Peter Josty is the Executive Director of The Centre for Innovation Studies based in Calgary.

There are a lot of things we would not want to copy from China – the authoritarian regime, the mass surveillance, the censorship, the lack of human rights, the weak rule of law, and the aggressive foreign policy. The list goes on.

But there is one thing that China does very well – developing new technology. Think solar panels, electric vehicles, artificial intelligence (Deep Seek, for example), lithium batteries, critical minerals processing and more.

Is there anything Canada can learn from China about developing new technologies?

Canada needs to do better

There is a saying in business that if you do what you’ve always done, you will get what you always got. What Canada has got in the last few decades is not good:

• Productivity has declined compared to other Organisation for Economic Co-operation and Development (OECD) countries.
• Business spending on R&D is less than half the OECD average and declining.
• Canada is overly dependent on exporting undifferentiated commodities (such as oil, natural gas, canola, wheat, beef and others).
• Our economy is too simple. According to the Harvard Atlas of Economic Complexity, Canada is ranked #41 globally in economic complexity, similar to Turkey and India, and well behind other G7 countries such as Japan (#1), Germany (#6),  the U.K. (#10) and the U.S. (#14). A complex national economy, characterized by a diverse range of industries, interconnected production processes and advanced technologies, enables a more robust and adaptable economy capable of weathering economic shocks, creating higher-value jobs and improving overall living standards.
• Canada’s global share of all advanced industries fell by one-third from 1995 to 2018, from 1.8 percent to 1.2 percent.
• Canada is ranked #13 on the Corruption Perception Index, a drop of 10 percentage points since 2012, from 84 out of 100 to 74 out of 100.

Developing new technologies

Normally, authoritarian states are very bad at developing new technologies – that is a key reason the Soviet Union collapsed. North Korea cannot innovate except in a very narrow military sense.

The reason for this is that innovation requires a lot of independent thinking and this is suppressed in authoritarian states.

But China is able to develop new technologies despite its authoritarian regime. Ten years ago, China was regarded as an imitator, rather than an innovator.

However, a 2023 report from the Washington, D.C.-based Information Technology and Innovation Foundation showed that China is rapidly closing the gap with the U.S. in terms of R&D spending and innovation. What is China doing to make such rapid progress?

The Chinese approach

We think of China as being very centralized. However, the way the country works is that it is highly centralized politically but decentralized economically.

A webinar by Keyu Jin, an economist at Harvard University, explains that in 2005 the Chinese government decided to target certain technologies for growth. These included solar cells, robotics and electric vehicles, among others. The government then farmed out to different cities across China the task of developing these technologies. It was up to the city governments to decide what to do, how much to spend and how to do it.

For example, for developing electric vehicles about 80 cities were involved. So, the centre sets the direction and it is implemented at the local level, without interference.

The cities have a large incentive to do a good job at developing the technologies. In China there is a strict administrative hierarchy and city mayors are candidates to be promoted to more senior jobs such as regional governors.

The central government measures the performance of cities by their GDP growth, innovation, environmental performance and stability.

Private companies in China are free to move around, so if a city gets a good reputation for supporting companies, more companies will move there and that increases the tax base, employment level and other performance indicators.

So, to a large degree the incentives of the private companies and local governments are aligned. City governments can invest equity in firms to speed their growth.

Conclusion

China has developed a system of non-market competition where multiple cities tackle the same problem and the best result wins. This mirrors the approach often taken by innovative firms in the West that have several teams tackling the same problem to speed up development. It is also the approach of a venture capitalist who invests in many companies, hoping some of them will succeed.

China is engaged in a large-scale experiment carried out across the whole country. The central government selects the topics to work on and allocates multiple cities to each topic and then lets them get on with it as they see fit.

This approach has produced world-leading results in areas such as solar cells, lithium batteries, electric vehicles, artificial intelligence and critical minerals processing.

This approach would be impossible to replicate in its entirety in Canada. It requires an all-powerful central government, a long-term strategy and strong non-market incentives that Canada can’t replicate.

However, the strategy of having multiple independent approaches to a few major problems of national importance may be worth examining further.

Indeed, national industrial strategies – like China’s – often employ multiple, sometimes independent approaches to address a few key economic challenges. Canada lacks such an industrial strategy, which innovation experts have been calling for.

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