1 A Preliminary Evaluation of Indigenous Innovation Policy of China Xielin LIU, PHD Professor in Graduate University of Chinese Academy of Sciences [email protected].

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A Preliminary Evaluation of Indigenous Innovation Policy of China

Xielin LIU, PHD

Professor in Graduate University of Chinese Academy of Sciences

[email protected]

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Outline

Achievement of innovation and challenge New strategy for 2020: indigenous innovation Evaluation of indigenous innovation policy Implication of standard setting Conclusion

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Share of High-tech exporting of the world

USA

Germany

UK

Japan

China

Korea

India0.00

5.00

10.00

15.00

20.00

25.00

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: NSF: Science and Engineering indicator, 2006.

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Accelerated catch-up in R&D intensity

GERD as a percentage of GDP,1990-2006,%

Source: ECD MSTI database 2006/2.

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R&D Intensity in 2004 and Annual Average Growth Rate of R&D

Intensity*,1999-2004

Source: Euro stat, “R&D expenditure in Europe”, Statistics in Focus, European Communities,June,2006.

* R&D intensity is R&D expenditure as a percentage of GDP

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Surge in applications for Chinese patents

1995-2006

Source: Chinese S&T Yellow Book 2004, and MOST website most.org.cn

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The number of invention patents granted to Chinese actors has risen

rapidly

Source: Chinese S&T Yellow Book 2004, and MOST website most.org.cn

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Summing up: a simplistic input-output account,1995-2004/05

Source: China S&T Statistical Yearbook 2005, China Yellow Book on S&T 2004, China Foreign Investment Report 2005, and MOST website most.org.cn

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Challenge Cost driven strategy, limit profit margin, trapped by

IPR, standards and high royalty for licensing technology.

Poor innovation capability in industrial level. No internationally competitive company.

High reliance of foreign technology supply in key industry, such as chips, software, machine tool, engine etc.

Technological dominance of multinationals in domestic industry

No leading edge scientists and research in China

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Strategic goal of indigenous innovation policy for 2020

Solid improvement of capability of S&T to promote economic and social development.

To master the leading edge industrial technology and decrease the reliance to foreign technology

To promote the enterprise from cost-driven to innovation driven.

Achievement of S&T results with global impact. Make China of innovative countries in the world

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1999—2004 R&D/GDP

Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2020

R&D/GDP（ % ） 0.76 0.90 0.95 1.07 1.13 1.23 1.34 1.42 1.49 1.52 2.5

Source: China S&T Database of MOST sts.org.cn

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16 Target technologies for 2020 General CPU New broad wireless mobile telecommunication High end digital machine tools Nuclear station New drugs Large Airplane Moon flight Trans-genetics products Anti-HIV and other dieses … Those project intend to start in a time before 2020 one

by one. But financial crises kicked off those mega projects earlier.

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Procurement to promote indigenous innovation

Priority for indigenous innovative products in public procurement

More than 30% of technology and equipments buying should go to domestic equipment if using public money

Giving indigenous products some price advantage in procurement

Identification needed before implementation of the policy.

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Improvement of Special tax policy 150% underwriting for R&D expenditure before tax

but with conditions 10% of R&D increase, a company in profit, cannot use the tax benefit to other year.

Now all the conditions are cancelled. No profit required No 10% increase is necessary Can write off the benefits in next three years. One income tax policy for domestic and foreign

companies in China High-tech company can enjoy free income tax for

the first two years and half for next three years after its profit year.

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Tax for high tech industry

Free income, operating, real estate and land tax in a given period for incubators and university science parks to encourage start-up firms.

For VC company, there will be tax reducing for investment revenue and income, but not specific this time, intending to promote VC in China.

Policy bank can invest in high-tech companies by using equity share.

Second board for SME, started from 2009.

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More support to IPR and standard setting Strongly Support TD-SCDMA: push China

Mobile to launch out TD-SCDMA. The effect is not yet sure.

Take standard and IPR as important indicator of achievement of government R&D project.

Direct support to enterprises for next generation technology and standards.

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Evaluation of indigenous policy

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Accelerating of R&D investments: yesNational R&D expenditure

2001 2002 2003 2004 2005 2006 2007 2008

National R&D expenditure

12.6 15.56 18.6 23.74 30.36 38.5 50.82 66.23

One billion of US dollar

Source: Data Bank of MOST. most.gov.cn, NBS, MOST and MOB (2009). Bulletin of national S&T expenditure

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More money for applied research and product development

Source: MOST, China Science and Technology Development Report, 2006.China S&T Literature Press.

2001 2002 2003 2004 2005 2006 2007 2008

973 Basic Research 71.2 82.8 96.6 108.3 121.8 173.6 225.5 275.4

Key Technologies R&D program

127.2 161.6 162.5 195.0 201.3 384.6 745.4 734.8

High-tech program (863) 301.9 305.9 1147.8 1122.3 1409.6

National Key Experimental Lab Program

15.7 15.7 15.7 15.7 16.6 27.7 21.9 23.3

Innovation fund for SME 94.6 65.2 80.2 99.9 122.5 108.1 172.1 211.6

National S&T programs

One million of US dollar

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More money for experimental development, Less money for basic

research

Basic

Research(%)

Applied Research(%)

Experimental Development(%

)of GDP

1995 5.18 26.39 68.43 0.57

2000 5.22 16.96 77.82 0.90

2005 5.36 17.70 76.95 1.34

2006 5.19 16.28 78.53 1.42

2007 4.70 13.29 82.01 1.49

2008 4.40*

Source: 2008 Statistical Yearbook of China's science and technology. *NBS, MOST and MOB (2009)

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Industry has taken a role in innovation system as counterparts

in developed countrySome countries’ R&D expenditure structure in 2006

Item China USA Japan Turkey Austria Czech Korea Russian

Financed by Industry(%)

69. 1 64. 9 77. 1 46. 1 46. 7 56. 9 75. 5 28. 8

Financed by Government(%)

24. 7 29. 3 16. 2 48. 6 37. 4 39. 0 23. 1 61. 1

Financed by Other Sources(%)

6. 2 5. 8 6. 8 5. 3 15. 9 4. 2 1. 5 10. 1

Source:2008 Statistical Yearbook of China's science and technology.

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All enterprises began to speed up their R&D investment, but the R&D investment gap between SOE and non-state enterprises is widening fast, why?

Source: China S&T Statistical Yearbook 2003-2008.

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Business R&D in China 1995-2005

Source: China S&T Statistical Yearbook 2003-2008.

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Chinese scientific publications are growing exponentially.

Chinese-authored publications included in Science Citation Index and Engineering Index, 1997-2005

Source: MOST online database, and China S&T Statistical Yearbook 2005.

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China’s emerging presence in nanoscience: papers.

Source: A comparative bibliometric study of several nanoscience ‘giants’ [J]. Research Policy,2007

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Patents granted in USA of China, Japan Korea and Taiwan

Year China Japan Korea Taiwan

1996 78 24355 1603 2477

1997 103 24498 2027 2678

1998 133 32543 3427 3911

1999 172 32928 3741 4664

2000 274 33387 3560 5976

2001 472 35417 3849 6685

2002 626 36860 4100 6883

2003 724 37744 4246 6846

2004 951 37568 4769 7435

2005 963 32243 4696 6172

2006 1621 39954 6634 8241

2007 1827 36452 7465 7759

2008 2653 37250 8924 8126

Source: Online database of United States patent and trademark office.www.patft.uspto.gov

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China India

USPTO Patenting by year for Various Nations,1963-2004

Source: Online database of United States patent and trademark office.www.patft.uspto.gov

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Conclusion and discussion: The government spends more on applied science,

experimental development and mega projects as ways of promoting innovation, in the same time, the share of expenditure for basic science has been decreased. But this will not lead more radical innovation and standard setting in long run.

Foreign related enterprises remain in key innovation performance indicators, even much faster to spend R&D in China from 2003 on. It means that after indigenous innovation policy, foreign company are not intended to leave, vice versa, they are determined to be more localized.

So, we can forecast that in near future, foreign company will continuously be the main actor in industrial standard setting.

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Conclusion and discussion 2The gap of needs and the power in standard setting SOEs have been accumulating their innovation capability,

but lots of indicator show that State-owned enterprises have lost their dominant position of innovation. Though the current innovation policy favors SOEs, but the regulation of SOEs and their monopoly position restrained them to be innovation driven. They have the power to implement standards, but do not have the incentive to get it.

Private enterprises are the fast runner to build innovation capability, though they enjoy less direct support from government. They need standards to win out in the market competition, but they are relatively weak to do so.

So, Chinese companies are the weak stakeholders in standard setting.

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Conclusion and discussion 3:market size Market size is the key for standard setting? Lots of scholars argue that the size of

Chinese market can nurture lots of standards if China is willing to in software, telecommunication, etc.

But the touch situation of TD-SCDMA shows that just market size is not enough to lead to standard setting and control.