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