Innovation is not the first idea that springs to mind when one thinks of China. With her huge, semi–skilled and reasonably priced workforce, the country is more often viewed as the ‘factory of the world’ by the West, than a hub for innovation. This perception is not completely unfounded, China is the mecca for copying and counterfeits. Take a stroll through central Shanghai in a pair of iconic basketball shoes and you’ll fit right in. No not Converse, “Ballstar Classics” of course. Need a bite to eat? Pop into “Pizza Huh”. Or just in need of a cup of coffee? Haven’t you heard of “Bucksstar Coffee”? But does this make the Harvard Business Review justified in their article “Why China Can’t Innovate”?
Western media has diligently pointed out China’s slowing economic growth. Central Government policy-makers see a more modernised and technology driven economy as part of the solution to sustained economic growth. Already, the country has seen particular success with consumer-orientated innovation. As the standard of living increases and the country becomes more urbanised, Chinese firms have learned how to quickly adapt to the changing needs of its consumers. The manufacturing powerhouse has also had the perfect environment to foster the best in efficient manufacturing (high-quality products produced quickly and cheaply). Modern manufacturing processes such as flexible automation enable robots or systems to be quickly and easily re-tasked so that production can adapt to a change in the vision of the company or the needs of the consumer. Better integration of e-commerce and flexible manufacturing are other pioneering solutions for greater consumer control that have emerged in China. Construction equipment, electrical equipment and solar panels have all benefitted from efficiency innovations.
“Made in China 2025” is the government’s flagship policy to modernise the manufacturing industry. This is largely an attempt to offset the stunted economic growth through a short to medium term solution, rather than relying on the late payoff that traditional scientific innovation brings. The Chinese government hopes to further develop efficient and integrated manufacturing through the creation of manufacturing innovation centres (40 by 2025) and has pledged financial support to built the framework for modernised manufacturing across the country. Strengthening the protection of intellectual property rights for small and medium-sized enterprises will be another priority. When firms are confident that their know-how is protected, companies can be better integrated and cooperate more in the development of new products. A policy dubbed “Internet Plus” was announced last year with similar goals. It seeks to encourage traditional offline enterprises in China to use the Internet in their business to increase efficiency and quality of their goods and services. Chinese tech firms such as Alibaba and Tencent have also benefited from this initiative and are now able to expand their tech solutions into industries that were traditionally offline and closed to new tech.
In the field of engineering innovation, the success in China has been mixed. Generally, the most successful areas are ones that have received the support of the central and local government. High-speed trains have benefitted from government support and the program has now become equal in size and complexity to the Apollo space program. The basic technology know-how is often acquired through joint ventures with foreign firms and then improved and adapted to be suitable for the China’s landscape and unique terrain. However, areas such as the automobile industry have lagged. It is clear this industry is not a priority for the government and while a demand for foreign designs and joint ventures remains lucrative; there is little incentive for private companies to pursue innovation. On the other hand, China is a leading exporter of nuclear technology. The Hualong One reactor is the prized invention of the industry – construction for this in Pakistan and another planned for Argentina was finalised last year.
The policy for “strategic emerging industries” (SEIs) is the government’s dynamo for scientific innovation. Seven innovative industries, areas that have already begun to develop in China, are targeted for development under the policy. China has an ambitious plan: SEIs will account for 8% of GDP by 2020 and 15% by 2025. The fuel for innovation will mainly come from subsidies and tax rebates for private companies. Central Government will only provide around a quarter of the funding for SEIs with local government providing the rest. Despite the macroeconomics, progress often relies on the motivation of senior leaders in the provinces to aggressively pursue innovation. At the same time, this discretion enables provinces to push for development in innovation fields that are more appropriate to the region. Potential investors in SEIs are also given priority of land use, expedited licensing approvals and improved access to public utilities. As part of this initiative, a $690m animation facility in Tianjin, nearby Beijing, opened in 2011. Things would be better still if this fiscal discretion was conferred upon senior scientific panels instead of provincial bureaucrats.
While the government might be throwing money in the right direction, what about the Chinese mindset? Well, Huawei is a company that epitomises today’s innovation potential for China and dismisses with ease any rhetoric that China has an entrenched culture of copying and learning by rote. In the last 5 years the tech giant has doubled in revenue and as of 2015 annual revenue has hit $60 billion. The employees, 46% of who are involved in R&D, are the driver for this success. The company structure and chain of command is dynamic and new ideas from employees are valued. Plus, the average age of the employees is just 29. This company ethos, much more reminiscent of Google or Apple, has paid off for Huawei with the highest number of patent applications worldwide in 2015 according to WIPO.