China’s Innovation Quotient
ong saddled with the stigma of being the country that has perfected the art of copying, China now has its sights set on joining the ranks of the globe’s most innovative nations by 2020. Five years ago, the Chinese government outlined an ambitious plan to achieve this goal: push R&D spending up to 2.5% of GDP, boost China’s total patents and research volume into the ranks of the global Top 5, and ensure that Chinese science and technology contribute to more than 60% of the nation’s economic development.
With an annual R&D injection from public and private business sources of 1.5 % of GDP over the last decade, the results have begun to pay off.
Having already surpassed Japan as the world’s second leading producer of research publications (one major source of the fuel that drives innovation), China is moving up quickly, although still a distant second from the US which had 28% of global research publications in 2008. Meanwhile Chinese companies such as BYD, in the field of alternative energy, Li Ning in sportswear, Huawei in IT, and e-commerce powerhouses such as Taobao and 360 Buy have, arguably, established themselves internationally for competing through innovation. As these companies illustrate, innovation exists in many forms in China (as it does in the rest of the world): from BYD’s radical and disruptive creations – which turned the auto industry on its head – to the more common incremental improvements made in terms of cost, products, processes or business models.
In this cover story, TheLINK surveys a team of knowledgeable professors and alumni entrepreneurs to share their views on China’s innovation quotient. Is China ahead of the game or – despite the gains made – does the nation still lag woefully behind the world’s top players? Just how conducive is the Chinese environment today to fostering creativity and risk taking? Is ‘copying’ always wrong, or is it a necessary step along the learning curve toward innovation?
Founder and former CEO of Ku6.com,
Executive Director of the CEIBS Centre for Entrepreneurship and Investment,
Adjunct Professor of Entrepreneurship Kevin Li
The LINK: Around the world, there is the perception that Chinese companies operate as copycats, incapable of generating new ideas of their own. What’s your view on the role that copying plays along the learning curve of a country’s development?
Adjunct Professor Kevin Li (KL): The first stage of innovation comes from adaption, or copying. If you’re at the early stages of development, you don’t have the foundation for innovation. You just need to learn from those who are more advanced. But after the foundation is laid, you will have the ability to innovate.
For example, because of my long history with the sector, I know that China’s internet industry has learned a lot from the West. So Sohu has now beaten Yahoo in the China market; another example is Google and Baidu, and MSN versus QQ. If I were to rate the innovation level of China’s [top] internet companies today, I’d give them a 7 or 8 out of a high of 10. They’re doing well.
But other industries [in China], the more traditional ones, rate much lower on the innovation scale. They need to learn. Adaption is not necessarily bad or ugly. It’s acceptable for a child to learn this way, and this is the same concept.
The LINK: As an entrepreneur with a successful start-up under his belt, how do you assess China’s overall attitude towards innovation? Is China ‘innovation friendly’?
KL: Generally speaking, the Chinese environment is not very conducive to innovation. This is because of several factors: regulation, culture and – most importantly – economic motivation.
The regulations need to be strengthened to protect copyrights. Also, we have to change the cultural and traditional emphasis on results – measured in terms of profits or a company’s overall success – to a measure that also encourages people to be creative, to do something different. Because of [China’s] weak regulations, the cost of copying is low. On the other hand, innovation comes at a high cost; and even if someone is innovative, the government and society in general are often not impressed. So the ROI on innovation in China is not as high as it should be.
Small or private companies are typically much more innovative than the large ones. SOEs have access to resources, so they don’t have much motivation to innovate. Privately-owned companies, however, have a greater need to maximize returns; they need to be more innovative in order to do this.
TheLINK: In China, who or what drives innovation? Is it promoted from the government downwards, or is it from the grassroots up?
KL: The real motivation for innovation is economic return: somebody wants to make a profit, so they innovate. The government has taken several important steps, but there is a long way to go. For example, a lot of patents are being registered locally, thanks to the government’s list of incentives, but most of them remain unused. Compare that to what happens in the US. At Google and Apple, for example, they provide an environment that encourages innovation. There is an economic incentive (a profit-sharing scheme) and, even more importantly, you know that your innovation will be used in a practical way.
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