Future Developments in Innovation Systems in China

China is already a major world player in science and technology (S&T). It supplies funding for research and development (R&D) but, although these inputs are already very large and increasing, the outputs still fall short of the levels seen in OECD countries with similar levels of R&D expenditure. One of the reasons for that is because of the inefficiency of key actors and weak linkages. Sometimes, linkages are absent but, most of the time, they just haven't been sufficiently nurtured. There is a deficiency in current policy instruments as well. 

The Innovation Systems Conceptual Approach tries to identify the weaknesses and to make corrections to them. The government looks to international best practices. Some identified weaknesses were seen in other systems as they grew. The potential is there to develop an innovation system in China that will be an even more powerful engine for sustainable growth than it is today.

China has excelled at mobilizing resources for S&T on an unprecedented scale and at exceptional speed, from mid-1990s to late 1990s onwards. R&D spending has increased at a stunning annual rate of nearly 19% since 1995. R&D output has grown very rapidly. China's share in world scientific publications rose, for instance, from 2% to 6.5% over a decade, from about 1994 to 2004. Patent applications filed under the Cooperation Treaty of the World Intellectual Property rights (WIPO) have been doubling every two years. However, the impressive investment in resources has not yet translated into a proportionate increase in performance. China is still not associated with cutting-edge technologies and with the most advanced products and services in the world.

The business sector is the key organization in any successful, mature, efficient innovation system. Productive use of investments, human resources and the related infrastructure is still not optimal despite increasing contribution from foreign investment. Previously, foreign investment took advantage of cheap land, cheap labor and access to the large domestic market that China was able to provide. Nowadays, it’s the access to S&T, human resources, and support of export-oriented manufacturing operations that have become important drivers. The first wave of innovative Chinese firms, heavily invested in R&D, did expand their operations abroad. They are forging the way for other Chinese companies to become major players. In some cases, the larger companies can, through mergers and acquisitions, acquire cutting-edge R&D and set up overseas labs. It represents a very exciting change in the Chinese innovation system and it remains to be seen whether this trend can be continued over time. With better protections for intellectual property rights, indigenous innovation capabilities and R&D intensive foreign investment could be mutually reinforcing.

Except for some targeted areas, such as nanotechnology, there is still a wide gap between small, basic research sector and massive technology development activities. The OECD has used the metaphor of a collection of islands, pockets of excellence, to describe the functioning of the very large number of small-scale S&T parks in various regions within China, innovative islands with synergies insufficiently developed between them. Spreading the culture and means of innovation beyond the fences of the S&T parks, beyond the incubators, and promoting more market-based clusters and networks is now an important objective.

As China tries to move into the high-tech economy, some groups fear that China might be rising too quickly or in too many areas at once. There's sometimes a misconception that it might be dangerous for the world. Countries, including China itself, could revert to protectionist measures that impede trade and capital and knowledge flows but such measures would not be helpful to China or to its trading partners or to the global economy at large. Countries need to maintain a spirit of dialogue and cooperation and an open attitude.

from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology
Other resources
http://www.oecd.org/china/
http://www.icc.se/policy/statements/2011/Open_Markets_Index_2011.pdf
http://www.doingbusiness.org/data/exploretopics/starting-a-business
http://www.transparency.org/cpi2012/results

Innovation Policy

Policy can be defined as a purposeful course of action designed to address a concern with, in this case, innovation. Public policies are generally developed by government officials. Innovation policy usually refers to a policy designed to raise the quantity and efficiency of innovative activities. Innovation systems-related policies emphasize a holistic view of policy making. The whole combined set of organizations and institutions that are related to one another and that have the possibility of impacting or influencing innovation is being considered. The whole is greater than the sum of the parts. The individuals, institutions, interactions, and ideology all matter. Innovation systems-related policy is an attempt to get all of the actors within an innovation system to work in unison. Naturally, different actors, different organizations, and different institutions have different goals but, to the extent possible, the aim is to get everyone synchronized.

Innovation policy depends on evaluations of how specific structures contribute to the overall functionality or efficiency of the innovation system. Innovation systems view performance as a result of how well sets of organizations, actors, and institutions’ framework conditions work in conjunction with one another. These actors and these institutions do not work in isolation. They are connected to one another and their connections are important. Policy issues, therefore, turn on the nature of the components and how well the links work. Innovation performance can be seen as a coordination problem because innovation systems components must work together coherently and that's the idea of policy to get them to work together coherently so they can improve innovation performance with compatible processes and compatible objectives.

We're not talking about efficient functioning of markets. We're talking about problems related to coordination that come before the marketplace. We're talking about policy that creates a space for economic behavior. How to get these actors to engage in innovative activities in the first place? How to get them to engage in S&T or R&D in the first place? That's what we're talking about when we're talking about innovation systems policies.

Specific problems that innovation policy needs to address:

1.       Infrastructure provision and investment problem. It’s necessary for governments to provide the necessary physical infrastructure such as transport or communications infrastructure in order to create an environment in which the innovation system can function efficiently. Scientific infrastructure is another type of infrastructure for example high quality universities, research labs, and technical institutes, and so forth are also important components of infrastructure that the public sector can provide in order to enhance innovation problem innovation activity.

2.       Path-dependency-related problems derived from socio-technological inertia. When we engage in a certain path, as a society and we depend on certain technologies to the extent that our dependence on those technologies hamper our ability or our openness to the emergence or dissemination of more efficient technologies. A classic example is our over-dependency on fossil fuels which creates obstacles for the emergence of new types of technologies. Focus on existing technologies might blind companies to the emergence of new technological opportunities.

3.       Institutional or framework condition problems cover both formal and informal rules.  In terms of formal, we're talking about regulations, laws, technical standards, and public procurement policies. In terms of the informal, we're talking about tacit rules such as cultural norms, preferences, and social rules. The ability of policy to impact the first type, formal rules is much greater.

4.       Network problems arise with linkages that are too strong. Weak linkages can have a negative effect but overly strong linkages can create blindness to what happens outside of the network. It is very difficult to assess the adequate degree of strength. It is very subjective, context -dependent, and only answerable on a case-by-case basis.

5.       Capability and learning problems is related to the idea of absorptive capacity so it includes human, organizational, and technological competencies.

6.       Complementary problems occur when components are not connected to one another so that the positive effects of the connection are adequately exploited.

To help solve these types of problems, there are different policies that can be enacted by government. The formulation of policy should be based on theory, on indicators, plus subjective judgement. Innovation system theory and indicators are still relatively limited so judgment is required, based on common sense. This makes it necessary for policy makers to experiment, to tinker, when it comes to creating and enacting innovation policy. Mistakes are likely. As in the innovation process itself, there should be room for experimentation. We should learn from our mistakes when we're engaging innovative, scientific, and technological development. In order for this to be successful, evaluation is important. That information informs future policy making.

from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

The Importance of Linkages in Innovation Systems

The various components in an innovation system are the actors and the institutions. The actors are the businesses, governments, public and private research organizations, and universities. Sometimes, actors are known as organizations. Institutions are the framework conditions within which the actors function: the laws, regulations, cultural norms, preferences, social rules, technical standards, education, competition, corporate governance, finance, intellectual property rights, and public procurement.

Linkages are not included in the linear model of innovation. However, they are the key ingredients of the interactive model of innovation that provides connections between each of the different steps of the linear model.

The Innovation Systems Conceptual Approach assumes that growth in linkages leads to improved performance and the quantity of interaction is important but so is the quality. The more knowledge and technology flow that there is in the linkages, the better.

Linkages between actors and institutions can take various forms, including joint research, personnel exchanges, cross-patenting, purchasing of equipment, etc.

Four specific types of linkages are: 1. Joint industry activities. 2. Public and private partnerships. 3. Diffusion of knowledge and technology to firms. 4. Personnel mobility.

1.       If businesses are linked, either formally or informally and do collaborate, it raises the efficiency and effectiveness of the innovations system. This may seem counter-intuitive because they are competitors. However, many firms do indeed collaborate but more in emerging fields with high development costs such biotechnology, nanotechnology and material science. They pool technical resources to achieve economies of scale and to gain synergies from complementary human and technical assets. An employee from company A is not shared with company B but rather, the technician who was employed in a laboratory that is used by company A and company B can give ideas and advice to both.

2.       Government- funded research institutes, government-funded universities and private business firms collaborating with one another is another important type of linkage which has the potential of enhancing innovative systems efficiency and strength. The quality of public research infrastructure and its links to industry is an important asset for strengthening an innovation system. Universities produce basic knowledge for industry and are a source of new methods, instrumentation and skills. Industry-supported university research is now becoming increasingly common as are strengthening university/industry linkages because business firms realize that they can have access to cutting-edge knowledge, cutting-edge technology and tools by cooperating with universities. On the other hand, universities, by cooperating with industry, are better able to demonstrate their worth or their usefulness to society at large.

3.       The third type of important linkage is technology diffusion. Diffusion of innovation is usually a slow-moving process that plays out over years. However, because businesses have to report quarterly, semi-annually, and annually about their performance, they put technology to work fast by adopting and using innovations on products developed elsewhere. They have an incentive to use, to market, and to commercialize the technology as quickly as possible so they can increase the profits. Technology diffusion can be speeded up by introducing private business firms into the arena. Knowledge about technologies may come from customers and suppliers, as well as competitors and public institutions. Technology diffusion is particularly important for sectors and industry that may not have R&D themselves. Public research institutes and public universities may not commercialize and market the technology but they're creating it and, in that case, technology diffusion is important.

4.       Movement of people and the knowledge that they carry with them is important in any innovation system. Personal interactions, once again, can be formal or informal and represent a significant channel of knowledge transfer within industry and between public and private sector. The ability to locate and identify information and to access networks of researchers and personnel is a valuable knowledge asset. Having the knowledge is one thing but having the ability to find out who has that tacit knowledge is also an essential asset. Absorptive capacity refers to the extent to which the receiver can make sense of the knowledge transfer. Tacit knowledge refers to those aspects of knowledge that can be that cannot be easily codified and cannot be transmitted or shared via writing. It can only be transmitted through other means like training, through experience, by experimentation or from observation. Tacit knowledge involves learning and skill. The classic example of tacit knowledge is how to ride a bicycle. It would be extremely difficult to write in a manual all the processes, all the procedures, all the steps that are necessary in order to have you understand how to ride a bicycle. Rather, it's much easier for someone who is learning how to ride a bicycle to do so through training, experience, experimentation, and from observing someone else do it.

 Generally speaking, it is more desirable to have stronger linkages between components of innovation system. It is, however, possible for linkages to become too strong. They become so overwhelming that the two actors or the components that are linked to one another are unable to see beyond their specific narrow connection, neglecting other links and the overall performance of the more general innovation system.  Otherwise, linkages are known to be effective means of improving or strengthening any given economy's innovation system.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

Main Actors in an Innovation System

Businesses have a relatively large role to play in the innovation system. Other key players are local, regional and federal governments, private and public research organizations and the education system. In the most developed countries in the world (Japan, the USA, the UK, France, and Germany, etc), businesses are predominantly responsible for generating innovation. The activities of the other actors in the system are aligned to what they are doing. Market forces provide the necessary and sufficient incentives for businesses to innovate because they stand to benefit the most. However, businesses do not act alone. They are at their most efficient when they are able to innovate in cooperation with other actors.

Domestic and foreign businesses are the dominant research and development (R&D) players in China's innovation system even though it is not as advanced as these economies. The business sector performs up to 2/3 of total R&D, up from < 40% at the beginning of 1990. However, firms do not yet form the backbone of the national innovation system. The rapid increases are due to the conversion of some public research institutes into business entities. This was done without creating the necessary conditions to enable them to become innovation-oriented firms. However, as the innovation system further develops and matures, the relative role played by government should ideally decrease.

Innovation is an activity that is characterized by the following three characteristics: 1. A long time horizon 2. High cost 3. Uncertainty. Because of these three characteristics, private businesses may be reluctant to invest in innovation. Economists characterize this situation as market failure. It is often used as a justification for government intervention in a particular market. It should only be a justification at the early stages of an innovation systems development.

Research organizations, if they're public in nature, are established by national governments to enhance the competitiveness of national sectors. If they're private, they're established by trade bodies, by companies, or by private citizens in order to achieve the same goal. National governments often establish research organizations in sectors of agriculture, industry, and services. The role of these organizations is to conduct R&D and to transfer the results to potential users who then commercialize and market innovations for lay people or specialized bodies. In some innovation systems, research organizations play an important role in performing R&D alongside academia and industry. In other systems, research organizations play a more peripheral role. The role played depends on the relative role played by other innovation systems actors.

The Chinese Academy of Science is a major research organization in China which plays a relatively significant role. Increasingly, research organizations are becoming compelled to commercialize their research in order to justify the funding. This helps them generate new sources of income for their activities and it demonstrates a relevance to social and economic development and justifies the expenditure of public funds.

Research organizations play an especially important role in the catch-up phase of an economy’s development, as the innovation system is developing and strengthening. Research organizations tend to play a more important role as compared to their role played in the most advanced innovation systems. They act as facilitators and intermediaries in generating learning that firms and other actors in the innovation system need to pursue in order to engage in technological innovation. Strong linkages between research organizations and other actors can improve innovation system performance. Such linkages are not limited to a nation's own innovation system. They can be international in nature. Research organizations in different countries can learn from one another in order to enhance their own performance.

Universities are critical because they contribute to the production of a learned work force. They also engage in advanced basic or applied research. Their third mission is to engage in knowledge transfer, their contribution to society. If we were to use a linear model of innovation, which is widely used despite its shortcomings, universities are the most appropriate institution for basic research. Theoretically, the norms of academic research are different from industry. The goal is professional recognition and advancement not profit making. In practice, of course, we see an overlap. Also, there is a notion of academic freedom which allows researchers to engage or to pursue any question of intellectual significance without outside interference. University/industry linkages enhance innovation system performance and universities themselves are becoming more entrepreneurial. They are starting to provide incentives to faculty members to commercialize their research, bringing new products and services to the market by themselves, bypassing industry.

from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

Using the Systems Approach in Policy Making

The Innovation Systems Conceptual Approach goes beyond research and development (R&D) to explain innovation dynamics. Newness does not have to be predicated upon R&D alone. It encompasses the institutional elements that strongly influence the growth dynamics; standards, norms, rules, regulations and customs. The organization is not the sole vector of technological innovation.
There is a framework for innovation to be a collective achievement. It can be used by international organizations and by various countries because draws attention to the systemic features of the process and the variation across countries. It cautions against simple policy prescriptions that don’t account for national differences among competing systems. There is not a one-size-fits-all model which can be applied to all countries. Innovation systems policy is dependent upon historical trajectories and path dependencies associated with any given country although another country at a similar level of technological and innovative development can be used as a model.

The correct level of analysis may be difficult to establish. Many times, the National Innovation Systems Approach (NIS) is used but, in large countries, there are regions that are distinctly different from one another. For instance, in China, the southern region is particularly innovative compared to the western region. In that case, it may be preferable to use a regional level of delineation rather than the national level. In other contexts, it might be better to use a technological level of analysis. Some technologies share more commonalities compared to regions and they would be more worthy of study as group. Many analysts have suggested that multinational corporations control much of the science and technology (S&T) and innovative activity that we see emerging throughout the world. For this reason, it doesn’t always make sense to look at the national level as a delimiting criterion. A multi-national corporation, where and how it's conducting its S&T activities, could be the focus of study.

The Innovation Systems Conceptual Approach is still just a concept rather than a formal theory. A theory has powers associated with it and can predict outcomes. This particular approach has not been proven to accurately forecast the result of corrective measures. Some argue that it's too broad, ambiguous, and conceptually diffuse. Also, with so many factors playing a role, assigning relative weights to particular relationships is clearly difficult. It's not very neatly operationalizeable. In practice, when policy makers use this approach, they look at specific components and linkages within a system and the specifics can actually be more easily fine-tuned than by looking at the total system.

Another disadvantage is because this approach is applied to individual countries on a case-by-case basis, elements of one system may have little in common across geographic boundaries yet the way in which it prescribes corrective measures is to use an advanced economy as a model. Carrying out effective trans-national comparisons is quite difficult. Sources of diversity between countries are size and population. Larger countries have different regions that may or may not be strong, in terms of innovation. Level of development is another source of diversity. Developing economies are not comparable to the most advanced and most mature economies of the world. Furthermore, given the uniqueness of each country, the respective role of each actor in an innovation process is not comparable to another. In underdeveloped countries, the government tends to play a larger role in terms of innovating. Businesses, public and private research organizations, and the government all play differing roles depending on the country's level of development. Similarly, the quality and intensity of the linkages between the various actors are different depending on country.

In spite of these disadvantages, The Innovation Systems Conceptual Approach provides a tool for analyzing country-specific features of the innovation process. It offers a very good guide for formulating innovation and technology policy. It highlights interactions among various actors and the workings of the whole system rather than the performance of each individual component. It recognizes that a business, although it is the locus of innovation, does not function in isolation. The entire system influences the effectiveness with which businesses innovate.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

The Innovation Systems Conceptual Approach

The Innovation Systems Conceptual Approach is used to study systems of innovation and to inform innovation policy making. This approach grew out of the field of innovation studies in the 1980s. It's widely used by a number of organizations such as the OECD, the European Union, the World Bank, the IMF and other UN agencies and by individual countries such as Finland, Sweden, Canada, New Zealand, UK, and China. Finland was the first country to use this national innovation systems approach in 1992. Sweden also embraced this approach in a fairly significant way with a Systems of Innovation Authority, a government department dedicated to studying innovation using this perspective.

There are two variations to this approach. The first variation is using it as a descriptive tool, listing the institutions and organizations that contribute to the development and diffusion of new technologies. The second variation is to use it as a focusing device, identifying all the factors that influence the development, diffusion and use of innovations and allowing for the analysis of the nature and intensity of the linkages. After identifying the weaker parts of the system, one would be able to prescribe corrections to strengthen these areas primarily based on comparison with other economies of a similar (or slightly higher) level of innovative and economic development.

In the initial descriptive dimension, we have a clearer and more methodical understanding of the system and in the prescriptive dimension; we are able to generate policy recommendations for government and related agencies. 

The Innovation Systems Conceptual Approach  recognizes that innovations can be the center of focus, attention, and analysis. It recognizes that individuals, firms, and economies can further enhance their economic growth through the generation and the diffusion of innovations. Innovation is central to the whole idea of economic competitiveness. It includes, but it is broader than, the R&D system alone. Innovations can be non-scientific and non-technological and develop from non-economic factors such as institutions, politics, and culture. This approach is concerned with history and recognizes path dependency and the evolutionary nature of innovations.

For instance, Japan is a very advanced economy but people there are still more comfortable using fax machines as compared to emails. This is an example of past dependency. Apparently, many Japanese people feel that email can be hacked into, can be written by anyone, they're more anonymous and much more impersonal as compared to a hand-written fax. Japanese society as a whole is reluctant to let go of this older technology.

Institutions and organizations develop over time and the mindset of the individuals within an economy influence the degree to which innovations occur. Process innovations are not always based on S&T. This approach also emphasizes that business firms are influenced by not only codified materials such as laws, regulations, and technical standards but also cultural norms, preferences and social rule.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

Innovation Systems

An innovation is a purposeful combination of market and non-market mechanisms to optimize production deployment and use of new knowledge for sustainable growth or institutionalized processes in the public and private sector.

Innovations do not happen in isolation. They come about as a result of a collective effort or achievement. Manufacturers come up with new ideas through a number of sources. Other manufacturers might produce better, cheaper and more quickly and the competition causes some changes in the process. They also learn from consumers’ feedback and have new ideas as a result. Suppliers get new products and these could change the manufacturers’ practice. The government may fund R&D and university professors might contribute some new information. Innovation is not solely an independent activity conducted by businesses on their own so it makes sense to consider the entire system rather than a business in isolation.
By employing a systems perspective, we are able to include other relevant factors that contribute to firms’ performance. This includes the skill of the workforce available, the political climate of supporting change (or restricting it), and financial institutions willing to extend the capital. A system perspective allows other relevant factors to be included in the analysis.

Systems exhibit complementarities, constituent components within a system that are linked to one another. The presence of linkages is crucial for the effective functioning of the system. The absence of a critical link or a component could block or slow down the growth of the system. These components could be technical or social.

An innovation systems perspective is useful for understanding the interaction between an innovator and the environment. The innovator is usually a business which depends on links to components of the system which either makes it more efficient or slows things down. Components are product market conditions, the education and training system, the macroeconomic and regulatory context and communications infrastructure. A system of innovation has the capacity or the potential to affect a country’s performance in economic growth, job creation, and competitiveness. It is why policy makers try to enhance innovation systems.

The first definition of innovation systems concerned the combination of market and non-market mechanisms for the production of new knowledge. Now we're defining an innovation system as a set of institutions that jointly and individually contributes to the development and diffusion of new technologies. We are focusing on a framework within which governments form and implement policies. We're focusing more on the policy-making dimension that the innovation systems conceptual approach can highlight.

In other words, an innovation system is a system of interconnected institutions that collectively create, store, and transfer the knowledge, skill, and artifacts which define new technologies. This definition is from the OECD. The interconnectedness refers to the linkages between different components within a system that collectively combine to help define the emergence of new technologies within a society.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

The Relationship between Research and Development (R&D) and Innovation

Science refers to knowledge about the observable world. Technology refers to material goods or methods used to carry out human ends. R&D couples scientific research with the development of technology. R&D comprises creative work undertaken on a systematic basis. It's not conducted necessarily in a spontaneous manner or unsystematic matter. It's done with an agenda in mind: to increase the stock of knowledge and to use that knowledge to devise new applications. In general, R&D is conducted by specialized units or centers belonging to companies, universities, and state agencies. Business firms are very important in conducting investigative work which is of actual or potential use in the development of new or enhanced products. In the business context, R&D refers to future-oriented long-term activities involving S&T or applying S&T techniques to scientific research with the outcomes unknown in advance and with broad forecasts of commercial yield.

We can measure R&D in companies, universities, or state agencies or on an economy-wide basis. It is often measured as a gross domestic expenditure. Gross means it covers the entire economy. Domestic means within a country. The acronym for measuring gross expenditure on R&D is GERD and usually it is 1% to 3% for most countries as a percentage of the gross domestic product (GDP). The absolute numbers vary significantly.

For instance, the USA has the world's largest economy. It has the largest GDP of any country in the world, much larger than the 2^nd place economy, China. The absolute expenditure that the USA spends on R&D is far larger than any other country but the amount as a percentage of its GDP does not match some other countries’ investments. 

GERD is commonly broken down into three parts; the business sector (BERD), higher education sector (HERD) and the government sector (GOVERD) as to how much each of these three sectors spend on R&D. Businesses are the main performers especially in advanced industrialized economies.

Invention and innovation both require creativity. A distinction between invention and innovation is that the first appearance of a new idea is an invention but innovation refers to the widespread dissemination and/or commercialization of a new idea. For something to be classified as an innovation it either has to be sold in the marketplace or it has to be used by a large group of people. An innovation is a translation and a transformation of a new idea into something that other people use or adopt. This journey from invention to innovation is not a simple one. There are very few inventions that can be successfully transformed into innovations.

In the modern world, innovation has become central to economic development. Private business firms have taken on the responsibility of turning inventions into innovations in order to make profits. It’s crucial, not only for those companies, but for governments because economic success depends, on a large part, on these private firms. Prior to the Industrial Revolution, 250 years ago, innovation was not so central to society. Even today, there are some societies in which tradition is considered to be more important than doing something new.
from Coursera course, Science and Technology and Society in China. Week 3. by Naubahar Sharif, The Hong Kong University of Science and Technology

[Links to OECD.org :The 34 member-countries include many of the world's most advanced countries and some developing economies like Mexico, Chile and Turkey. They do work closely with China, India and Brazil, 3 giants but non-member states, and with other countries around the world.]

The Main Features of China's Innovation System

An innovation system is defined as a purposeful combination of market and non-market mechanisms to optimize production, deployment, and use of new knowledge for sustainable growth through institutionalized processes in the public and private sector.

It's the combination of all of these actors and organizations creating new knowledge for use in everyday life, whether that is in the public sphere or the private sphere.

The origins of the Chinese innovation system can be traced back to the mid-1980s. At that time, reform in the S&T system was included in the broader agenda of economic reforms. S&T reforms have always gone hand in hand with economic reforms. The maturing of this system accelerated in the 1990's as a result of continued international trade, accession to the WTO in 2001 and improvement of framework conditions.

That's not to say that this innovation system is perfect. There is still a lot of room for improvement. At the turn of the century, a combination of experimental national policies in special zones, bottom-up initiatives supported by regional and local authorities, combined with top-down systemic reforms, had given birth to what could be considered a national innovation system (NIS) under construction, created in the image of the entire Chinese economy.

China has excelled in mobilizing resources for S&T, given the political structure. It's easier, in some ways, for the Chinese government to mobilize resources for S&T, to train engineers and scientists and to provide them with employment in state-owned enterprises and public research labs. This occurred in an unprecedented scale and with exceptional speed that mirrors the overall economy. The Chinese economy has grown at an unprecedented scale with exceptional speed as well. R&D spending has increased significantly from the turn of the century onwards and it has accelerated every year. Now, China is considered to be a major global R&D player and a major economic player as well.

However, these impressive investments and resources have not yet translated into a proportionate increase in innovation performance.  China is not in the same bracket yet as more successful, innovative economies such as Japan, Sweden, Israel, and the USA. China has increased spending in R&D but it's capabilities for making productive use of cumulative investment have developed at a slower pace, especially in the business sector. The government, as an actor in this innovation system, still predominates. The business and enterprise sector has lagged behind.

Foreign investment in R&D is expanding rapidly as is foreign investment in other sectors of the economy and its motivation and content are changing. Previously, investment in R&D was clouded with IPR infringements. Now, overseas firms are becoming more willing to invest in China with less fear, although the fear is still there of IPR infringements. They're more willing to share their technologies with the local partners. Access to human resources has become a more important driver than market access or mere support of export oriented manufacturing operations. Human resource development has become a major component that has to precede the successful development of China's innovation system.

Furthermore, a first wave of innovative Chinese firms have developed global brands and expanded their operations abroad, for example, Huawei and ZTE.

Improvement of all the universal framework conditions is still necessary to create the right conditions for market-led innovation to predominate. Indigenous innovation capabilities and R&D intensive investment would be mutually reinforcing. The public support system for R&D and some aspects of the institutional arrangements for China's national innovation systems do not yet sufficiently encourage the deepening of R&D efforts and their translation into innovative outcomes.

Government is still playing a large role in the economy as well as R & D and there are still inadequate incentives for the deepening of R&D efforts and their translation into innovative outcomes. Broader economic changes and some political changes are required for R&D to really flourish successfully. Except in a few targeted areas, there is still a wide gap between the relatively small basic research sector and the massive technological development activities. That's not to say that there's little investment in basic research or it's underfunded. There's a lot of investment in basic research but the making and selling of products is so much greater in scale in comparison.

China's national innovation system is not yet fully developed. It is perfectly integrated geographically and perfectly integrated at different levels of the government but imperfectly integrated in terms of different sectors of the economy. There are many linkages between actors and sub-systems that remain weak. It resembles a large number of innovative islands. There are some islands of excellence but they are not sufficiently well integrated with other part of the economy or other islands of excellence, for that matter. There's a need to spread the innovation culture and the means of innovation beyond the the incubators by promoting once again market-based innovative activities, clusters and networks.

Private enterprise needs to take the lead and government needs to take a backseat.

Regions have played a key role in the advancement of S&T in China and the current regional patterns of R&D and innovation are not optimally efficient. Because much of the R&D and innovation is in the coastal regions, it’s not optimally sustainable for the cohesion of the country. There is too great a physical separation between knowledge producers and potential users. It is not good for social equity.

China's innovation system is fairly new. It's developed at a huge pace given its great size. It has improved dramatically but yet there is still a lot of room for further improvement.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

Framework Conditions for Innovation in China, Part 2.

Since China joined the World Trade Organization (WTO) in 2001 and the agreement was signed on trade-related aspects of intellectual property rights (IPR), the Chinese patent system has complied with international standards and conventions. This resulted in the number of applications to the Chinese state intellectual property office (SIPO) increasing considerably. In 1995, there were ~2000 domestic innovation patents granted  but from 1995 to 2005, there were 20,000 but infringement of IPRs, particularly of copyright and trademarks, remains a concern. The regulations are not absent or unsophisticated but the problem is  the lackof enforcement of both of judicial and administrative decisions owing to the lack of appropriate infrastructure and mechanisms, as well as manpower. So while leaders in the Chinese government are aware of the importance of building a sound legal framework for IPR, the enforcement, especially at the local level, is lacking and/or sporadic.

Lack of effective IPR protection causes foreign firms to hesitate to transfer technology to China because of the threat of IPR infringements. They worry that products, technologies and components (that represent investments of time, resources, and money) are potentially going to being copied very easily in China and they are much less likely to transfer those technologies there.

Furthermore, the concerns about IPR discourage even Chinese inventors from commercializing their results of R&D. IPR infringements affect the national reputation of Chinese firms especially when poor quality affects the health and safety of the consumers. There have been various controversies regarding Chinese products, toys or food products that have had a detrimental affect on people's health and so the standing of all Chinese companies.

Sound IPR policies can facilitate the transfer of research results from public research organizations to business enterprises or from foreign firms to domestic firms. If regulations are enforced, they would have a cascading positive effect.

Managing technological standards requires a mastery of multiple aspects. On the one hand, standards have often been used to boost emerging industries and to protect domestic industries from foreign competition. On the other hand, standards have played a significant role in enhancing competition by making possible economies of scale and by promoting interchangeability and compatibility. Some of the more prominent global standards are GSM standards used in telephones, 3G standards, USP standards and recognized standards of design (QWERTY).

Many local standards, if they are supported, have the effect of shielding home industries. China’s government can decide on a certain standard in a product and it may be different from standards used elsewhere in the world and those companies that use the Chinese standard obviously have an advantage to overseas companies. Standards can play an important role in the promotion of S&T development in industries domestically.

Standards have gradually become imbedded in Chinese policy that were initially seen as part of an industrial development strategy and integrated into major R&D programs. A policy was introduced in 2006 with the idea of promoting indigenous innovation by using technological standards. China is striving to promote its own standards not only to help and promote indigenous and domestic industries and domestic companies but also to gain a presence globally so that Chinese standards become the global standards for whatever product that they're dealing with. This requires improvements in the ability of Chinese people to participate in international standard-setting processes. Setting a standard is one thing for your domestic economy however trying to get the global economy to approve and implement that same standard requires participation in the international standard-setting process.

In China, it is widely seen as legitimate to make use of a standard that can help increase a Chinese firm's return on investment in technology, to foster innovation. Making use of standards is not something that seemed to be breaking the rules, it's considered to S&T prowess.

Public procurement is when the government buys (or acts as a leader in buying) new technologies created by local domestic firms. It helps promote innovation because the government is a very large market. It can also accelerate diffusion of innovative products and services. When both large and small firms see the government willing to use these technologies, they follow the lead. The size of the Chinese market points to a strong potential for promoting innovation via public demand. The volume of government procurement has been expanding rapidly recently in terms of the S&T strategic plan of 2006 to 2020. It assigns public demand an important role in economic development and the promotion of innovation.

Traditionally, the Chinese government has relied entirely on supply side policies to promote technological development but public procurement is a demand side. The government is proactively demanding products that are created by local companies and this encourages companies to engage in development. Implementation of procurement policy is difficult because it is a result of sophisticated articulation of demand for innovative products or services and a competitive process. The government has to be transparent and it has to have fair processes.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

Framework Conditions for Innovation in China, Part 1

Research indicates that there are certain conditions that have a strong impact on innovation: education, competition, corporate governance, and financing of innovation. It's difficult to say beforehand which framework conditions are going to have the stronger impact because it depends on context. There’s a lot of room to improve these framework conditions so that innovative activity improves in China.

The Chinese education system is largely oriented towards passive learning. Some argue that it's oriented towards rote learning. Assessment of performance is predominately exam-based. Attention need to be paid to fostering students’ innovative thinking, creativity, and entrepreneurship.

Product market competition is an important stimulus for innovation because it causes suppliers of S&T to be incentivized to create technologies or scientific products that are acceptable in the market place. Although China is moving toward a market-oriented economy, it's not there yet. There are still problems which destroy competition; administrative problems, sometimes illegal conduct and local protectionism. For these reasons, government is required to intervene and to correct market failures. Marketing situations also are relatively under-developed and inadequate, resulting in inadequate rewards for innovative activity. The transition to a more innovation-driven growth based on strong intellectual property rights requires a modern, properly enforced anti-trust law so that those enterprises that do win in the competitive landscape are sufficiently rewarded for their efforts.

Corporate governance shapes the incentives of business executives and thus their decision-making within an organization. This has a significant impact on innovation performance in the business sector. Government should lead in innovation activity at the early stages of scientific development but then the business sector should take the lead.

Many Chinese firms are unfamiliar with innovation although the situation is changing, particularly regarding large firms. Companies are becoming more aware of the profits to be gained from innovative activity. In state-owned enterprises, management has insufficient incentives to undertake long-term, risky investment in R&D because funds are coming from the state and the state rewards reliability and predictability much more than innovation. Innovation is expensive, time consuming, and risky. The outcomes are not known in advance. These disincentives are further exacerbated by a severe lack of professionals with experience in managing R&D projects.

The top-down approach in place in state-owned enterprises results in R&D activity that is inefficient and weakly related to demand. A top-down approach means that the enterprise is told by the state what it needs to change, what areas and what products. State-owned enterprises are, generally speaking, not very efficient producers and users of knowledge. Government policies favoring state-owned enterprises are also not very helpful because it crowds out support to non-state-owned small or medium sized enterprises that are more likely to engage in innovative activity. However, the situation is changing. New enterprises have emerged which have less reliance on the state and theoretically should be more willing to engage in innovative activity. State-owned enterprises themselves are being restructured to be more market-oriented with great incentives to invest in innovation.

As the economy becomes more market-oriented, a more modern system of R&D funding is gradually emerging. State-owned enterprises or other enterprises will be allowed to get funding from other sources aside from the state. At the moment, the financial system is dominated by state-owned banks and they generally give loans to large state-owned enterprises that often lose money. The funding needs of private firms, most notably small to medium sized enterprises, are not met for general day-to-day running and for S&T. The capital market is underdeveloped. Small and medium sized enterprises (SMEs) find it difficult to secure loans outside of state-owned banks. They have to depend mostly on self-funding and private funds rather than formal sources of funding. This lack of capital for financing new ventures means that innovative enterprises (or more risk-taking type of enterprises) are less likely to emerge.

China lacks both the expertise and the necessary legal and regulatory conditions for an adequately functioning venture capital system. In many advanced economies, a venture capital system supplements the funding that firms get from banks. Domestic venture capitalists do exist but they have been established by the government at the national or provincial levels and these officials do not always have adequate technical, commercial, or managerial skills to be able to identify which ventures are most worthy of receiving the funds. Although there's sufficient liquidity in the system because there are a large number of wealthy business people and foreign venture capital firms looking for investments in high-tech, innovative, or risk-taking firms, there are few professionals with the experience to identify and invest in those firms that are both most needy and worthy of their investments.

There's also a shortage of firms and businessmen that are prepared to invest in sectors such as Biotech, in which an investment may take a long time to yield return. China is still theoretically a socialist country and investors aren’t sure how the political structure will play out. Transition in leadership may have an impact on their investments. The number of private domestic and foreign venture capital firms has been increasing but funds are still short.

The Long Term Science and Technology Strategic Plan 2006-2020 proposed to address the issue of financing innovation by the establishment of policy banks and commercial banks. Policy banks are especially set up to fulfill needs arising from policy objectives. Several other initiatives have been undertaken to increase access to funding for high-tech SMEs and start-ups.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

The Development of Science, Technology and Innovation Policy in China

In many countries, government policies play a significant role in fostering science and technology (S&T) and innovation, particularly in developing countries, less so in developed countries. When a country is developing or is underdeveloped, the government plays a larger role. As the country becomes richer, more advanced, the government plays a smaller role. At the later stages, private enterprises take the lead in fostering S&T and innovative growth in the economy.

Some important tasks related to government are first to set framework conditions conducive to innovation. Some premiere conditions may not be aimed specifically at fostering innovation but have a significant impact. For instance, governments can ensure that the markets are functioning well, ensuring sound corporate governance, that financial institutions are present to allow new ventures to be financed adequately. All of these initiatives may not be directed specifically at S&T, but having good underlying fundamental conditions helps many aspects of the economy including S&T. Other framework conditions have a more direct effect, for example, the legal protection of intellectual property rights, setting of technological standards and so on. Governmental tasks also involve developing and implementing policies. Policies have a very important role to play not only creating the framework but also to ensure the growth of S&T and innovation in an economy.

In the Chinese context, government's role is augmented owing to the disparities between modern and traditional sectors and also between types of ownership, state-owned enterprises versus private enterprises. The role is also exaggerated by the greater propensity for market failure. Although China's economy is becoming more market-oriented, it is not entirely based on market forces. There is still some areas of the economy where market failure does occur so China's government has to step in and try and correct those market failures. For instance, in the financing of small to medium size enterprises, the government's role in China is also augmented due to distortion of incentives for research and innovation. If large state-owned enterprises are controlled by the state and they get funding from the state no matter what, what incentives do these state-owned enterprises have to get engage in technological innovation? There's a distortion of incentives for research and technology and innovation and these distortions have to be eliminated by the government. Finally, there are uncertainties in the business environment regarding interpretation and enforcement of legislation, for example, intellectual property rights protection. Many analysts in the west have accused China of infringing on these. There is legislation in place but enforcement is not always done in a standardized manner. There is also insufficient interaction among actors within China's innovation system and this is partly as a result of the historical legacy of its innovation system. More cooperation, more integration and more interaction among, for instance, businesses, enterprises and public research organizations will likely yield more innovative products. There's also insufficient coordination in the national innovation system with little interaction between various parts and layers of the government, between the central government, provincial government and municipal level. Between central and sub-national levels, there's room for improvement in terms of interaction and cooperation and integration, in terms of policy. Finally, there is a shortage of complimentary assets in certain areas of S&T, for instance, advanced specialized infrastructure and the government can play a large role in providing for these otherwise lacking within the Chinese economy.

In the 1950's and 1960's, S&T policies in China were based on the Soviet model which provided the template for economic development in China at that time. The Soviet Union was very influential in terms of the trajectory of S&T policies that China implemented in the 1950s and 1960s. These policies were characterized by little private industry and commerce, domination of central planning in the distribution of goods, and in the investment and allocation of division of labor. However, the Soviet model was not all bad. There were some notable successes, during this period, for example, computers, semiconductors, nuclear and jet propulsion technologies. The first atom bomb and the hydrogen bomb were created during this period. These represented successes for China's S&T early policy initiatives but the range and scope of these achievements was relatively limited. R&D took place in diffuse locations with little or no coordination among these locations. Different sectors of the economy had different layers of the government. Industrial ministries frequently possessed their own autonomous research labs and these were not very closely coordinated and did not interact much with one another. Large state-owned enterprises put excessive emphasis on indicators of quantitative output rather than indicators of technological output. One feature that pervaded an early S&T policy was the linear model of R&D or the linear model of innovation that influenced central policy makers very heavily.

The linear model of innovation (how new technologies can be developed):

1.     1. basic research

2.     2. applied research

3.     3. development

4.     4. testing

5.     5. commercialization

Each of these steps is discrete, separate from one another although each one builds on the previous step. There is movement forward through the steps only.

The linear model of innovation might not be a very good reflection of reality but it allows policy makers to feel that innovation and R&D are governed by laws that are amenable to planning and control. Money can be poured into any of those one steps. To improve basic research, more money should go to universities, to scientists, for instance. Each of these discrete steps in the linear model can be supported by an organization. It doesn't consider innovation and R&D to be an integrated process.
The linear model of R&D pervaded all aspects of early S&T policy initiatives in China. It was an organized collective activity. Despite its shortcomings, this model of innovation is still, not only in China and many other countries, relatively widely adopted. In the Chinese model, in the early 50s and 60s, it reinforced institutional redundancy. 

Recent policy initiatives show the government's determination to build a fully-fledged, high-performing and efficiently functioning national innovation system. Investment in S&T started to increase from 2000, formalized in the year 2006. Through this plan, The Medium- to Long-Term Strategic Plan for the Development of S&T, a vision is developed up to 2020. It set out key objectives and priorities for S&T with its overarching goal to make China an innovation-oriented society by the year 2020 and, over the longer term, to make China one of the world’s leading innovation economies. It emphasizes the need to develop capabilities, to address many previous shortcomings, sustain economic growth and social development, promote home-grown innovation, and increase government-led R&D and investments.

Goals:

1. to increase growth expenditure in R&D as a percentage of Gross Domestic Product (GDP) to 2.5% by the year 2020. 

Many of the advanced economies of the world today spend in excess of 3% of their GDP on R&D but if China were to achieve this by 2020, it would represent a huge amount of absolute spending in terms of dollars spent on R&D given the fact that it is currently the second largest economy in the world and projected very soon to be the largest economy in the world.

2. technological progress to contribute 60% of economic growth. 

Economic growth is not to be reliant on low-tech or resource intensive or labor-intensive products. Business expenditure on R&D (BERD) has to double that of tech transfer. In other words, the Chinese government is trying to ensure, or force, private enterprise/the business sector to become the leader of S&T growth. 

3. to become among the top 5 in terms of invention, patents granted to Chinese citizens and in terms of citation of international scientific papers.

This is a very ambitious plan and if the goals are realized by 2020, we can expect China will be a global leader in terms of S&T. Several years into this plan, it seems that the quantitative targets of this plan are indeed going to be achieved. There are 11 priority areas of the plan which include the following: energy, water and mineral resources, environment, and so on. These are areas in which the plan places particular emphasis for the development of S&T expertise in terms of project areas. The government's commitment to its strategic orientation combined with the dynamism of China's economic development means that progress should be likely. It will allow China to emerge as a significant contributor to global innovation.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

The Chinese Model of Growth

From 1979 to the early 2000's, China’s entire economic system was undergoing fundamental and ongoing reform. It began with the Open Door Policy initiated by Deng Xiaoping to agriculture and later extended to industry, services, and China's innovation system. Reforms contributed to far-reaching deregulation and the creation of new framework conditions, helping to create a unified domestic market and improve the functioning of markets. China has been transformed into a more market-based economy with a thriving private sector.

This is important because S&T activity should ideally take place in the private sector. Creating a thriving private sector is important not just for economic reform but for development of S&T innovation within any nation. It creates incentives.

Also, reforms have also been directed at the state-owned enterprises (SOEs) to transform them into modern market-oriented corporate entities. This is difficult because SOEs are large and have long histories. This is an ongoing process. Structural change in ownership distribution has been more pronounced in manufacturing, where it accounts for over half of the value added. SOEs still record much lower levels of productivity, are less efficient knowledge producers, and often lack the basis for R&D, as compared to private firms.

Growth in China has also been underpinned by international openness to foreign trade and to foreign investment as the Open-Door policy resulted in China's accession to the World Trade Organization, a watershed moment in 2001. Through the acceptance of globalization, China has become one of the most open of the large developing countries. A large influx of foreign direct investment (FDI) facilitated China's integration to the global economy. China is not acting in isolation. It acts in competition with other major actors around the globe. Openness has helped China make better use of its comparative advantages and has helped it become a major trading nation. China is referred to as a workshop of the world, able to export many products that the rest of the world requires. Many analysts predict that very soon there will be large multinationals with origins in China which will become global actors throughout the international economy.

Openness has also led to a greater competition in product markets and services leading to better quality and a larger variety of goods. This also applies to science and S&T products. When companies and individuals are well aware that their efforts and activities are going to be suitably rewarded within the market economy framework, they're more likely to engage and innovate with activities.

Foreign enterprises contribute significantly to China's economic growth through high labor productivity. However, domestic enterprises within China are also beginning to become more and more productive. Finally, foreign direct investment (FDI)has provided access to technology know-how and skills. FDI has been important in allowing the actual technology to enter into China but also has helped bring in expertise, skills, techniques and related knowledge that is required to use, to repair, to improve, and further build upon the technologies that they have acquired from overseas. Technological knowledge can be transferred via imports of intermediate and capital goods from foreign-invested firms. They improved China's access to advanced technologies that have been created internationally, overseas. Management practices and skills in foreign-invested firms are also important because they serve as major channels of technology import. So, foreign-invested firms have a very important role to play, in terms of China's S&T development but their importance should not be exaggerated. Foreign invested firms have performed little technological innovation of product design in China. Many of the new products and scientific discoveries are made overseas and Chinese scientists, engineers and domestic indigenous Chinese manufacturers or creators of S&T do not benefit from foreign technology imported by foreign-invested firms from their home countries. Furthermore, core technologies remain controlled mostly by foreign partners and joint ventures by company headquarters abroad.

Many foreign-invested firms are reluctant to let go of their core technologies which are the most technologically sophisticated. Foreign-invested firms are also less R&D intensive than domestic firms in general whereas local firms are striving very hard to create their technologies domestically by themselves. Finally, the importance of foreign-invested firms should not be over-exaggerated because technology transfer and related spill-over to domestic economy could still be better.

There are other challenges which are not directly S&T related but have the potential. For instance, one of the challenges that China faces is that China's GDP is unevenly distributed between the coastal regions and the western provinces. Along the coast of China are the most prosperous, successful, and richest cities, towns and provinces whereas in the western part, provinces are lagging behind. In some rural areas, poverty remains a challenge.

Owing to the aging population and its One Child policy, China may age before getting rich. In terms of S&T, China's export growth has depended largely on expansion of low wage, resource intensive manufacturing. A move to high wage, capital intensive, knowledge-based manufacturing would follow what many of the advanced countries of the west have successfully done.

There are large migrations from the rural areas to the coastal provinces and this has lead to rapid urbanization with damages to the social fabric and the environment. Economic growth has brought a high demand for energy and raw materials and this has also resulted in environmental degradation. The health of the population has suffered. Beijing has recently seen very high levels of air pollution which has caused its residents to rise up and demand changes from the government.

China has made a reputation for exporting low cost manufactured products that it creates locally but has not yet made a name for itself in S&T and innovation. Since 2000, leaders have been striving to build a high-performing enterprise-based innovation system where private enterprises lead the way, rather than the government. Market forces determine and influence which science to invest in and which technological product to create. Some Chinese enterprises are developing their own innovation capabilities and introducing global Chinese brands. The ratio of R&D to imports of technology has increased considerably in the past decade. Particularly from 2006 onwards, large sums of money have been spent on R&D, much of it by the government. One tactic that Chinese companies have been using with mixed success is mergers and acquisitions in order to gain access to knowledge through overseas R&D and design labs. A Chinese company will try to buy out a company or merge with a company abroad that is very sophisticated technologically and thereby gain access to their knowledge and bring that back into China.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

Increasing Science and Technology Expertise in China

For thousands of years, the systematic study of nature has helped to improve agriculture and health. Science is a search for knowledge and basic science is needed to understand and improve modern technology. Technology is the basis for improving living conditions with new products, improved production, more efficient forms of production, better quality, lower costs and better services. Technology can help reduce poverty by providing more food. However, technology can also be created for destructive purposes, for example, the atom bomb. Countries need food, housing, clothing for the population. They need science and technology (S&T) to improve production for exports, for high-tech products and for defense purposes.

In 1991, there was a war between Iraq and the UN-backed international forces. The Iraqi forces had little chance against the “electronic warfare” of the UN forces that jammed Iraq's air defense systems and used remote control bombs. They could fly and strike anywhere with minimal human involvement. Witnessing this, China’s leaders realized that they had to develop advanced civilian electronics and software to improve its military forces.

Much of a country’s economic growth is derived from technical progress. Rapid economic growth based on imports of advanced technology has proven to be a model for success in Japan in the 20th century and also in the industrialized economies of Taiwan, Korea, and Singapore starting in 1960's. China's recent economic growth, based on technology imports, has also had much success.

Importing technology is one of the ways for achieving economic growth and promoting S&T but creating your own indigenous technologies is a better way. How should scientists and engineers be trained to use technology, maintain it, and to be able to create it in the future? Is it possible to keep up with the rapid technological development abroad?

How did modern S&T develop in Europe, and why did it develop in there?

 It's a complicated question, involving not only economic, scientific and technological change but also social change with the rise of competing city states. The roots of modern science can be traced back to Greece where there was an environment for logical debate and for the promotion of mathematics. It can also be traced back to the Muslim countries where algebra and chemistry was developed. There was intellectual change in terms of a search for the laws of nature created by God. This is one of the reasons why modern science emerged in Europe, because of the search for the laws of nature created by God, fueled by religion. Quantification, experimentation, and control have all been very important in the rise of modern S&T right back from the time of Galileo. Galileo said is “Nature is expressed in mathematics”. Bacon coined the idea that knowledge is power. All of these ideas culminated or influenced the development of S&T in Europe.

We can differentiate 3 periods of modern science and scientific development in Europe. The 1^st is the 17th century, with institutionalization. Science became much more recognized in everyday society. The 2^nd period is professionalization where scientists became specialists. The 3^rd period is industrialization where scientists became knowledge workers.

In the 17th century, we saw the rise of academies, such as the Royal Society, created to perfect knowledge of natural things and of all useful arts. Universities started to emphasize this teaching of science academically, institutionally. There was an official recognition and higher status given to S&T expertise at this time. Scientists tried to resist political interference at this time but they were still servants of the state.

In the 19th century, being a scientist became an occupation. Teaching and creating new knowledge was integrated into universities, the academies and into research institutions. There was also an internal system of recognition, the peer review system. Furthermore, S&T expertise was communicated in scholarly journals and books.

In mid 20th century, there were big science programs, highly dependent on sophisticated technological equipment and capital intensive research. There were large research teams with scientific management techniques. Science wasn’t done by the tinkerer, by the individual in isolation. It was an activity that was done as a collective activity, in a group in research labs and in R&D branches of large corporations. Some private firms financed research, not just the government. Entrepreneurs emerged from universities in spinoff pursuits.

Growth in China has depended mainly on structural changes, particularly the movement of the rural population to urban areas, from agriculture to manufacturing. Manufacturing industrialization is an important part of China's economic growth. 

Until 2005, China has relied predominately on technology imported from abroad. There was very little indigenous development. There was heavy reliance on the Soviet Union at first and from other countries from 1979 onwards. China has been one of the largest recipients of foreign direct investment. From 1970's to 2000, China's development of S&T capability lagged behind its economic growth. From 2000 onwards, there has been significant progress. During this time, fortunately, China's leaders had the foresight to acknowledge and appreciate and then put in to place policies which try to raise the level of S&T expertise within China.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

Development of Science and Technology in China after 1976

As a result of the Cultural Revolution which ended in 1976 upon the death of Chairman Mao, there was a period of reform in science and technology (S&T) in China. Policymakers, academics, and analysts all agreed that systems from the 1970s weren't functioning well. There was low productivity and little return from research. The economies of Taiwan, Korea, Hong Kong and Singapore in the 1970s were all achieving relatively healthy levels of economic growth, relying heavily on S&T to fuel their economic boom.

Reform saw the emergence of new forms of S&T management. New strategic plans were put in place that did not micromanage projects. The central government provided some funding but some had to be provided for by local authorities. The emphasis was shifting away from state intervention and control. Projects were announced for tender and contracts were awarded for the best bid. Many plans were still 5-year plans in terms of key S&T projects but some long range plans lasted from 10-20 years. There were many national plans that tried to target overall national priorities in key sectors (defense, electronics and telecommunications), plus some local plans for local considerations. S&T plans were integrated with economic plans and foreign technology transfer combined with indigenous technology development. There was coordination of plans of various sectors. Some research institutes were allowed to undertake contract research for industrial enterprises. They could earn money for themselves and dependence on the central government was allowed to decrease to a certain extent. Contract terms meant additional funding and also increased competition. Work on patent law was initiated resulting in intellectual property rights being preserved.

In March 1985, the CCP decided that technology was going to be treated as a commodity and the sources of research funding were to diversify. It became something that could be sold or bought in the market place. This provided an avenue for research institutes, academics, or universities to earn extra money. CCP also encouraged the merger of research institutes and enterprises so that the research could be applicable for the market place and this increased the mobility of talented researchers.

All of this enhanced the market forces in the Chinese economy with regards to S&T. Technology markets were developed at that time and it became legal to sell research results and technical services. Development was promoted both within large state-owned and private enterprises. They were required to do their own research which meant the development of R & D labs within these large technical enterprises with support and improvement of technology from foreign and domestic sources. There was a need to improve product design and quality in order to be competitive internationally. This resulted in the implementation of quality assurance programs, a global standard which allows products to be internationally competitive.

Scientific ideas could be scaled up, applied and created by an enterprise ready to sell that technology in the marketplace. There was also feedback from production engineers. However, some researchers complained that if their ideas could not be implemented practically, they were considered to be useless. There was competition for salary and housing and researchers were confined to one particular unit within the research institute.

Enterprises were established specifically in high-tech sectors like computing software. The motivation for these new enterprises was that they could commercialize or sell the technologies that they developed in the research institutes. With the emergence of high-tech entrepreneurship, there were spin-off enterprises from research institutes selling high-tech products. New firms often filled the demand for products and services which state-owned enterprises did not supply. Many of the state-owned enterprises were very large and engaged in traditional businesses whereas these new firms engaged in the cutting edge of technology for that period of time.

There was a new cadre of political leaders that were drawn from scientists and engineers so these politicians knew science and S&T was raised up in the level of perceived importance to society. Many scientists became advisers re on population policy, on the Three Gorges Dam, of other major technological projects and this was an important role for scientists and engineers. Some even became dissident.

Conditions of life improved for scientists. There was better mobility and there was more freedom in terms of research management but there was still an uncertainty about technological innovation. It's relatively expensive, time consuming and the outcomes are not known in advance. Many enterprises where not accustomed to projects with success not determined in advance. Whether a new product will be successful and profitable in a market was something that only could be judged when that new product or technology was actually created and put into the market place. Also, some researchers and users lacked experience in evaluating research results.

During this reform period, new national resource programs were introduced.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology

China from 1949 to 1976

Karl Marx wrote that technology helps in the development of productive forces and technology can liberate workers from hard work. These ideas and other closely related ideas were adopted by the Soviet Union in particular, where people thought that scientific and technological revolution should lead to communism. In China, Chairman Mao Zedong said social revolution linked to the development of science would be apparent very soon. He particularly said that Marxism is a social scientific theory and that communist culture should guide scientific work.

To help us to understand the development of science and technology in the early People's Republic of China, a timeline delineates or differentiates between 4 different periods beginning in 1949. During the first period, 1950 to 1957, China was assisted by the Soviet Union. The Chinese Academy of Sciences was established and the first science and technology plan was formulated with the emphasis on heavy industry. There was the Hundred Flowers campaign and the Anti-Rightist campaign. The second period, 1958 to 1960, was known as The Great Leap Forward. The key characteristic of this period was the withdrawal of Soviet Union assistance for science and technology development in China. From 1961 to 1965 there was a period of readjustment with the formulation of the second long-term science and technology plan. In 1964, there was a test of the first atomic bomb. The fourth period, 1966 to 1976, was known as the Cultural Revolution, an extremely difficult time for scientific and technological expertise.

Originally, Russia was a strong ally of China and assisted Chinese scientific and technological development to a great extent. There was $3 billion worth of industrial projects for 130 projects in total. More than 10,000 Soviet and East European experts worked in China. The Soviet Union also provided scientific and technical documents so China could upgrade and thousands of Chinese engineers actually trained in the Soviet Union. There was a two-way flow of people. China was relatively backwards and had a weak domestic infrastructure and very few trained people. It was very difficult during this period for China to get technology from the west because of the confrontation with the US over Taiwan and during the Korean War. National defense was a priority as it is for many countries. The need to build up military capability made it important for science and technology to be promoted in China. Soviet assistance was very relevant because the Soviet Union worked under a communist model just as China did. This was a model which emphasized state ownership and planned development. All of these factors combined to promote science and technology as a planned activity by the state.

The first science and technology plan for 1956 and 1967 was formulated by the Science Planning Commission with Soviet assistance. There were 12 priority areas dominated by defense and heavy industry. It was never really completed but it was claimed to have been completed because China needed a new plan and it couldn't be formulated or implemented until the first one was completed. The Chinese Academy of Science was and is an important institution that was established in 1949. It concentrated scientific manpower in one organization. It was mandated to do basic and applied research. However the planning of science followed political guidance. “The academy should meet the urgent demands of the people and serve the immediate task of the state.”

There was an organizational infrastructure that was created in the 1950's. For instance, the State Science and Technology Commission (SSTC), the National Defense Science and Technology Commission, and Sector Research Institute were established in this period. Universities were established and existing universities also started to emphasize scientific and technological education, and development, much more heavily. Provisional research institutes were also established after 1958.

On the 16th of October, 1964, China tested its first atomic bomb. China's first hydrogen bomb test took place in 1967. Both tests were the result of China's most successful science and technology project.

The academic leadership was mandated to guide research based on internal criteria, (scientific excellence) but at the same time, the Chinese central party was involved at every level of administration. There was ideological leadership even though it was said superficially that internal criteria should be the driving motivation for the development of science and technology.

In 1956, the Chinese Communist Party (CCP) launched the Hundred Flowers Campaign. There was to be freedom of debate, freedom of independent thinking, freedom to express one's views and so on. A group of Chinese Academy scientists criticized party control, using these freedoms, but the CCP reacted with the Anti-Rightist Campaign whereby those who had voiced independent views were labeled rightists and condemned.

During the period of 1958 to 1960, the Great Leap Forward began with the first five-year plan for economic development, emphasizing construction of heavy industry in major cities. Chairman Mao also wanted to encourage more construction of industries in rural areas. He presented this idea of “walking on two legs”, whereby he promoted technological dualism, combining large scale capital-intensive industries with small scale labor-intensive industries. There was a strong desire to catch up quickly with other industrialized nations. China was influenced heavily at this time by rivals in the West. This campaign tried to promote rural industrialization, to mobilize the masses, the rural population, and encourage industrial development in the interior provinces of China.

China's development is still heavily concentrated in the coastal regions. Rural industrialization is something that they have been trying to emphasize ever since the 1950's. What they tried to promote then was the construction of an iron and steel industry in the countryside and the large number of pig iron furnaces were developed at that time. Peasants were assigned to work in rural industries and they were taken away from harvesting crops.

During this period, the Soviet Union’s assistance had been withdrawn so China had to be more self reliant or had to look elsewhere for assistance. There were new principles of balanced growth, of acknowledging agriculture as a foundation for economic growth, and also for rational arrangement of light and heavy industry. In other words, heavy and light industries should both be promoted simultaneously, but they should be promoted rationally, should not be promoted blindly and in an ad hoc manner. Furthermore, during this period of readjustment, one of the key features to emerge was this idea of market socialism, the idea that the profit motive is important and it's okay to make a profit while trying to promote science and technology.

In the late 1960's, there was a revival of science and technology in terms of planning and professionalism, growth of scientific research and scientific engineering personnel and re-centralization of the administration. The second long-term program for science and technology was formulated in 1962. More resources were devoted to military science and technology. For instance, 46% of personnel from the Chinese Academy of Science (CAS) Division of New Technology helped the military. Furthermore, there was a reduced emphasis on ideological work and more emphasis on professional expertise. In other words, the role of the state was reduced.

During the Cultural Revolution, people had to be classified according to whether they were “Red” or “Experts”. They asked, “Is science and technology the superstructure or the basis of society? Are scientists, members of the working class or not? How do we ensure that scientists and engineers work for socialist revolution, but not for bourgeois capitalism? Furthermore, what is the purpose of education? Is the purpose ideological or professional?” The Cultural Revolution lasted roughly ten years and it was extremely detrimental to the promotion of scientific and technological expertise in China. There were some positive effects of the Cultural Revolution but by far the negative effects outweigh the positive. Scientific research was badly disrupted. Research institutes were closed and scientists were sent to the countryside. Western scientific theory, such as Einstein's Theory of Relativity, were denounced. Many universities were closed. Education increasingly emphasized ideological persuasion instead of scientific expertise. Large, state-owned enterprises lost their prestige, power, influence and dominance. Marxist thought was to serve as a guide for all scientific enterprise and scientific activities. Class struggle was seen to be much more important so promoting science and technology would seem to be bad, unimportant, and unnecessary.

One of the positive effects of the Cultural Revolution was the increased need to rely on oneself, to reverse-engineer foreign technology and/or try to create technologies by oneself. The Chinese state considered that to be very important. There was also an attempt to integrate theory and practice. Rural industrialization was promoted to a large degree.
from Coursera course, Science and Technology and Society in China. Week 1. by Naubahar Sharif, The Hong Kong University of Science and Technology