Unleashing the power of innovation

LI MIN/CHINA DAILY

A number of Chinese companies beginning to make breakthroughs

Is China about to lead the world as an innovator again?

The world's second-largest economy invented gunpowder, the compass, printing and papermaking, but has fallen behind not just in recent decades but for most of the last two centuries.

After reform and opening-up in the late 1970s, China became the workshop of the world, mainly through low cost original equipment manufacturing.

Now, however, as China's economy starts to slow and wages rise, there are greater incentives for Chinese companies to innovate to improve profitability by greater productivity.

Although China's investment in R&D is still just 38 percent of that of the United States, according to the China Europe International Business School, a number of Chinese companies are now beginning to make breakthroughs.

Ninety-three Chinese companies are now in the top 2,000 global companies in terms of R&D intensity (R&D spending as a percentage of sales), ranked by the EU Industrial R&D Investments scoreboard in 2012.

While this is fewer than the 658 from the US, 527 from the European Union and 353 from Japan, it represents significant progress.

Huawei Technologies Co Ltd, the telecommunications giant, is the highest-ranked Chinese company－31 in terms of spending, investing some $3.5 billion on research, almost a quarter of its total sales.

PetroChina Co Ltd, the State-owned oil company (66) and another telecommunications company, ZTE Corp (94), make the top 100. In fact, ZTE made the most patent applications by any company in the world in 2012.

Many Chinese companies are acquiring technology through acquisitions with high profile deals such as computer giant Lenovo Group Ltd buying the Motorola handset division from Google Inc this year for $2.91 billion.

Chinese companies are also snapping up R&D facilities in the US and Europe. There have been several acquisitions of German small and medium-sized businesses in engineering and manufacturing technologies.

Many expect this to be a significant trend in the next decade. Much of the progress has been in line with the Chinese government's Five-Year Plan (2011-15), which places emphasis on achieving breakthroughs in areas such as integrated circuits, space research and nanotechnology.

China's achievements in R&D came under the spotlight at the China Innovation Research Findings Conference held at the CEIBS campus in Shanghai in May.

Attended by R&D heads from some of the leading multinationals in China such as AkzoNobel NV, Robert Bosch GmbH, DSM NV, Royal Philips NV and Royal Dutch Shell Plc as well as Chinese companies, it presented the findings of the work of the business school's Centre on China Innovation, set up three years ago.

George Yip, professor of management and co-director of the center, believes China is on the brink of major technological breakthroughs.

"Chinese companies are investing more and more in R&D, and the Chinese government's investment in research institutions has started to produce results," he says.

"I think the next few years are going to see a dramatic take off."

Yip, former dean of the Rotterdam School of Management and co-author of Strategic Transformation: Changing While Winning, says one of the key breakthroughs has been in aerospace technology.

COMAC (Commercial Aircraft Corporation of China) is to launch its first commercial airliner, the C919, to rival The Boeing Co and Airbus SAS, in 2016.

"It is leading-edge technology and almost no other country in the world can do this outside the United States and Europe. It will sell very large volumes in China and from there to the rest of the world."

Bruce McKern, former co-director of the center and now visiting fellow at Stanford University's Hoover Institution, says the Chinese have built a strong research base from essentially copying technology.

"They started to learn how to innovate by copying. They then improved on the copying with their own innovations. As a result they have become good at incremental innovation," he says.

The Australian academic says this type of incremental innovation is now vital for the current stage of China's economic development, where production has to become more efficient to absorb higher labor costs.

"A richer society that has higher labor costs has to innovate because it has to find a way of producing things more efficiently," he says.

"The Chinese don't have to reinvent the wheel or the steam engine, but the time will come when there is an earth-shattering innovation. I fully expect that to happen, but it is not necessary at the moment."

Some are skeptical that China will make technological breakthroughs.

Regina M. Abrami, coauthor of Why China Can't Innovate, with William C. Kirby and Warren McFarlan, argues that the academic system works against the free flow of ideas.

"Young PhDs are often beholden to a university professor and basically told what they are going to do research on. So it becomes more like an apprenticeship program than self-mastery of a topic. China is not unique on this so it is not completely a East-versus-West thing, but it is a barrier to innovation."