate expansion (Qu 2010).
The financial services sector was one of the highlights of leadership success in informatization in the early part of the decade. In 2000, a number of agencies, led by the Ministry of Science and Technology and the PBoC, set up an intensive research project devised to create from the ground up a functioning world-class information and communications architecture for financial services. The project was needed because of the lack of concentration of the required skills inside the country. The project mobilized 2,000 elite specialists who developed 180 pilot projects and devised thirty standards (Qu 2010). The goals were to interconnect isolated systems, to set up a credit certification and security system, and to provide linked customer services for payment. By 2005, the PBoC and eight ministries and commissions released a Notice on Promoting the Bank Card Industry (Qu 2010). Internet banking with individual banks had begun in 1997 and was already widespread (Laforet 2009). Data centralization for banks began in 2001, and in 2004 the SILG pushed for emergency back-up data systems for banks, while a number of leading institutions set up such systems throughout 2005. The advent of these systems allowed for much better monitoring by the central government of the macro-economy.
In the politically sensitive sector of agriculture, the bulk of the government informatization effort to 2005 was in developing basic online information services for farmers and extending the telephone network to all villages. Even though a formal commitment to informatization of the sector had existed since 1994, little had been done beyond building a database or the commissioning of scientific research, and there was not even an agreed strategy in place (Liu 2012). In 2000, only 0.5 per cent of rural households had a computer and the majority of farmers had not been educated beyond middle school (Wang et al. 2009). In 2001, when Sichuan province (China's breadbasket) addressed informatization, it focused on telephone connections, fibre optic cable connections and an information service. For this service, the provincial authorities nominated the weather agency to develop the Rural Economic Information Network, something of a mismatch between need and capability (Liu 2012). At the national level, an online supply-and-demand reporting system for agricultural production was launched in 2002, and an integrated broadcasting system for information sharing on the national agriculture website was initiated (Qu 2010). In 2003, Guangdong province set up a special programme to bring computers to fifty-one of its more mountainous counties (Qiang et al. 2009). Food traceability in rural areas (for public health threats like mad cow disease) was launched in pilot mode in 2003 (Wang et al. 2009). A number of education and social initiatives for rural communities, such as distance learning and library services, were made available at around this time. The government's biggest push was to get connectivity and computers into the countryside. Chinese sources say that they can find no official policy document with the term ‘agricultural informatization’ in it before 2006 (Liu 2012). The focus was on social aspects of the rural areas rather than the improvement of agriculture as an economic sector.
The situation and the outcomes in the manufacturing sector were very different. The main evolution that occurred in these years was the transition from computer-assisted processes and machines used in the manufacturing process (in place for a decade or more) to the take-up of advanced automation processes for management. One of the path-breakers was Baosteel, the country's largest steel manufacturer, which in 2000 took its pre-existing information systems for production and marketing and incorporated them into an enterprise-wide network that also included equipment management, office automation and databases (Qu 2010). Even so, the penetration rate for office automation in the manufacturing sector by 2005 was only 20 per cent of enterprises, though 70 per cent were using automated systems for facilities management.
By the middle of the decade, in the light of this patchy record of progress towards an information society, the leaders were ready to expand their vision of transformation through information innovation. They commissioned the drafting of the NIP 2006–20. In developing this strategy (which was drafted through the course of 2005) the leaders turned again to the World Bank, whose specialists participated in drafting the Chinese policy. A summary of the main policy lines for that NIP's fifteen-year strategy can be found in table 1.1. For the sake of comparing it with the policy priorities of five years earlier, the following points can be observed. In the new plan, there was a stronger sense of the transformative power of informatization. It could increase the ability of the authorities to ‘rule and govern’. There would need to be a push forward on the ‘construction of a system of laws relevant to informatisation’. Micro-administrative reforms in information policy were made both possible and desirable. Market forces had to be allowed into play. ‘All of society’ would ‘develop and utilize information resources’. There was a new emphasis on ‘constructing an information security safeguard system’. Thus by the time of release of the first fifteen-year informatization plan, the Chinese government was much more in step with the World Bank advice of five years earlier. In fact, it was this plan – only released in summary form to the world in 2006 – which marked a more comprehensive commitment by the leaders to the goal of transformation implied by the concept of an information society.
The 11th Five-Year Plan, put in place in 2006, placed considerable emphasis on speeding up the development of the internet, especially through building a next-generation internet protocol (IPv6); the integration of the networks of telecommunication, radio, television and the internet; and accelerating its commercial application. The breakthroughs in China's position in manufacturing and design began to gather pace. The leaders’ commitment to transformation of the entire society by informatization was now more firmly in place, and this was buttressed by other processes of technological diffusion (such as the private sector market).
The formal establishment of the MIIT in 2008 has also proven to be an important landmark in leaders’ efforts to achieve a more transformative effect from informatization policy. Yet even after the reform, it had most influence in promoting ICT industry development, not in fostering the bigger goal of an information economy that would see wealth accumulate around knowledge production and use.
In the second half of the decade, the technological and manufacturing breakthroughs continued to accumulate. For example, in 2009, China began to issue third-generation (3G) licences to mobile service suppliers for the first time and one of China's supercomputers became the fastest in the world (for a short while before losing the title back to Japan). But the leaders now began to turn their attention to hitherto quite neglected areas of informatization policy, especially the need for exploitation of information resources in sectors such as agriculture and education for social and economic benefit. This interest at government level was boosted (and facilitated) by the market-driven processes of diffusion of information and its associated technologies (such as continuing steep growth in the number of internet users and the introduction of new private sector online services). We can take these two sectors (agriculture and education) as test cases of the leaders’ commitment after 2005 to transformation.
In agriculture, the NIP 2005–20 included provisions for improved network access for farmers, integration of agricultural information resources, and standardization of information services (market, science and technology, education and health care). It also provided measures for managing the flow of surplus rural labour. But the first big push came in 2007 when the Ministry of Agriculture put forward a more detailed policy, the Overall Framework for National Agriculture and Rural Informatization Construction, 2007–15. Its goals were to accelerate agricultural and rural information infrastructure; to integrate rural public services, to improve social management (internal security); and gradually to complete a sustainable development mechanism for agricultural and rural informatization (Qiang et al. 2009).
The results, however, have been disappointing. In quantitative terms, this is reflected in the rate of internet penetration (regular users as a percentage of the population) in rural areas reaching only 27 per cent by the end of 2012 (CNNIC 2013). By 2010, only 14 per cent of primary schools in rural areas had a local area network and an internet connection, compared with 64 per cent in urban areas (Zeng et al. 2012). The government was simply not spending enough money on school informatization in rural areas (37 per cent of the comparable per capita spend in urban areas). One study published in 2010 made a fairly critical evaluation of government efforts in rural informatization, describing it as ‘disconnected, and sometimes sporadic’ (Xia 2010).
In education, informatization fared somewhat better after 2005 than before, though it too has been something of a late starter (surprisingly). The National Education Informatization Plan (2011–20) was only launched several years into the overall national plan, and was even released in 2012, a year later than its announced start date. Even though a Leading Group had been set up in the Ministry of Education in 2002 to develop a general plan for overall education informatization, the main practical output was a policy on automation of management systems. It would be several years later that the policy objective really took hold. One reason was that the associated internal resources were being dedicated to a speeding up of distance learning after 2004. Yet the Organization Department of the Central Committee of the CCP had also launched its own pilot schemes on distance education in rural areas one year earlier. In 2007, the Organization Department issued an instruction on distance education of rural cadres – indicating a policy preference (or at least a competing priority) for informatizing Party rule ahead of people's education.
Thus, in practice, the two sectors (agriculture and education) demonstrate at best a mid-level commitment by the leaders after 2000 to transformation of the economy through informatization.
In May 2012, the State Council identified the ‘construction of informatisation’ as one of several areas that needed the highest attention in the interests of economic development. Within this sphere of policy, areas singled out for action included upgrading the broadband network; speeding up development of the next-generation internet; promoting the integration of telecom, internet and television networks; and raising the informatization level in enterprises, social sectors, e-government and rural areas (Xinhua 10/05/2012). In a speech by the retiring general secretary of the Communist Party, Hu Jintao, to the 18th Party Congress in November 2012, the leadership reaffirmed their desire to quicken the pace.
In this environment, the MIIT announced on 24 October 2013 a new national informatization plan to concentrate on delivering its effects in more rapid industrialization of the country. It echoed earlier strategies, since its plan was to enforce them. Guidance from MIIT two months earlier, in August 2013, had singled out these priorities:
China's intent on transformation is very high by international standards. The 2013 WEF NRI ranks China 22nd (out of 142 countries and territories) for the importance of ICT to the government's vision of the future, well ahead of other major industrial economies, including the United States at 44th (WEF and INSEAD 2013). No G8 country was ahead of China in this measure. (The same year, China was ranked much lower, at 58th, in terms of the overall NRI discussed in chapter 1.) There have been few areas of human social activity in China untouched by the informatization goal: it has affected government, business, technology, industry, education, trade, financial services, health services, professional services, diplomacy and military affairs. Each of these sectors has played a role in bottom-up and horizontal processes as well as being subject to the opportunities provided by top-down, government-led policy settings. At a popularizing level, typical of a Chinese Communist campaign, competitions exist at many levels: the top fifty informatized cities, launched in 2010 by the China Communications Industry Association; the One Hundred Outstanding Leaders award for the promotion of China's informatization, inaugurated by the China Information Industry Association; and cyber warfare competitions in PLA universities. There has definitely been a spirit of mobilization around the goal of informatization in all of its aspects.
The main test of transformation through informatization will, however, be the quality of information resources that are translated into information services. China 2030, a joint report with the World Bank, reflects the Chinese government's vision for a ‘modern, harmonious, and creative high-income society’ (World Bank and DRC 2012). It identified the quality of information resources as an important area of reform: ‘Improved information and greater fiscal transparency at all levels of government would bring many benefits. These include greater efficiency, reduced corruption, and improved creditworthiness.’ The report saw lack of adequate information about the job market as one of the reasons why tens of millions of farm families are ‘trapped…in low-paying, low-productivity work’. It also reported ‘informational friction’ and lack of appropriate rules on information disclosure as serious obstacles to investment. It observed that China's fiscal relations between the central government and the provinces were not well documented, and that when they were audited the main objective of the auditors was to detect malfeasance rather than to analyse the effectiveness of the spending (through a performance audit).
What value did China's leaders give to informatization policy in their attempts to develop a national innovation system after the turn of the century?
As mentioned in chapter 2, some of the more significant changes in innovation policy undertaken by China only occurred in the decade before 2000, or even just one or two years before. The KIP initiative, piloted in 1998, showed very well the leaders’ appreciation of a concept of innovation needed for the information society. It had to be one that advanced the basic sciences of information technology and communications, while exploiting existing information technologies to solve high-priority scientific challenges in other fields.
By the year 2000, China had started to race in its pursuit of industrial and scientific innovation, as numerous indicators revealed. R&D expenditure by large firms and the government had already taken an upward turn. China was second only to the United States and in front of Japan in number of S&T researchers; and more than forty foreign R&D labs had been established in China, most of them in the ICT sector (Fuller 2008; Hu 2008; Xue and Liang 2008). And China had committed itself to a sharp increase in research in nanotechnology, following a US lead, which meant that China would soon surpass all countries but the United States in spending in that field. Yet there was no well-developed concept of how informatization might be harnessed to the goal of innovation beyond dissemination of the technology in imitation of patterns seen in the West (Qu 2010). There had been little attention paid in China's R&D efforts to the linkages between informatization and enhanced development (innovation) of various industry and social sectors.
At this time, there were four clear locomotives of more advanced R&D for ICT inside China: the CAS, the laboratories of foreign firms, the emergence of venture capital, and the strengthening of IPR regimes.
First, as far as the CAS was concerned, although it represented only about 10 per cent of the S&T research body in total, the leaders assigned it the leading role in pushing through informatization of S&T research and R&D. The CAS (along with other government research institutes) rather than the universities received the overwhelming share of government R&D funding in the first half of the decade.
By the end of 2005, when the first phase of the KIP was concluded, there was a sharper appreciation of where information technology sat in the CAS priorities. It was one of four sectors of national strategic significance. The other three were outer space, advanced energy and nanotechnology. This set of priorities sat alongside another set of five in sustainable development: human health/medicine, industrial biotechnology, advanced sustainable agriculture, eco-environmental studies and marine science/resources (Suttmeier and Shi 2008).
Second, the laboratories or other R&D units of foreign firms were increasingly prominent players in China's ICT innovation after 2000. One Chinese-authored survey, which started in 2004 but was unable to find official data on the subject, concluded that there were 335 such R&D centres in all sectors in the middle of the decade, of which about 22 per cent were in the ICT sector (Xue and Liang 2008). By 2005, according to information collected over several years, foreign-invested R&D units in ICT were probably employing some 20,000 research staff in China (Fuller 2008). There was a mix of orientations for these R&D units, on a spectrum ranging from an exclusively China-based operational strategy (selling into China) to an exclusively international orientation (production for export).
The positive results of these activities for China's informatization strategy are reflected in a very rough way by the increase in numbers of patents granted. By the end of 2004, the number of utility patents granted by the United States Patent Treaty Office (USPTO) to foreign-invested firms in ICT in China had reached 606 (averaging 200 per year from 2002 to 2004, compared with only 9 in the year 1997). Of some note is that more than half had been granted to Hon Hai, and some 16 per cent to Inventec, both ‘hybrid firms’ with mixed Taiwanese and domestic investment (Fuller 2008). It is also worth noting that China was not remotely prominent by 2005 either in its share of Microsoft's utility patents granted in the United States (0.001 per cent) or in its share of the global number of utility patents granted in the United States (0.04 per cent) (Fuller 2008). The former statistic shows that the Microsoft R&D effort in China was not at the time outward oriented, while the latter statistic shows that by 2005 China's overall R&D effort was not penetrating internationally.
The situation with R&D among foreign-owned firms or foreign-invested firms operating in China contrasted strongly with the situation of domestically owned firms. While large absolute amounts were being spent by domestic firms on R&D, and the growth rate of that spending was higher than for government spending in that area, the share spent by private firms on R&D relationships with universities or government research institutes was actually shrinking, a point of concern at the time because that relationship was seen as vital to expanding China's R&D capability (Orcutt and Shen 2010).
Third, by 2005 venture capital was still in its infancy in China but was clearly having an impact. In interim regulations in 2001, and then with a revision and formula promulgation in 2003, China set in place a new legal regime for foreign venture capital. By 2005, according to data collected by Orcutt and Shen (2010) that they admit may not be complete, the investments by venture capital had increased by a factor of eight compared with 1999 to US$2 billion in 2005, for a cumulative total from 2000 to 2005 of US$8 bn.
Fourth, China took strenuous measures to strengthen its IPR regime. Action in this area of policy was robust and effective, and geared very heavily to international standards. By 2000, the country had joined most of the major international organizations and treaties governing IPR. In 2001 it made major revisions to several laws; its formal accession to WTO that year imposed new obligations on it to protect IPR. By 2005, China was operating a moderately effective system of patent protection that had a significant bearing on S&T development. That system was adversely affected by the institutional and social environment (political control of the courts, corruption, and weak investigative capability) but overall the legal regime was sound and prosecutions or civil disputes over IPR were common.
But by 2005, looking at these four drivers of innovation, the leaders were not happy. They concluded that the balance between foreign innovation in China and domestic innovation was inappropriate. They decided that indigenous innovation would be elevated to the same status to which Deng had raised the reform and opening-up policy in 1978. This decision worked itself into a number of policy documents connected with the 11th Five-Year Plan, especially the Medium and Long-Term Development Plan for Science and Technology 2006–20 (MLP). The MLP identified three lines of remedial action with a typically Chinese propaganda twist emphasizing the nationalist impulse: ‘original innovation’, ‘integrated innovation’ (fusing existing technologies in new ways) and ‘re-innovation’ (some transformation of imported technologies) (National Research Council 2012). Many components of the fifteen-year plan were related to advanced information technology, including ‘mega-engineering programs’ to be focused on core electronic components, high-end generic chips, basic software, extra-large-scale integrated circuit manufacturing and techniques, and new-generation broadband wireless mobile telecommunications. The turn in innovation policy flowed through to informatization policy more broadly, with the SILG in 2006 adding a technology committee for the first time. It was in 2006 that the SILG approved the NIP 2006–20, which included important measures to promote R&D and innovation.
The MLP, however, had several weaknesses. A number of foreign governments and firms believed that the emphasis on indigenous innovation, and its resultant regulations, would breach China's commitments under the WTO. One study faulted it on two points (Serger and Breidne 2007). First, by highlighting the tension between domestic and foreign-funded innovation, the government was ignoring the need to maximize and publicize the beneficial spill-over effects of foreign-funded activity. Innovation, the authors said, went beyond what Chinese companies could make that was new, and involved the ability of companies, consumers and institutions to ‘receive, absorb, and internalize knowledge as well as new ideas, products, and processes’ regardless of their origin. Second, the government should complement its attention to natural sciences and technology-driven innovation with equal concentration on ‘markets and consumers, organisational and process innovation, social capital, and (particularly) trust and institution-building’.
The government's broader vision for informatization came under equally strong criticism at the time, even from Chinese. An independent commentator included among China's weaknesses in the ICT sector the following factors that had at least as much to do with social and legal settings as with innovation policy more narrowly defined:
Key findings and recommendations from the 2007 World Bank study (Qiang 2007) were a little more strident:
So, by the second half of the decade, it seemed that in spite of China's undoubted advances – including a doubling of financial support since 2003 for R&D, and the fact that SIPO invention patents granted to domestic firms had passed those of foreign firms for the first time in 2004 – the leaders wanted more and they were prepared to do more. The mood in 2007 was summarized by Liu Yandong, the state councillor responsible for S&T: ‘The majority of the market is controlled by foreign companies, most core technology relies on imports, the situation is extremely grave as we are further pressured by developed countries who use blockades and technology controls – if we are not able to solve these problems we will forever be under the control of others.’ In a 2008 article, the former general secretary of the CCP and former minister of the MEI, Jiang Zemin, was critical of ‘lack of nerve and knowledge to innovate’ and a ‘lack of confidence’ in China's ability to compete with and overtake the most developed countries (Jiang 2010).
In spite of the criticisms at home and abroad, one fundamental and far-reaching achievement of the MLP and subsidiary documents was recognition that the national innovation strategy had to be enterprise-led, not government-led, and that it had to be based on a new and intense relationship between industry and the research institutes and universities (Etzkowitz et al. 2007). This policy shift to recognizing enterprise leadership of innovation was reflected in the following years in significantly increased flows of funding from the private sector, including venture capital, to R&D in China. Yet the policy signal did not bring about a shift in the share of private sector expenditure on R&D going to universities, and the government had to increase its share (data in Orcutt and Shen 2010). The value of private sector funding for its own enterprise-based R&D more than doubled. Private sector R&D may have been significantly higher, but one major source of innovation (the universities) was not benefiting from that.
In economic policy, the government continued to apply tax incentives to foster innovation, while in science policy, the CAS continued to deepen institutional reform. In 2008, the CAS set up the General Group for Advancing e-Science Applications. Its functions were to link the CNNIC and institutes, to provide e-science advisory services, to help design e-science applications and to implement them. It was also intended to promote ‘e-Science ideology’ and international and domestic exchange in IT sciences. The intellectual property office, SIPO, released a strategy document through the State Council that was part IPR protection and part S&T target setting (SIPO 2008). It said that by 2020, ‘China will become a country with a comparatively high level in terms of the creation, utilisation, protection and administration of IPRs.’ It pushed the enterprise-led concept of a national innovation strategy: ‘market entities are much better at the creation, utilization, protection and administration of IPRs’. It aimed to ensure that the ‘quality and quantity of the self-reliant intellectual property are able to effectively support the effort to make China an innovative country’. The strategy set goals for the coming five years. China would ‘rank among the advanced countries of the world in terms of the annual number of patents for inventions granted to the domestic applicants, while the number of overseas patent applications filed by Chinese applicants should greatly increase’.
A very big boost from the leadership came with a decision for stimulus spending in response to the global financial crisis of 2008. This included US$25 billion for indigenous innovation over several years, with about one sixth of the money flowing immediately for the first phase of work on three ‘megaprojects’ designated in the MLP: core electronic devices, semi-conductors and wireless broadband. The rest of the money was also used in short order to launch another five megaprojects (McGregor 2010). Throughout 2008 and 2009, China again revised its patent law and associated regulations, bringing them more tightly into line with international standards.
By 2009, the negative policy impacts of the emphasis on indigenous innovation were being felt. The establishment of preferential policies in government procurement for indigenous innovation was being increasingly criticized as a breach of China's WTO commitments (USCBC 2009). The government guidelines identified six industry categories, of which four were in information technology, and which would be subject to a certification process to receive the label of ‘indigenous innovation’. Some thirty-four trade associations from the United States, Japan, Korea, Canada and Europe made a joint appeal to the Chinese government to delay implementation of the policies to allow for consultation on more transparent and competitive arrangements. The US government also raised the issue directly with the Chinese government.
But 2009 was to become a landmark year for S&T innovation policy, and for informatization policy in particular. The CAS published a mobilizing strategy document, Technological Revolution and China's Future: Innovation 2050, which was to serve as an overarching strategy at the same time as marking the launch of a series of subsequent sector-based reports also looking ahead to 2050. The report, which had involved some 300 CAS researchers and experts for more than a year, recommended that China prepare itself for a new revolution in S&T in the coming ten to twenty years in green energy, artificial intelligence, sustainable development, information networking systems, environmental preservation, space and ocean systems, and, most interestingly, national security and public security systems (CAS 2009). Work on seventeen ‘roadmap reports’ for 2050, including the one on information technology mentioned in chapter 1 (Li Guojie 2011), was launched at the same time.
The leaders launched yet another initiative intended to promote indigenous innovation further in 2010 under the rubric of strategic emerging industries – singling out high-tech strategic sectors such as information, biotechnology, medical, new energy, environment, marine and space. These sectors lined up more or less with the frontier technologies identified in the MLP and the 12th Five-Year Pan (2011–15), but next-generation information technology was one of just several high-priority industries (World Bank and DRC 2012).
At around that time, leading Chinese and foreign specialists were judging that the country remained an imitator of technical innovation, including in information technology, and had not provided the enabling environment to start to approach the pace of innovation in key competitor countries. This assessment is starkly visibly in the CAS Roadmap to 2050 (Li Guojie 2011) on information technology. This report was written by Chinese researchers, specialists and officials from a wide range of stakeholder organizations. As a result, this informatization plan was probably the most comprehensive and authoritative of its kind in the world. Such a comprehensive plan for the development of information science and technology actually served to highlight the lack of attention in previous years to an overarching concept of just how China would join up all of the pieces of S&T policy to become an innovative information economy. In 2010, the ACSI had begun to promote such an overarching understanding more aggressively by launching a series of ‘blue books’ (annual academic research compendiums) on China's progress towards informatization. In 2011, the CAS joined in this effort with its own blue book, the first monograph on the state of informatization specifically for R&D in China.
Yet in spite of the leaders’ best intentions and some notable successes, the time-frame for the transformation remained protracted. A 2012 study by Chinese authors of the patents being granted by SIPO in the ICT sector showed that from 2001 to 2011 foreign corporations were still prominent. It cited data from 2010, showing that eight of the top ten owners of SIPO-granted patents that year were foreign companies. The one consolation was that Huawei and ZTE were the top two in the list (Huang et al. 2012). There were many other studies with similar laments about the state of innovation in China in 2012. A study of informatization in China's Shandong province concluded that while informatization had played a positive role in economic growth, the role of capital and labour was more prominent (Fu and Yan 2012).
There was no shortage of policy recommendations coming from academia and elsewhere on how to boost innovation. The most important step needed was for industry to take a leading position in invention patents in China, an area that was still dominated by the universities, operating independently of industry in the R&D stage (Huang et al. 2012). Other recommendations in this short study included the need for more internationally competitive collaboration by industry, for more investment, and for more foreign R&D centres to be set up in the country.
In a speech on 6 July 2012, China's president, Hu Jintao, called for a step change in China's innovation strategy. The leadership wanted more emphasis on high-quality education, on creating social incentives for creativity, and on deepening the mix of foreign creative enterprise inside China. The national media reported the speech and associated two-day conference as laying out a strategy to build China's ‘scientific power’. Overall, the coordinated message was that in spite of its impressive gains, China was failing to keep up in industrial and scientific innovation. Its education system was not producing enough people to meet the demand and too many of China's most talented people were leaving the country.
The China 2030 report (World Bank and DRC 2012), a jointly developed strategic concept, proposed innovation as one of six pillars of China's future economic strategy. The report advocated the following measures, which expose some of the challenges in the process of implementing the MLP. It called for:
The China 2030 report saw the private sector as a critical factor since ‘innovation at the technology frontier is quite different in nature from simply catching up technologically’.
That said, if China wants to have caught up technologically with the most advanced countries in two or three decades, it must make additional tough policy decisions. China 2030 identified the following critical policy factors: effective competition, the composition of the business sector and its strategic orientation; agile policymaking and robust regulation; skill development; R&D; national and international networking to promote innovation; and the nurturing of innovation. The simple formulation here should not distract from the overall thrust of the report, which foreshadowed the need for further significant political and social reform in China if these factors were to be put in place.
In the sixty-point reform agenda adopted by the Communist Party in November 2013 (Central Committee 2013), innovation was a particularly prominent theme, especially at point 13, ‘Deepen science and technology reform.’ The agenda for change in innovation policy was a long one that revealed not only leadership assessments of the current situation but also the strength of their commitment to areas of policy on which they were prepared to stake their reputation:
By 2000, on one reading of the statistics, China was already producing larger numbers of professionals in most areas of science and technology than any other country except India. Yet, in terms of meeting the needs of such a large country, the education situation was still grim. China was spending around 2.5 per cent of GDP on education, a lower share than other major countries (Japan 3.6 per cent, the United States 5.2 per cent). In that year, China had only 2,206,000 students in regular higher education (three-year university and three-year specialized college courses) (Yang 2005). The participation rate in tertiary education of 11 per cent was one of the lowest for any major country. China recruited only 2,100 new PhD candidates (doctoral students) that year across all disciplines (Zha and Li 2011), of whom only twenty or thirty would have been in information technology. A World Bank analysis conducted at that time predicted that, on current trends, China would catch up to India only by 2015 in terms of gross enrolment ratio for tertiary education (World Bank 2001).
China's response was a radical one. It undertook one of the biggest expansions of tertiary education any country had seen for a long time, and this was particularly evident in information technology, with a raft of initiatives beginning in 2001. One of the most ambitious that year was the setting up of thirty-five pilot software colleges of national significance, a move described in China as a ‘revolutionary attempt to achieve a great leap forward’ for the software industry (Qu 2010). In 2002, a pilot was set up at Beijing University. The numbers were still small, though: about 300 graduates per year on average for the thirty-five colleges by 2006. Beginning in 2001, the Ministry of Education also began issuing approvals for universities and colleges to teach information security (forty-nine approvals) as well as electronic warfare technology and cryptography (eleven approvals).
In 2002, the CCP and State Council approved a three-year plan for talent development in science and technology. Beijing University established a College of Information Science and Technology, based on four existing departments. It also set up an off-campus School of Software and Micro-Electronics for working adults (Hayhoe and Zha 2011). One year later, the leaders convened an unprecedented joint conference between the CCP and the State Council to address talent development, with Hu Jintao noting that heightened international competition could be seen as a competition for human resources (Simon and Cao 2009).
In 2003, the CCP leadership set up a working group to develop talent, emphasizing that it, the Communist Party, not the State Council, had the lead role in this vitally important area of nation-building. By 2003, contrary to the World Bank estimate of just two years earlier, China had surpassed India in its gross enrolment ration for tertiary education (Qiang 2007). It was in 2003, in its China Science and Technology Indicators 2002, that China applied for the first time an internationally recognized system for evaluating the development of its S&T talent pool (Simon and Cao 2009).
The situation with information-related education was, however, a clear exception, both in growing faster than the general expansion and in job opportunities. In 2003 and 2004, for example, among the top fifty-six categories of bachelor-level courses, computer software was the single most favoured specialization by a long shot. It was admitting, teaching and graduating more students in those two years than any other of the specializations. Of some note is that its closest competitor was English language, itself an enabler of the technology transfer that the Chinese leaders were looking for. Moreover within the fifty-six specializations, there were seven others that directly related to informatization, such as computer science, information systems and information engineering. Added together, the ICT sector was accounting for a staggering 20 per cent of all graduates in 2004 (see tables in Simon and Cao 2009). Within the engineering discipline, the single category of electrical and information engineering accounted for 50 per cent of students. The students were making a judgement about future career prospects.
Even so, the statistics most often used were not really compatible with those used in other countries. Gereffi et al. (2006) cited a McKinsey Institute country comparison of engineering graduates capable of competing in the global workforce. It found that the United States had produced three times as many as China in 2002–3 and 2003–4, but that China may have closed the gap marginally in the second of those years. It also noted that there was a mismatch between the high growth rate of graduates from technical schools and a decline in funding for such schools, and that this was suggestive of a deterioration in education quality.
The biggest policy turn probably took place around 2005 and 2006. In launching the MLP and its NIP 2006–20, both analysed earlier, the leaders made strong statements that the human capital needed to achieve the informatization ambition would be a major target of policy. They also made it clear that the brain drain of skilled workers out of China should be addressed as soon as possible. Even though the number of scientists and engineers involved in R&D more than doubled in the period 1999–2006 (from 531,000 to 1.222 million), this massive growth rate was only just keeping pace with that of the workforce.
In 2010, China released its first public survey of graduate education (commenced three years earlier). It showed clear successes. China had quadrupled the number of enrolments in PhD programmes across all disciplines compared with 1999, when the reforms started, and in the same period it had doubled the number of regular higher education institutions. International higher education opportunities had increased, with a doubling of Chinese students in the United States compared with 2000, and massively higher growth rates from a low base of Chinese student numbers in Germany, France, the UK, Japan, Korea, Australia and New Zealand. The bulk of the expansion was from privately funded students. Japan had become a close competitor of the United States in overall numbers of new tertiary students from China each year (data in Li Haizheng 2011).
According to a representative of the Higher Education Evaluation Centre in Beijing, the tertiary education scene at that time was characterized by a long list of political and policy challenges: global multi-polarity, globalization, the revolution in science and technology, informatization, internationalization of education, intensified competition for talented professionals, ‘increasing pressure from China's vast population, limited natural resources, deteriorating environment, and transformation of economic growth pattern’, an incapacity of the education system to produce enough qualified people, new demand for education and a relative shortage in education resources, a ‘conflict between the need to invigorate the education system and the institutional impediments to it’ and a ‘conflict between the expansion of education scale and its quality assurance and improvement’ (Ji 2011). While some of these may be familiar elsewhere in the world, one essential limitation in China was that the solution was being addressed almost entirely by the government.
The education reforms did not address advanced information technologies as directly as they might have. Unfortunately, as mentioned earlier, it took China until 2010 to release a long-term vision of this. It then published an Outline of China's National Plan for Medium and Long-Term Education Reform and Development (2010–20). While this covered the entire spectrum from primary to tertiary, including advanced research, it provided an insight into official assessments of the quality of the education system, including science in general and informatization in particular. It set the strategic goals of rejuvenating the country through science and education, making the nation strong by relying on talents and professionals, running education to the satisfaction of the people, and building a rich resource of human talent. Even here, though, innovation remained only one of several guiding principles to be addressed, alongside national development, personal development, promoting equitable access across the country and improving quality. The education plan called for the national informatization strategy to include a section dedicated just to education. It recommended the popularization of computer terminals, the accelerated building of e-campuses, and a broadening of accesses to the internet, especially in rural schools. It called for the upgrading of CERNET and the China Education Satellite Broad Band Transmission Net, advocated standardization of basic benchmarks for education informatization, and proposed the establishment by 2020 of a nationwide online educational service network so as to promote modernization of teaching contents and methods. One inevitable implication of the education plan was that the system of education would remain standardized at the national level. At the tertiary level, the plan declared that ‘no effort shall be spared to produce high-calibre professionals and top-notch innovators’.
For higher education, the plan also called for an improvement in the quality of PhD education, for a near doubling of the gross enrolment ratio in tertiary education to 40 per cent by 2020, and for several universities to ‘come to the fore’ in world reputation by that date, with one or two attaining world-class stature (Ji 2011). Most importantly, the plan called for a retreat by government from the universities, and for the assignment of responsibility for quality assurance to be passed to the stakeholders. The implementing strategies for executing the plan were yet to be developed. Only thirteen provinces or municipalities (out of thirty-one) had evaluation centres; all but four had fewer than thirty staff, and six had fewer than ten staff. The government set up a trilateral mechanism (China–Japan–Korea) to try to improve China's quality assurance for higher education.
One year later, in 2011, the country issued a specific education informatization plan that declared that the policy and institutions needed for effective application of information assets to education were not in place yet. It said that the informatization of education in China was an ‘urgent and arduous task’. The goals included the building of a talent pool and innovative capacity that would allow the country to make its way in an environment of ‘increasingly fierce’ international competition. The plan also called for the promotion of public security needs, such as prevention of transfer of harmful material.
These developments were occurring at a time when Chinese higher education was in something of a crisis. Leading university appointments were controlled by political considerations and CCP committees inside the institutions. One tough assessment from a US source painted it in grim terms: ‘Chinese scientists and scientific managers admit serious problems of research creativity, fraud and dishonesty, weak accountability for research expenditures, troubled institutional arrangements for managing the nation's scientific efforts, and a serious undersupply of highly qualified scientists and engineers’ (Springut et al. 2011). It said that the education system was ‘more geared to test-taking than cultivating creative thinking’ that might enhance the innovation system.
Taking a broader view of the state of the innovation system in 2012, the China 2030 report noted that in ‘a ranking of 40 countries produced by the Chinese Academy of Science and Technology for Development (CASTED) China is in 21st place with a point score of 58 as against 100 for the U.S.’ (World Bank and DRC 2012). It suggested that ‘China's performance has improved since 2000, in knowledge creation (now in 33rd place – a five point improvement) and innovation performance has risen sharply to 9th place’. In other measures, such as efficiency, intensity and quality of research, ‘China still lags behind the frontrunners – the U.S., Switzerland, Japan and Korea – it is seeking to match’. Citing a second (foreign) ranking of countries by innovativeness, which included measures of human capital, investment in R&D, numbers of scientific articles, entrepreneurship, IT, economic policy and economic performance, China 2030 reported that China ranked 33rd but had shown the most impressive gains of any country between 1999 and 2009.
China 2030 mapped out the policy path needed to achieve the country's innovation objectives (increased effectiveness of its basic research and the development of high-tech industries), but it said that success in these would depend on ‘the availability of a vast range of technical skills for research, design, fabrication, production, information and communication technology (ICT) support, and eventually marketing’. While remarking that by 2030 China would be producing more college graduates than the entire workforce of the United States, and that the quality of university training was improving rapidly, the report admitted that the ‘quality of tertiary education more broadly is a matter of concern, and employers are experiencing a serious shortage of skills’. It proposed a number of measures to redress the problems:
In addition to the raw numbers of talented people who graduate from or work in research centres in universities inside China, there are a number of environmental factors that have a huge influence on the human foundations of China's information economy. These include the international mobility of skilled workers and the recruitment preferences and opportunities of China-based corporations and government agencies in R&D.
The last decade has seen a revolution in the mobility of highly skilled international labour in and out of China. That mobility has many sources. There are aspects of it that promote the information society ambition and some that detract from it quite significantly.
On the positive side, China has – as a matter of deliberate policy – promoted the transfer of technology and skill by foreign specialists working in or visiting foreign-owned subsidiaries in China. Yet this has had an unintended effect of decreasing the competitiveness of local firms and pushing them to lower-end manufacturing (Zhang and Tao 2012). Another shortcoming was that people working in the foreign enterprises were not really given wide opportunities to create intellectual capital that was transferable.
The market forces in China are not helping with advanced skills development. In early 2013, the salary of a professor in engineering was no more than that of an assembly line worker in some factories – less than US$300 per month (Bradsher 2013). There are opportunities for professors to earn more, but the scramble to do so is not conducive to optimizing research outputs. The poor salary picture has to be understood against the environment of increasing student numbers and deteriorating staff–student ratios.
One the biggest problems China has faced is the flow of highly qualified Chinese to work abroad, either as entrepreneurs or as employees, after 1989. On the scale of this brain drain, a joint China–World Bank report of 2007 cited data from 2002 showing that of 600,000 students sent abroad in the previous thirty years to study, only 26 per cent returned (Qiang 2007). Tung (2008) cites a return rate of around 30 per cent. According to US immigration statistics, some 700,000 Chinese were given green card (permanent resident) status from 2002 to 2011 (DHS 2012). On average, some 10 per cent of total new green-card holders in 2011 from all countries were skilled workers. Thus, an estimated 70,000 skilled workers from China were offered a pathway to immigration into the United States in that ten-year period. In 2007, the stay rate in the United States of students from China who had received their PhD degree from a US university in 2002 was around 90 per cent (Finn 2010). Chinese students have had the highest stay rate of any foreign country group in the United States since 1990/1, when it overtook that of Indian students – just two years after the Tiananmen crackdown. Also of note is that the sectors with the highest stay rates for China have been engineering, computer science and physical science.
In his March 2012 Work Report to the NPC, the premier, Wen Jiabao, appealed for a more attractive social environment for innovators. He said China urgently needed ‘high-level innovative and entrepreneurial personnel, talented young people’, who were in short supply. He invoked the need to ‘attract talented personnel from overseas’ and argued for the creation of mechanism for giving ‘incentives to talented personnel’ inside China. Above all, he called on the country to ‘create a favourable social environment for them to come to the fore in large numbers’. Yet the leaders are not winning the argument. A 2013 study of 164 science and engineering laboratories in the United States found that 25 per cent of the labs were led by Chinese-born people (Tanyildiz 2013). A significant number of Chinese specialists are flocking to top jobs outside the country.
It would be easy to say that the brain drain merely reflects opportunities for specialists to earn more money outside China, but the loss of talented people on a large scale is a strong indicator that China is not judged by these people to offer the social, economic, legal or political environment in which they would prefer to work. If China wants to keep these people, it will have to, as the World Bank said, ‘adjust’ the settings. China has implemented special incentives to bring skilled émigrés back to the country, and this has seen some success as salaries and social conditions in the country have improved. Yet the problem still remains.
An in-depth assessment of the dynamics involved in the internationalization process of Chinese universities published more than a decade ago appears to retain high relevance for both its findings and its prescriptions. It concluded that Chinese leaders had so totally instrumentalized international scientific collaboration in the interests of national economic advance that they had lost sight of how much more could be delivered by the process in terms of integrating China as a more powerful actor and partner in global knowledge creation (Yang2002). The author saw the same shortcomings on the part of many of China's scientists and scientific institutions. Perhaps his most apt prescription for the future was the need for China to undertake genuine academic mobility, with free movement of scholars in fields apart from teaching English.
The Third Plenum reform agenda of 2013 gave the innovator pool considerable attention, recommending the following measures: ‘reform selection and management systems for academics, optimize the structure of disciplines, raise the proportion of young and middle-aged talents, implement academics’ retirement and pension systems’.
At the end of the day, for a creative class and innovative information society to prosper, the rewards for innovators have to be more than just financial and the environment has to be conducive to innovation. This has not been the case for most of the time since 2000. One insider characterization has been particularly revealing. Qu (2010), a former vice-minister of the MII, and one of the driving forces in China's informatization for twenty years, compared China unfavourably with the United States. She said the latter had become an innovative country because it is a country of immigrants and its culture is inclusive, a process that she said stimulated innovation. She asserted the centrality of ethics: ‘values are the core of an innovative society’ and ‘institutions are the guarantee’ of values. She described culture as the ‘biggest factor affecting creative scientific and technological activities’ and ‘at the heart of creativity in research as well’. She said that culture ‘provides the set of values…upon which a society or social group makes its rules, regulations and laws’ and asserted that ‘an innovative culture is an essential requirement of and driving force for informatisation’. In a sweeping condemnation of the state of ethics around the information society ambition in China, she gave it as her assessment that China has lagged behind because ‘there have not been any new positive cultural factors to be incorporated; there has been no institutional framework to provide the relevant support; and the cultural environment has not induced and encouraged innovation’. She said that negative elements of traditional Chinese culture, such as the ‘excessive caution, complacency,…established ways…, unwillingness to excel…feudal customs (such as “home tradition” and “valuing official rank”)’, are still pervasive. She then faulted the ‘negative cultural features’ of the planned economy: ‘self-centred departmentalism, cliquishness, a lack of entrepreneurial spirit, and inaction and passiveness’.
Qu observed that among the ‘core values’ needed for modern technological innovation, some are indeed found in Chinese society. These include honesty, questioning, fairness, cooperation and openness. By contrast, she said, other core values needed for innovation such as ‘marketing, competition, democracy, freedom, equality and reason are not widely accepted’. Qu has laid out a broad ethical sweep. She describes values that can be classed variously as personal, political, moral, institutional or cultural. She seems to be asserting that some element of each dimension is important.
In sum, we can describe the evolution of leadership values in promoting an innovative information economy after 1999 as follows.
As China's successes in informatization of the economy mounted year on year, the leaders felt much firmer in their conviction that transformation was achievable and desirable. Yet a succession of domestic and international assessments have reminded them after each new policy that they would need to be even more daring in translating their ambition into concrete outcomes. The transformation intent of national informatization has not been implemented in key areas of the economy, such as agriculture, or in key areas of social development, such as education, as rapidly as a transformation vision might imply. Gradualism seems to remain a dominating value (or at least outcome) for the leaders. The biggest change through the last decade or so in leadership values has been their willingness to consider a progressive ramping up of liberalization in industry policy and faster development of information resources.
There has been a deepening appreciation within China's leadership of the character of innovation and of what needs to be done to promote it. Several turnkey decisions beginning in 2000 have been highlighted, including the promotion of a nascent software industry. By 2005, there was explicit recognition of the centrality of individual enterprises and the private sector in general as the locus of a national innovation system. But by 2013, the CCP was using language like ‘smash administrative dominance’ in reference to what still needed to be done in this area of policy to lift the heavy hand of the CCP from innovation. The leaders had shown a stronger commitment to rapid reform of some incentives and institutions, such as investment regimes, especially for venture capital, but a much weaker commitment to reforms in the relationship between university research and the private sector. The leaders came to accept the need for much more foreign expertise as a main driver, but they did so within more elaborate techno-nationalist constraints, especially through guidelines favouring indigenous innovation.
China's leaders can point to the large increase in graduates across the board, much higher participation rates in tertiary study, and spiralling output of scientific papers. They can also point to their information industry entrepreneurs, like Jack Ma, who turned Alibaba into a billion-dollar business group. They are now national heroes. But Jack Ma is a self-made man, whose successes came about in spite of the system. Domestic and foreign firms are fostering an active and large cohort of researchers, technicians and inventors operating in innovative R&D. Yet the leaders have shown only a weak commitment to addressing the social environment for innovation. They only began to address the education system itself as one of the main determinants for creating a class of innovators in recent years, and they have not wanted to eliminate political interference and bureaucratism in universities. Students still study Marxism-Leninism, and main appointments are controlled by CCP committees. The economic and social incentives for innovators are still weak. Foreign expertise is still viewed too much as foreign rather than simply as expertise. There has been an intensifying lament by China's leaders that, in spite of clear successes in innovation, the country is not building a class of innovators with the depth needed for China to ascend as fast as it wants to in the global rankings of an innovation society.
Thus, in review, it seems that China's efforts to establish an innovative information economy bear out the conclusion that such an endeavour has to deal with ‘complicated feedback mechanisms and interactive relations involving science, technology, learning, production, institutions, organisations, policy makers and demand’ (Farina and Preissl 2000). China's leaders were strongest in their commitment to an innovative information economy in the new openness that they showed by agreeing in 1999 to terms to enter the WTO. Their decision around 2005 to recognize the individual enterprise as the primary locus of innovation was also a significant change of values for the leaders. They have been weaker in their ability to manage the complicated feedback mechanisms and interactive relations between the different foundational elements in setting up a national innovation system. They had a very burdensome socio-economic history to overcome. A command economy based on five-year plans and SOEs is almost by definition a low-innovation model.
More importantly, the leaders’ persistent reliance on a nationalist vision of innovation may have been misplaced. Farina and Preissl (2000), citing research by others, have questioned the continuing relevance of national systems of innovation, preferring instead a view that sees globalization as so powerful as to suggest that a sectoral characterization, rather than a national one, may be more appropriate. They refer to research that focused on sectoral innovation systems as a ‘more coherent subset’ of national systems of innovation, ‘where the boundaries of the systems are endogenous, emerging from the specific context of the sector’, and where private firms are central, and more influential than the institutions (Breschi and Malerba 1997). Breznitz (2007) has concluded that the outcome of each state's development path for rapid innovation-based industrialization is a unique socio-industrial system, ‘with different strengths, different weaknesses, and a different distribution of the fruits of success’. He also argued that the fragmentation brought on by globalization ensured that particular countries would become more narrowly specialized in certain subsectors rather than being able to develop broad-based mastery of and dominance across all advanced ICTs. This conclusion means that in a globalized information economy China should expect to excel only in a selected number of sectors under an international division of labour rather than aspire to comprehensive competitiveness in all sectors.
The leaders’ faith in comprehensive nationwide and national-level informatization may also be misplaced. Breschi and Malerba (1997) cite research suggesting that while institutions are important to promote technological diffusion, they can also slow down the process of innovation; and that national institutions can also exacerbate disparities between regional systems of innovation within one country. This pattern is all too visible in the case of China. On the other hand, to their credit, the leaders have acted in line with the proposition that innovation can be particularly prominent in selected localities that are rich in social capital (Breschi and Malerba 1997). In the case of China, this has meant certain parts of the cities of Beijing and Shanghai, where innovation has clearly taken off.
It is the capacity of governments to adjust that is one of the main determinants of success in a national system of innovation: ‘Politics matters’, since it is the art of ‘crafting and picking alternatives’ (Breznitz 2007). According to that study, politics matters most in three areas: setting the balance between multinational corporations and the national actors, assessing and redressing market failures in research and development, and venture financing. These three areas of policy are among the most sensitive for China.
The discussion here suggests that China may be able to operate closer to the technological frontier in areas where elaborate state structures are not involved, where state secrecy is not an issue, where the private sector is leading, where there is foreign investment or foreign trade (international competitiveness), and where there is open international exchange of information.
In the face of unrelenting advance in high-tech industries by other leading economies, China is now signalling a more urgent need to shift away from its old growth model of re-export of imported or adapted foreign technologies towards a more competitive high-tech sector. Yet by 2020, China will have to quadruple its investments in R&D infrastructure and personnel if it is to get the results it wants. An even more tolerant attitude to foreign enterprises (corporations and universities) will have to be a key part of this strategy. Somewhat surprisingly, China's leaders now appear to be opening up a lot of new ground for foreign partnership, even leadership, in helping to create a new innovation system.