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