1 Organization, Program and Structure: An Analysis of Chinese Innovation Policy Framework Can Huang Department of Economics, Management and Industrial.

1

Organization, Program and Structure: An Analysis of Chinese Innovation Policy Framework

Can HuangDepartment of Economics, Management and Industrial

EngineeringUniversity of Aveiro

Aveiro, [email protected]

Ph.D School on National Systems of Innovation and Economic Development, May 25- June 3, 2004, Lisbon, Portugal

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Some Words Before Some Words Before PresentationPresentation

The paper to be presented is descriptive.

My recent quantitative analysis work is added after the presentation of this paper.

The motivation and purpose of writing this paper

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Background (1)Background (1)

Transition and development of Chinese economy and society in the past 25 years

Complicated and diverse change of Chinese innovation policy in the past 25 years

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Background (2)Background (2)

Latest Changes in China till early of 2004

China’s entry to the WTO (2001) Reverse inflow of overseas Chinese (From 1986-2001, 7.5% Doctor Degree of S&

T in US is confered to Chinese-born Scientists) Foreign companies have started to establish local R&D centers (More than 100

MNCs) Domestic firms are already sourcing know-how directly in US, Europe and Japa

n, or have created their own powerhouse of innovation, aiming at compete in the global market (HuaWei and Zhongxing in Telecomnunication, TCL and Haier in Consumer Eletronics, thousands of SMEs, etc.)

China’s S&T institutions and universities experienced large scale shake-up and received unprecedented investment from the governemnt. (Gradual transition since 1985; radical one began in 1999)

Amend the Constitution to protect the private property right ( March, 2004)

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Background (3)Background (3)

GDP: 6th largest economy in the world International Trade: 4th biggest trader in the world

Highway Kilometers: 2nd in the world GERD/GDP in 2002: 1.2% R&D Expenditure : 3th largest spender in the world (measured by PPP) (Source: O

ECD) The number of “Science Citation Index” Papers: 5th in the world(Source: Chinese

Government) Patent (US? Or “Triadic” Patent Families) of Nanotechnology: 3rd in the world (Sou

rce: Chinese Government)

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QuestionsQuestions Which government bodies have become responsible for

innovation policy at the national level?

Which organizations can be considered important participants in the process of policy making?

To what extent has China developed an innovation policy?

In which area of the innovation policy does China do well, and where does it lag behind compared with international practices?

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Steps to Approach the Steps to Approach the QuestionsQuestionsFirst - Identifies the stakeholders; compares them with different gove

rnment systems in selected OECD countries.

Second - Examine China's innovation policy in five categories: reform in the public S&T institutions, financial policy, business innovation support structure, human resource policy and legislative actions.

Third - Several weak components of the Chinese innovation policy framework are identified; two of them are selected for further analyzis: education and human resource policy, and protection of Intellectual Property Rights (IPR).

Fourth – Provides some priorities and possible actions for future innovation policy developments in China.

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TheThe Governance Models of Governance Models of Innovation Policy Matter in China (1)Innovation Policy Matter in China (1)

A coordination mechanism in China’s State Council --- State Steering Committee of S&T and Education, founded in 1998.

Mission: decides national strategy for S&T and education, important projects and programs in the S&T and education fields, and coordinates the innovation policy in the ministry and local levels.

Ministry of Science and Technology ( MOST) --- Center of the design and implementation of innovation policy.

Other important stakeholders: Ministry of Education, Chinese Academy of Science, etc..

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Figure 1 Chinese Innovation Policy Figure 1 Chinese Innovation Policy InstitutionsInstitutions

Ministry of Education

Ministry of Personnel

Patent and Other IPR Issues

Chinese Academy of Science

Ministry of Science and Technology (MOST)

Ministry of Commerce

Ministry of Finance

Innovation Fund for Small Technology Based Firm

Funding the Basic Research Programs such as 973 Program; Funding the High-Tech R&D Programs such as 863 Program

State Intellectual Property Office

Productivity Promotion Center

Conducting Research and Promoting Innovation

Support SMEs Innovation

R&D Program, Science Park, Human Resource Development related to University

Tax Relief Policy to Export of High-Tech Products; FDI Preference Policy to High-Tech Industry Sectors

State Council – State Steering Committee of S&T and Education

Funding the Technology Transfer Programs such as Spark Program

Other Government Ministries

Promoting Science Parks and incubators through the programs such as Torch Program

Attracting Overseas Chinese Scholars, Managing post-doctor program, etc.

State Administration for Industry and Commerce

Competition Rules

National Natural Science Foundation of China

Funding Basic Research

National Development and Reform Commission

Design and Implement national comprehensive development strategy in the form of 5-year development plan, having great influence in China’s innovation policy Ministry of Information

Industry

Design and Implement the development strategy of ICT sectors in China

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The Governance Models of Innovation The Governance Models of Innovation Policy Matter in some Selected OECD Policy Matter in some Selected OECD CountriesCountries

Three categories of institutional frameworks

Similar practices of Chinese co-ordination structures at ministerial level in the EU countries,

In Finland - the Science & Technology Council, chaired by the prime minister, is composed of seven Ministers and ten representative organizations.

Category Example

No separation between the government departments that design policy and those that implement measures

UK (This category is very similar to China’s governance system.)

Policy is framed by ministries but delivered by semi-autonomous agencies

Ireland

Innovation policy framework is more complex with interaction of federal and local governments

Austria, Belgium, Germany, Spain

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The Policy Actions Implemented in The Policy Actions Implemented in China for Promoting Innovation (1) China for Promoting Innovation (1)

Some scholars endeavored to create a theoretical scheme to compa

re the different national innovation system in the diversified social and economic context (Nelson, 1993; Liu and White, 2000; Shyu et al., 2001; Chang and Shih, 2003)

The collected literature does not elicit many scattered policies in China to gives us a comprehensive answer, especially for the question in which area the policy has been catching up and in which it is still weak.

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Figure 2 Chinese Innovation Policy Figure 2 Chinese Innovation Policy FrameworkFramework

Human Resources Policy • Education Development Policy for Basic Education • “211 Project” for Higher Education • Ministry of Education’s Human Resource Programs

Legislative Actions • IPR and Competition Legislation • S&T Legislation • Education Legislation

Financial Policy • Current S&T Programs (Grants, Loans, Interest Subsidiary, etc.) • Tax Preference Policy and FDI • Venture Capital and Stock Market

Business Innovation Support Structure

• Science Park and Incubators • China High-Tech Fair • Productivity Promotion Centers

Reform in the Public S&T Institutions

Figure 2 Chinese Innovation Policy Framework

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Reform in the Public S&T Institutions (1) Reform in the Public S&T Institutions (1)

Gu (1995) discussed intensively the policy reform for the S&T System in China by dividing the evolution of the reform policy into several phases.

Recently, Suttmeier and Cao (1999), Liu and White (2001), Liu and Jiang (2001) and Cao (2002) extended the empirical observation of policy initiative after 1995.

However, the analysis on the newest round reform since 1999, called “the transformation of the R&D institutes”, is seldom seen in the published literature.

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Table 1: Chinese Reform Policy for Table 1: Chinese Reform Policy for Public S&T Institutions: 1978-2004Public S&T Institutions: 1978-2004

Period Policy Actions Target Policy Actions

Reformation of Planning Practice(1978-1984)

Recover and develop the R&D system and integrate it into the planned economic practices.

• Rehabilitation and improvement of R&D institutions after the damage during Culture Revolution (1966-1976).• Integration of R&D activities into the 6th National Five-Year Plan (1980-1985).

Performing the S&T activities in the “Market”

(1985-1991)

Establish the horizontal and regular connection between S&T sector and enterprises.

• Replace the former S&T funding method that is mainly through planned appropriation by the program projects competition mechanism.• Diminish the government grants to force the R&D institution to establish cooperation with industry.• Create a “Technology Market” to legitimize paid transactions for technology and set up the agencies to support the transactions.• Promote the autonomy of R&D institutions and mobility of the S&T Personnel.• Attempt merging the R&D institutions into enterprises.• Support the spin-off enterprises.

Bridging S&T activities closely to “ Socialist Market Economy”

(1992-1998)

Run non-basic research R&D institutions as run enterprises.

• Endow the R&D institutions the comprehensive economic autonomy as the same hold by normal enterprises.• Encourage spin-off activities through promoting science park and incubators.• Continue the merging strategy.

Large Scale Transformation of R&D institutions(1999 till now)

Transform nearly all of the government owned R&D institutions.

• Transform the R&D institutions into enterprises, non-profit organizations, intermediary organizations or merged them into universities.

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Table 2: Transformation of Public R&D Table 2: Transformation of Public R&D Institutions in China After 1999Institutions in China After 1999

Transformati

on Year

Number of Transformed

R&D Institutions

Owners of the Transformed R&D

InstitutionsStatus After Transformation

Preliminary Result MOST Survey in 2002 May on 290 Transformed R&D

Institutions

1999 242Ex-State Economy and

Trade Commission

Enterprises 

• Revenue in 2001: 1.5 times of in 1999; Profit in 2001: 2.6 times of in 1999; Tax in 2001: 1.9 times of in 1999.• R&D expenditure annual increase rate in 2001: 16.2%; in 2000: 6.84%.• Patent application annual increase rate in 2001: 9.6%.• Employee average salary in 2001: 142.6% of that in 1999. • 92.6% of them set up enterprises accounting system; 88.65% entered the local unemployment insurance; over 10 of them went public in the stock market.

2000 13411 Ministries: Ministry o

f Construction, etc.

1999 - 2002

660 Local Governments

2001 984 Ministries and Agencies: Ministry of Land an

d Resources, etc. 89 institutions: Non-profit Organizations

61 institutions: EnterprisesOthers: Merged into universities, transformed into interm

ediary organizations

N/A2002 1079 Ministries and Agencies: Ministry of Agricultu

re, etc.

2004 435 Ministries and Agencies: Ministry of Health et

c.

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Financial Policy (1)Financial Policy (1)

• Current Current S&T Programs (Grants, Loans, Interest Subsidiary, etc.)

• Tax Preference Policy and FDI

• Venture Capital and Stock Market

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Table3: China’s current S&T programsTable3: China’s current S&T programs

Program

Initiatin

g Yea

r

Objective Program Characteristics

Key Technology R&D Program

(Gong Guan Ji Hua)

1983

Concentrate resources on key and common technologies that direly needed by industrial upgrading and social

sustainable development.

The program target set in 10th five-year plan from 2001 to 2005 is:1) By 2005 the general agriculture technology is increased to the level that lags behind international advanced level 5 years; 2)The technology and equipment level in several key industry sectors like ICT and manufacturing sector matches the level of developed countries in the mid of 1990s;3) Develop the technology related to environment protection and sustainable development; 4) Support the enterprises to be the major technological innovators.

State Key Laboratories Program

(Guo Jia Zhong Dian Shi Yan Shi Ji Hua)

1984

Support selected laboratories at public or private facilities.This program is intended to promote the research and advanced training in the 159 laboratories (2002 data) belonging to universities and R&D institutions and establish a string of national engineering research centers.

Spark Program(Huo Ju ji Hua)

1986

Support technology transfer to rural area to promote the rural area development.

In 1990s the government appropriation for this program hardly surpassed 5%. The bank loan and enterprises own capital occupied the majority investment of the projects. In fact, the projects sponsored by this program attain the government credit for the bank loan application. In 2000, 16.8% of total investment of this program came from bank loans.

National Natural Science Foundation of Chi

na (NSFC)(Guo Jia Zi Ran Ke X

ue Ji Jin)

1986

Support basic research through directly funding the projects.

From its establishment of 1986 to 2000, the NSFC has funded over 52,000 research projects of various categories by investing a total sum of RMB 6.6 billion. More than 60,000 scientists are supported by NSFC to conduct basic research. In 2004, the NSFC received over 40,000 funding applications.

High Technology R&D Program (863 Progr

am)(863 Ji Hua)

1986

Enhance China's international competitiveness and improve China's overall capability of R&D in high technology.

The Program is concentrating on mid to long-term development in both civilian and military areas. This Program is co-managed by MOST and the Commission of S&T and Industry for National Defense. The Program covers 20 subject topics selected from eight priority areas: Biotechnology, Information, Automation, Energy, Advanced Materials, Marine, and Space and Laser. Recent years 863 program continuously increased the funding for R&D projects undertaken by enterprise.

National New Product Program

(Guo Jia Zhong Dian Xin Chan Pin Ji Hua)

1988

Compile the annual list of new and high technology product and fund those products selectively through the

grants and interest subsidiary.

In 2002, 71.86% of the program’s funding is by the means of grants and 28.14% is through interest subsidiary.

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Table3: China’s current S&T programs Table3: China’s current S&T programs (Cont. )(Cont. )

National New Product Program

(Guo Jia Zhong Dian Xin Chan Pin Ji Hua)

1988

Compile the annual list of new and high technology product and fund those products selectively through the

grants and interest subsidiary.

In 2002, 71.86% of the program’s funding is by the means of grants and 28.14% is through interest subsidiary.

Torch Program(Huo Ju Ji Hua)

1988

Support high technology industry sector development through setting up science park and incubator, funding

projects, and human resource training etc.

By the end of 2003, through Torch Program the governments have established the structure such as science park, incubator, software park, university science park etc. Inside these science parks and incubators, 28,504 high technology enterprises had been founded and created 3.49 million jobs. The program had funded 10,261 projects.

Key Basic Science R&D Program (973 Progra

m)(973 Ji Hua)

1997

Support basic science research.

The 973 Program’s specific tasks are to support the implementation of key basic research in important scientific areas related to agriculture, energy resources, information, resources & environment, and population & health; to provide a theoretical basis and scientific foundation for innovation; to foster human resource; and to establish a number of high level scientific research units.

The Innovation Fund for Small Technology Bas

ed Firms (IFSTBF)(Ke Ji Xing Zhong Xiao Qi Ye Chuang Xin Ji Ji

n)

1999

Support the establishment of Newly Technology Based Firms.

The financial support includes interest subsidiary, grants and capital investment. The fund connects to Key Technology R&D Program, 863 program and Torch Program to facilitate the technology transfer from the R&D projects funded by them.

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Financial Policy (3) Financial Policy (3)

The biggest three funding programs led by MOST in 2004:

• 863 Program

• Key Technology R&D Program

• 973 Program

Holding 72% of the funding managed by MOST for R&D in the country. (National Natural Science Foundation of China is independent from MOST and reports directly to State Council.)

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Table 4: The Funding for Current Table 4: The Funding for Current Chinese S&T Program (1996-2004)Chinese S&T Program (1996-2004) ((Unit: Billion RMB)Unit: Billion RMB) 

Key Technology R&D Program 1.064 1.064 1.064 1.064 1.064 1.5454

1.5454 N/A 1.5 1.18%

National Key Laboratories Program

N/A N/A N/A N/A 1.542 1.737 2.212 N/A N/A 1.72%

Spark Program 28.804 35.754 34.008 38.4348.21

3N/A N/A N/A N/A 53.83%

National Science Foundation of China

0.646 0.777 0.889 1.084 1.284 1.598 1.968 N/A2.246 1.43%

863 Program2 0.45 0.65 0.67 0.8 0.9Over

2Over

4N/A 5.5 1.00%

National New Product Program N/A N/A 0.135 0.14 0.14 0.140.138

6N/A N/A 0.16%

973 ProgramNot Start

0.6254 0.6254 0.6254

0.6254 N/A N/A N/A 0.9 0.70%

1996 1997 1998 1999 2000 2001 2002200

32004

3

Ratio of Funding in 2000 to Gross Domestic Expenditure on R&D (GERD)5

The Innovation Fund for Small Technology Based Firms

Not Start

Not Start

Not Start

0.816 0.695 0.8 0.5 NA NA 0.78%

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Financial Policy (3) Financial Policy (3)

The biggest three funding programs led by MOST in 2004:

• 863 Program

• Key Technology R&D Program

• 973 Program

Holding 72% of the funding managed by MOST for R&D in the country. (National Natural Science Foundation of China is independent from MOST and reports directly to State Council.)

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Financial Policy (4) Financial Policy (4)

Chinese central government continuously implements tax advantage and deduction policies targeted towards foreign investors, but shifts the focus of preference fiscal policy from low-tech and labor-intensive industry to high-tech manufacture and service sectors.

In July 2003 MOST and the Ministry of Commerce developed a list of high-tech products that China’s government is going to attract FDI to produce in China.

Currently in China, there does not exist a specific law to regulate venture capital development.

At the local level the Shenzhen, Chongqing, Shenyang municipal governments have enacted some local regulations to protect and promote venture capital development in their administrative areas.

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Financial Policy (5) Financial Policy (5)

Additionally, the Chinese stock market is acting in support of high technology companies listed on the market.

By August 1999, the listed high technology companies accounted for 17.8% of all companies listed.

Their average earnings per share and return on equity compared with the average of the ordinary listed companies are 64% and 45.5% higher respectively (Zhou, 1999).

The debate of the feasibility of creation of “Chinese NASDAQ” has not concluded yet and recently it seemed that the favorable decision for the establishment of Chinese SME board has been made (Securities Times, 2004)

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Business Innovation Support Business Innovation Support Structure (1)Structure (1)

By 2002 at the national level alone

over 400 business incubators

53 high-technology development zones

They have been developed through governmental support, mainly through Torch Program.

They contributed much to build China as “World Factory”

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Table 5: Chinese Science Park and Table 5: Chinese Science Park and Incubator Development (Unit: Billion Incubator Development (Unit: Billion RMB)RMB)

Total Revenue of the 53 National High-Technology Zones1

8.73

23.09

56.36

94.26

152.9230.0

3338.7

8483.9

6677.4

8920.9

31192.84

1532.64

Output Value of the Enterprises inside 53 National High-technology Zones1

7.12

18.68

44.73

85.27

140.28

214.23

310.92

433.36

594.36

794.2 1011.681293.

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Output Value at Current Prices of High Technology Sector across China1,2         409.8 490.9 597.2 711.1 821.7

1041.1

1226.3  

Output Value at Current Prices of Manufacture Sector across China1,2         4870

5130.1

5998.5

5966.8

6395.4

7510.8

8442.1  

Ratio of Output Value of the Enterprises inside 53 National High-technology Zones to Output Value at

Current Prices of High Technology Sector across China

       34.23

%43.64

%52.06

%60.94

%72.33

%76.28

%

82.50%

Ratio of Output Value of the Enterprises inside 53 National High-technology Zones to Output Value at Current Prices of Manufacture Sector across China

       2.88%

4.18%

5.18%

7.26%

9.29%

10.57%

11.98%

Number of Incubator 43 61 61 73 73 90 100 77 110 131 280 436

Number of Tenants 5001,01

31,50

01,39

01,854 2,476 2,670 4,138 5,293 7,693 12,821

23,373

1991

1992

1992

1994

1995 1996 1997 1998 1999 2000 2001 2002

Number of Graduated Tenants       190 364 648 825 1,316 1,934 2,770 3,994 6,927

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Business Innovation Support Business Innovation Support Structure (3) Structure (3)

As an intermediary event, China Hi-Tech Fair (CHTF) now receives strong support from the central government to play a role of linking Chinese and overseas high-tech industry sectors.

Productivity Promotion Centers (PCCs) in China are deemed for a group of intermediary and consulting organizations, established since 1992 throughout the country to support innovation in the business sector.

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Strengthening Human Resources Strengthening Human Resources MeasuresMeasures

Figure 3 Ministry of Education’s Human Resource Programs

Source: Ministry of Education, 2002

Cheung Kong Scholar Program(Chang Jiang Xue Zhe Jiang Li Ji Hua)

University Young Scholar Award(Gao Xiao Qing Nian Jiao Shi Jiang)

New Century Talents Training Program(Kua Shi Ji You Xiu Ren Cai Pei Yang Ji Hua)

Promising Young Scholar Funding Program

(You Xiu Qing Nian Jiao Shi Zi Zhu Ji Hua)

University Key Scholar Funding Program

(Gao Deng Xue Xiao Gu Gan Jiao Shi Zi Zhu Ji Hua)

Overseas Returnee Scientific Research Fund

(Liu Xue Hui Guo Ren Yuan Ke Yan Qi Dong Zi Jin)

First Level

Second Level

Third Level

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Legislative ActionsLegislative Actions

In the competition and IPR protection field

In the S&T and innovation field

In the education field

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The Analysis of China’s Innovation The Analysis of China’s Innovation Policy in the OECD context (1)Policy in the OECD context (1)

The EU launched a project in 1999 entitled “ Trend Chart on Innovation in Europe”. We try to utilize innovation policy classification in Trend Chart database, which contains the EU countries’ diversified practices in innovation policy, to present the difference between Chinese and EU countries’ policy development..

And we also cite the data from “OECD Science Technology Industry Scoreboard 2003” to form a quantitative illustration of the China and OECD innovation performance discrepancy.

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Table 6: Comparison of innovation Table 6: Comparison of innovation policy objectives in China and the policy objectives in China and the European Countries European Countries

The EU Trend Chart Innovation Policy Classification System

Examples of Policy Practices in ChinaPolicy

CategoryPolicy Priority

Fostering an

Innovation Culture

Education and initial and further training

Regulations on Degrees (1980), Compulsory Education Law (1986), Teachers Law (1993), Education Law (1995), Vocation al Education Law (1996) and Higher Education Law (1998) showed the government’s legislative efforts since 1980s. “211 Project” and series of award and training programs including Cheung Kong Scholars Program proved the recent policy actions. However, the education and training in China are still insufficiently invested. The further discussion is seen in the paper section 4.1.

Mobility of students, research workers

and teachers

Policy co-developed by Ministry of Education and Ministry of Personnel, supporting foreign experts working in China, attracting overseas Chinese students and scholars to return, and encouraging the placement of Ph.D graduate for post doctoral research in enterprises.

Raising the awareness of the larger public and involving those

concerned

Enactment of Dissemination of Science and Technology Knowledge Law (2002). Tax preference policy to activities and institutions disseminating S&T knowledge. Grants for the project of increasing public awareness of S&T.

Fostering innovative organizational and

management practices in enterprises

Not Available.

Public authorities and support to

innovation policy-makers

Not Available.

Promotion of clustering and co-

operation for innovation

Many of the strategies are developed by local governments. For example, the cooperation of the Shanghai municipal government and other neighboring provinces in the Yangtze river delta for strategy design and the similar one among Guangdong province, Hong kong, Macau and other neighboring provinces in south of China.

Establishing a

Framework conducive

to Innovation

CompetitionEnactment of Unfair Competition Law (1993), Protecting Consumer’s Rights and Interests Law (1993) and Regulations on Anti-dumping and Anti-subsidization (1997), Price Law (1998) justified the government’s legislative efforts. However, this young competition policy regime needs to be improved and strengthened (Lin, 2003).

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Table 6: Comparison of innovation Table 6: Comparison of innovation policy objectives in China and the policy objectives in China and the European Countries (Cont.)European Countries (Cont.)

Establishing a Framework conducive to Innovation

CompetitionEnactment of Unfair Competition Law (1993), Protecting Consumer’s Rights and Interests Law (1993) and Regulations on Anti-dumping and Anti-subsidization (1997), Price Law (1998) justified the government’s legislative efforts. However, this young competition policy regime needs to be improved and strengthened (Lin, 2003).

Protection of intellectual and

industrial property

MOST issued several regulations on IPR protection and exploitation. State Intellectual Property Office launched the projects to strengthen the awareness in the innovation-intensified organizations and disseminate the result to the populace. However, the IPR policy in China is still needed to restructured and improved. The further discussion is seen in this paper section 4.2.

Administrative simplification

Regulations of simplifying administration to encourage creation of Newly Technology Based Firms (hereafter NTBFs) and attract FDI.

Amelioration of legal and regulatory environments

Legislative actions taken in China cover the field of IPR, S&T and education, etc. The further discussion is seen in this paper section 3.5.

Innovation financing Foundation of IFSTBF.

TaxationTax preference policy for encouraging creation of NTBFs and attracting FDI. However, the current tax preference policy for encouraging innovation in the established enterprises did not achieve excellent performance (Wu, 2003).

Gearing Research to Innovation

Strategic vision of research and development

Ongoing development of an outline document “2006-2020 Chinese National Science and Technology Development Plan”.

Strengthening research carried out by

companies

Some tax preference policy for enterprises in some industry sectors, like in integrated circuit manufacture sector. However, the effect of this group of fiscal policy is weak according to Wu (2003). 863 Program increasingly supported the R&D projects done in industry. In 2002, 30% of the projects financed by the program are implemented in the enterprises (863 Program, 2004)

Start-up of technology- based companies

Policies targeting science parks and incubators, attracting overseas Chinese to set up NTBFs in China.

Intensified co-operation between research, universities and

companies

Created a new type of agency titled “Technology Transfer Center” in 2003.

Strengthening the ability of companies, particularly SMEs, to absorb technologies

and know-how

Not Available.

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Table 7: Selected Science and Technology Table 7: Selected Science and Technology Indicators for China and some OECD and Indicators for China and some OECD and non-OECD Countries non-OECD Countries

Gross Domestic Expenditure on R&D GERD (million current PPP$)1

72,076.80

6,359.70

14,190.40

2,129.70

162,813.30

578,749.40

13,556.502

96,532.30

2,367.70

9,232.70

252,938.50

GERD as a percentage of GDP1 1.29 4.73 1.24 2.19 1.93 2.33 1.072 3.09 0.67 4.27 2.82

Total Researchers per Thousand Total Employment1 1.10 N/A 7.50 9.00 5.802 6.502 2.902 10.20 3.80 10.60 8.603

Percentage of GERD financed by Industry1 57.602 69.602 32.902 55.002 56.20 63.60 43.004 73.00 30.80 71.90 68.30

Percentage of GERD financed by Government1 33.402 24.702 54.802 40.302 34.50 28.90 50.804 18.50 64.80 21.00 26.90

Business Enterprises Expenditure on R&D BERD (million current PPP$) 1

44,099.20

4,643.50

9,915.70

1,308.20

105,121.20

403,243.60

7,275.20

71,119.10

848.407,166.8

0188,122.

80

BERD as a percentage of GDP1 0.79 3.46 0.87 1.34 1.062 1.48 0.434 2.25 0.21 3.07 1.92

Number of “Triadic” Patent Families Per Million Population5

0.055 54.167 0.490 19.118 35.897 37.417 12.103 89.400 0.233 94.216 52.712

Number of Patents in the ICT Sector Applications to the EPO Per Million Population5 0.031 61.714 0.320 22.177 35.313 30.754 9.360 60.810 0.129 88.793 40.337

  China Israel

Russian

Federation

Singapore

EU 15OECD Total

Italy Japan PolandSwede

nUS

Number of Patents in the Biotechnology Sector Applications to the EPO Per Million Population5 0.008 11.739 0.095 2.294 5.341 5.153 1.042 4.691 0.052 7.456 9.634

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The Analysis of China’s Innovation The Analysis of China’s Innovation Policy in the OECD context (5)Policy in the OECD context (5)

The areas that Chinese Innovation Policy are deemed to be undeveloped:

Education and initial and further training;

Fostering innovative activities including promoting the research carried out in enterprises, particularly SMEs;

Public authorities and support to innovation policy-makers;

Protection of intellectual and industrial property;

Innovation financing;

Intensified co-operation between research, universities and companies.

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Education and Human Resources (1)Education and Human Resources (1)

China’s education reform since 1980s has been discussed comprehensively in t

he literature, from the point of view of public policy (Kwong, 1996; Mok and Wat, 1998; Yang, 1998), the finance (Tsang, 1996), and the legislation (Law, 2002). Some empirical studies (Liu, 2004) and even the official address of the Chinese leaders (Zhu, 2001) also provided evidence for the conclusion reached in the theoretical analyses.

OECD and UNESCO’ s World Education Indicators (WEI) Program

WEI Countries: Argentina, Brazil, Chile, Egypt, India, Indonesia, Jordan, Malaysia, Paraguay, Peru, Philippines, Russian Federation, Sri Lanka, Thailand, Tunisia, Uruguay, Zimbabwe.

China not only lags much behind the OECD countries’ average level in many indicators but also stays in an unfavorable situation compared with WEI countries.

35

Table 8: China’s Education Performance Table 8: China’s Education Performance in World Education Indicators Programin World Education Indicators Program

Table 8: China’s Education Performance in World Education Indicators Program

  China’s Performance

WEI Average

OECD Average

Ratio of China’s performance to WEI Average

Ratio of China’s performance to OECD

Average

School Expectancy for a five-year-old Child (Year) (2000)

10.3 13.0 16.8 79.2% 61.3%

Gross Entry Rates to Upper Secondary Education (2000) 42% 64% - 65.6% -

Entry Rates to Tertiary Education (2000) 14% 40% 60% 35.0% 23.3%

Average Years of Schooling in the Population Aged 15-64 (Years) (2000)

5.96 7.63 - 78.1% -

Public Expenditure on Educational as a Percentage of GDP (1999)

2.1 4.3 5.2 48.8% 40.4%

Relative Proportion of Private Expenditure on Education Institutions (1999)

44.2% 28.3% 12% 156.2% 368.3%

36

Education and Human Resources (3)Education and Human Resources (3)

The Education Law stipulates that the governments of various levels have the legal obligation of enforcing that “ the increase of education expenditure of government at various levels shall be at a higher rate than the growth of normal financial revenue”.

However, after its promulgation in 1995, the increase rate of total education appropriation of central and local governments in 1996 and 1997 were still lower than that of budgetary revenue. From 1999 to 2001 the central government itself failed to fulfill this legal obligation.

Additionally, after the implementation of the reform strategy of education finance decentralization and diversification, local government’s appropriation dominates public expenditure in education, showed by the decreasingly low ratio of appropriation of central governments to local government.

37

Table 9: China’s Budgetary Table 9: China’s Budgetary Appropriation for Education in 1990s Appropriation for Education in 1990s

 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Data Breakdown

Government Appropriation for Education Expenditure1

(Thousand RMB)

45,970,000

53,870,000

64,440,000

88,400,000

102,840,00

0

121,190,00

0

15,707,730

19,966,660

21,539,610

21,854,192

26,655,680

Central Governme

nt120,064,90

0

136,592,51

0

160,036,36

3

186,713,72

8

231,581,93

9

Local Governme

nt

Government Budgetary Revenue1 (Thousand RMB)

314,948,00

0

348,337,00

0

434,895,00

0

521,810,00

0

624,220,00

0

740,799,00

0

422,692,00

0

489,200,00

0

584,921,00

0

698,917,00

0

858,274,00

0

Central Governme

nt442,422,00

0

498,395,00

0

559,487,00

0

640,606,00

0

780,330,00

0

Local Governme

nt

Annual Increase Rate of Government Appropriation for Education Expenditure 1 5.9% 17.2% 19.6% 37.2% 16.3%

17.8%

12.0%

27.1% 7.9% 1.5%22.0%

Central Governme

nt

13.8% 17.2% 16.7% 24.0% Local Governme

nt

Annual Increase Rate of Government Budgetary Revenue1 7.2% 10.6% 24.8% 20.0% 19.6%

18.7%

16.8%

15.7%19.6%

19.5%

22.8%

Central Governme

nt

12.7% 12.3% 14.5% 21.8% Local Governme

nt

Ratio of Appropriation of Central Governments to Local Government

N/A N/A N/A N/A N/A N/A 13.1% 14.6% 13.5% 11.7% 11.5% 

38

Protection of Intellectual and Protection of Intellectual and Industrial Property (1)Industrial Property (1)

Since 1990s the issue of protection of IPR in China has been not only a national economic and juridical dilemma, but also a significant economic and political concern for a number of industry interest groups and governments in developed countries.

The piracy problem in China has provoked much dispute between Chinese and its western counterparts, particularly between China and US (Oksenberg et al., 1996).

According to Business Software Alliance (2003), China had still the second highest piracy rate with 92% in the world after Vietnam and caused losses of US$ 2.4 billion in 2002, representing 44% of the total dollar losses in the Asia/Pacific region and 18% of the total world dollar losses.

39

Table 10: Estimated Trade Losses (US$ Table 10: Estimated Trade Losses (US$ Millions) Due to Piracy and Piracy Rate Millions) Due to Piracy and Piracy Rate in China: 1999-2003in China: 1999-2003

Industry 1999 2000 2001 2002 2003

 Los

sPiracy Rate

Loss

Piracy Rate

Loss

Piracy Rate

Loss

Piracy Rate

Loss

Piracy Rate

Motion Pictures120.

090%

120.0

90%160.

088%

168.0

91%178.

095%

Records and Music 70.0 90% 70.0 93%47.0

290% 48.0 90%

286.0

90%

Business Software Applications1

437.2

91%765.

194%

1140.2

92%1637.3

92%N/A

N/A

Entertainment Software

1382.5

95% N/A 99%455.

092% N/A 96%

568.2

96%

Books128.

0N/A

130.0

N/A130.

0N/A 40.0 N/A

40.0

N/A

Total2137.7

-1085.1

-1932.5

-1893.3

- - -

40

Protection of Intellectual and Protection of Intellectual and Industrial Property (3)Industrial Property (3)

Oksenberg et al. (1996) examine the cultural and historical tradition of the denounced performance of IPR protection in China, that is, the Confucian tradition and the policy of the regimes in most of the time of the 20th century, particularly in the Mao Era (1949-1976).

However, recently Yang and Maskus (2003) demonstrated under the certain condition, the stronger IPR protection in the South would increase the rate of innovation and the extent of high-quality licensing from the North to the South. The condition specified in their work that the labor force input in innovation must be sufficiently small compared with that in production and the labor cost in the South must be sufficiently low, perfectly matches the case of China.

Clarke (2001) pointed that stronger institutions and better protection of property rights encourage greater R&D expenditures in developing countries.

41

ConclusionConclusion

Future Possible Priority for Chinese Innovation Policy Actions:

It is clear that in China education must be set as the priority in central and local governments’ budget appropriation and outlays.

Moreover, it is necessary to define a long-term strategy to strengthen the legal and administrative regimes for IPR issues, especially at the local level. A “Rigorous Policy for IPR Protection”.

42

Recent Quantitative Work (1)Recent Quantitative Work (1)

Focus:

The latest Performance of Chinese S&T Institutions

The Efficiency Change of Chinese S&T Institutions since the reform began in 1985

Background:

The innovation system in planned economy:

Enterprises are not the center of innovation; research is seperatedly carried out in S&T institutions without the much interaction with the enterprises;extreme low mobility of R&D personnel, idea, fund etc; S&T institutions are run inefficiently.

The innovation system in market economy:

Firms are the center; R&D institutions interact strongly with the firms; high mobility of resources etc.; market mechanism ensure the efficiency of the S&T activities

43

Table 1 S&T Institutions’ Weight in Table 1 S&T Institutions’ Weight in

China’s Innovation System: 1987-2001China’s Innovation System: 1987-2001 Year

S&T Institutions

Ratio of value of S&T

Institutions to the Sum

Universities

Ratio of the value of

Universities to the Sum

Ratio of the value

of Enterprises to the

Sum

Sum

R&D Personnel (Thousand Person Year, Full Time

Equivalent)

19871 385.86 47.23% 178.29 21.82% 252.78 30.94%

1991 201.00 N/A 145.00 N/A N/A N/A

1995 185.00 31.41% 144.00 24.45% 260.00 44.14%

1999 168.00 21.76% 176.00 22.80% 428.00 55.44%

2001 148.00 16.88% 171.00 19.50% 558.00 63.63%

R&D Expenditure (Billion RMB, Current Price)

19872 10.68 60.70% 0.70 3.98% 6.21 35.32%

1991 7.90 52.21% 1.37 9.05% 5.86 38.73%

1995 14.66 44.34% 4.23 12.79% 14.17 42.86%

1999 26.08 45.42% 6.35 11.06% 24.99 43.52%

2001 28.85 34.63% 10.24 12.29% 44.23 53.08%

44

Table 1 S&T Institutions’ Weight in Table 1 S&T Institutions’ Weight in China’s Innovation System: 1987-China’s Innovation System: 1987-2001 (Cont.)2001 (Cont.)

Patent of Invention

Application (Items)

19873 1844.00 29.35% 1360.00 21.65%3078.

0049.00%

1991831.00 33.15% 718.00 28.64%

958.00

38.21%

1995865.00 34.26% 574.00 22.73%

1086.00

43.01%

19991413.00 23.99% 988.00 16.77%

3490.00

59.24%

2001 2659.00 18.13% 2636.00 17.97%9371.

0063.90%

Year

S&T Institutions

Ratio of value of S&T Institutions to the Sum

Universities

Ratio of the value of

Universities to the Sum

Ratio of the

value of Enterpri

ses to the Sum

Sum

45

Patent vs GERD: OECD (1999 Data ) and Patent vs GERD: OECD (1999 Data ) and Selected Non-OECD Countries (2000 DatSelected Non-OECD Countries (2000 Data)a)

46

Patent vs Researcher (FTE): Selected OECPatent vs Researcher (FTE): Selected OECD and non-OECD Countries (1998 Data)D and non-OECD Countries (1998 Data)

47

Some hypothetic reasons for these Some hypothetic reasons for these two graphics (1)two graphics (1)

1st: China is not doing frontier research to let Chinese patent in US, Europe and Japan.

(Possible Contradictory Evidence: Publication Data (I failed to find, somebody could help me?))

2nd: China is doing some frontier reseach ( It is reported that only 15% scientific research projects in China approach the leading level in the world) , but in the area where the company does not patent; or due to lack of incentives to patent; or due to limited consciousness of Chinese Scientists; or due to exclusive right of patenting belonging to MNCs.

(Possible Contradictory Evidence: Survey Data; Qualitative Interview)

3rd: The low quality Chinese statistics data for GERD and Researcher (FTE), i.e.,the denominator is larger than the true value

(Possible Contradictory Evidence: Qualitative Interview)

48

Some hypothetic reasons for these Some hypothetic reasons for these two graphics (2)two graphics (2)

If the first three hypotheses are not disproved (Personal intuition: the publication data might show a different picture),

4th: Till 2000, the patent data shows that the reform begining in 1985 has not fundamentally improved the R&D performance in Chinese S&T institutions in the international context.

49

Some hypothetic reasons for these Some hypothetic reasons for these two graphics (3)two graphics (3)

If this hypothetic reason is true, several possible reasons explaining the low performance in Chinese S&T sector:

1st: Condition Insufficiency Hypothesis. Poor scientific facilities and research condition in China. Only a small number of scientist, mainly in Beijing and Shanghai can utilize the advanced equipments. A majority of Chinese scientist are still poorly paid.

2nd:Resource Mis-Allocation Hypothesis. Low efficient evaluation system (project evaluation; fund allocation; scientist performance evaluation and cronyism; corruption and plagiarism etc.) (Nature, 2002, 2003, 2004)

3rd:Confucian Culture and Politics Hypothsis. Hierarchy in society; fear of challenging the superior; lack of academic freedom etc. (Nature, 2004)

50

One Simple RegressionOne Simple Regression

Test Structural Stability of Regresion Model:

Y i = a1 + a2 DYi + ß1X I +ß2(DY i* X I )+ų

If regard 1994 as a turning point, (DYi = 0| i <1994; DYi = 1| i>=1994)

Note: Do not consider the “distributed-lag” effect of patent simply because country patent data of China are highly correlated in various continious year (1985-2002) (Pearson Correlation of Patent Application t and lagged Patent Application t-1 is 0.923, I.e. significant at 0.01 level).

All Variables are in Logarithm.

Y I : Patent Application

Model 1: X I : R&D Expenditure (The data before 1990 is not available. Regress the data of S&T Activities Budget on the data of R&D Expenditure after 1990 to estimate the data before 1990. (Adj. R2=0.964))

Model 2: X I : R&D Researchers (Full Time Equivalent) (The data before 1990 is not available. Regress the data of Scientist and Engineers on the data of R&D Researchers after 1990 to estimate the data before 1990. (Adj. R2= 0.739))

51

Regression ResultRegression Result

Model 1

1993

Model 2

1993

Model 1

1994

Model 2

1994

Model 1

1995

Model 2

1995

a1 5.055 *** 13.043 5.054*** 12.171 5.177 *** 12.004

a2 -2.994 .207 -4.377 ** .244 -6.031 *** (High Collinearity, Excluded)

ß1 .303 *** -.465 .303 *** -.363 .287 *** -.347

ß2 .303 .020 .439 ** .014 .605 *** .032 **

Adj. R2 .823 .37 .855 .319 .874 .35

** Significant at the 5% level.

*** Significant at the 1% level.

52

Regression Explaination and Future WoRegression Explaination and Future Workrk The R&D Expenditure efficiency has significant improved since 1994. Regarding 1995 as a turning point, the model fits better the data, which

means one year after the government implemented the reform policy comprehensively and fundamentally, the efficiency jumped. More strictly speaking, the Chinese S&T institutions achieved more research outcome which could be patented or are inclined to patent more since 1995.

The Researchers data failed to test the efficiency change, probably because the change of the staff number from 1985 to 2002 is irrelevant to the scientific activities, or because my before-1990 data estimation method does not work.

Future Work: Test Publication Data (Again, I can not find the data. I guess they do not

exist!)

53

General ConclusionGeneral Conclusion

The reform and transition taking place in Chinese S&T Institutions since 1995 significantly improved the efficiency or productivity of the scientific activities, if we measure the output through patent application in China.

However, China is still far behind the world leading level in terms of scientific performance, if we measure the output through patent application of “Triadic Patent Families”.