David Crane

Chinese innovation is on the march

By David Crane

At its recent National People's Congress in Beijing, the Chinese government outlined an ambitious science and technology agenda for the next five years — putting us on notice that it will invest significant efforts to reach its long-term goal of becoming "an innovative country" by 2020 and, by 2050, a "world power" in science and technology.

If we need any evidence that a country can pursue such rapid advancement, we have only to look at South Korea, which transformed itself from a devastated and largely rural and uneducated society to an advanced nation in just over 40 years. Think of Samsung Electronics, Hyundai and Kia automobiles, LG Electronics and Korea Telecom.

China is clearly on the march, with a focused strategy. And while it still lags significantly in its ability to compete in key technologies – such as advanced computing systems, new materials, advanced manufacturing systems, chemicals, large-scale aircraft and pharmaceuticals – these are among the areas targeted for rapid development.

China's ambitions have a number of implications for Canada. They obviously point to a much more competitive environment for Canadian businesses but they also point to opportunities if Canada is smart enough to identify ways to take advantage of China's giant ambitions. China's ambitions also call into serious question the obsession of many of our political and business leaders with the US market and deep North American integration at a time when major growth and innovation is occurring in Asia.

But China's ambitions also mean that Canada has to become much more focused and strategic in identifying the niches it will pursue in a much more competitive global economy.

One indicator of China's determination is its intention to boost R&D spending as a share of GDP from about 1.3% to 1.5% by 2010, 2.0% by 2015 and 2.5% by 2020. These increases should be seen in the context of a rapidly rising per capita GDP, which is set to double between 2000 and 2010, and double again between 2010 and 2020. Government R&D spending in 2006 is to be increased 19.2% to US$8.9 billion.

At the same time, China has big ambitions for education. The new five-year plan calls for enrolling 5.3 million undergraduates in post-secondary education and 400,000 post-graduate students. Based on past performance, a large percentage will be in science and engineering programs. According to a UN report, in 2000-01 there were 2.6 million technical students – pure science, engineering, mathematics and computing – enrolled in Chinese institutions.

China feels it will be a derivative or dependent economy so long as it is dependent on other nations for core technology. It bridles not only at the sizeable royalty or licensing payments many of its industries now have to make to foreign corporations, but also because it is denied access to the latest advances in technology by the West. China also recognizes that if it wants to raise living standards it has to move to higher value-added products and services.

This is why a key objective of the 11th Five Year Plan (2006-2011) is to strengthen China's own national innovation system. "We will enhance capacity for independent innovation and build an innovation-oriented country," the economic and social development plan says. This effort will cut across many different fields, from genetically modified foods, clean coal, nuclear power, environmental technologies and high-speed rail to space and aviation, advanced computing, biotechnology, computer-based manufacturing systems, semiconductors, new materials and nanotechnology.

China's strategy will certainly raise government and university based R&D. But a key part of its strategy is to boost the capacity of industry so that Chinese companies and Chinese brand names can compete in knowledge-based industries through Chinese multinationals.

In its new five-year plan it promises new initiatives for "fiscal support, taxation, financing and government procurement in the preferential policies for independent innovation" and will "encourage enterprises to invest more in R&D." Moreover, it says, "we will support introduction of major technologies through joint bidding by a consortium of end-users, manufacturing enterprises and design institutes."

It plans to promote the development of high-tech industries, with improved financing systems. "Focusing on such key industries as integrated circuits, software and new components, we will foster a group of IT industries, such as digital AV equipment, next-generation internet, next-generation mobile communications, high-performance computers and network equipment. We will vigourously develop the biotechnology industry. We will accelerate the projects to develop radio and television broadcasting satellites and new feeder aircraft. We will continue to use IT to drive industrialization and make wide use of new and high technology and cutting-edge applied technology to upgrade traditional industries."

China also plans to boost its machinery industry and "will accelerate the domestic production of essential equipment through the development of major projects in 16 key areas, including gas-driven turbines, super-critical and ultra-critical coal-fired power generating units, mega-kilowatt nuclear power generators, high-speed trains, and large, complete coal conversion facilities and consequently stimulate the development of basic products and parts."

Last September, former prime minister Paul Martin and Chinese president Hu Jianto signed a Joint Declaration of Science and Technology Cooperation, with a commitment by the two countries to conduct a joint "Complementary Study" to identify areas of science and technology research, leading to a possible formal S&T cooperation agreement. The agreement referred to climate change and sustainable energy as examples. And when Hu visited Vancouver shortly afterwards, he made one corporate stop, at Ballard Power.

But since then, only limited progress has been made. The Complementary Study is unlikely to be completed until late this year, so a formal agreement is unlikely before 2007. But if China's S&T ambitions are to be more of an opportunity than a threat for Canada, we have to give this much higher priority. China's advance doesn't depend on Canada. But our future success will be very much influenced by China.

David Crane (crane@interlog.com) is a writer and advisor on innovation strategy. His column appears on Fridays in The Toronto Star.