China: Building An Innovative Economy

Celeste Varum, Can Huang, Joaquim Borges Gouveia

• Publisher: Chandos Publishing
• Year: 2007
• ISBN:
  9781780632261
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

A comprehensive description of China's innovation system through in-depth analysis of its transformation in the past two decades. The most recent developments are included in order to summarize Chinese experience of reforming its industry and academy sector to meet the challenge of innovation. The discussion is not only centred on the policy and its impact, but goes further to find the logic behind the actions. The book also examines the strengths and weaknesses of China's innovation system in the global context. The book helps R&D managers, business professionals and academics grasp an understanding of the new changes in China from the perspective of innovation. It also facilitates policy makers and academics to understand the Chinese experience of building a dynamic and innovative economy.

• Comprehensive coverage of China's innovation using the national innovation system approach
• Includes up-to-date information regarding data, policy reforms and policy impact
• Original comparative discussion of China's innovation practice in the global context

1

Introduction

Publisher Summary

This chapter focuses on the gradual transformation of the Chinese economy and its integration into the global economy. The transformation, which began in the rural sectors and then expanded to the manufacturing sectors, has overhauled the micro-level institution, its macro-level policies, and foreign trade and investment. The old planned system has been replaced by a market-oriented economic system that dominates the economy of the country. However, the country must continue to transform what remains of the old planned system and improve the efficiency of the current market economy. The chapter outlines the milestones of China’s transformation to a market-oriented economy and its gradual integration into the global economy.

In the late 1970s, China initiated its transformation from a planned economic system into a market economy, and since that time, it has undergone unprecedented economic growth. Official statistics show that the gross domestic product (GDP) increased tenfold between 1978 and 2004. By 2004, China had already become the third largest merchandise trader in the world after the United States and Germany (National Bureau of Statistics, 2005; World Trade Organization, 2005). Indeed, China’s transformation into a dynamic market economy and its integration into the global economic system have been dramatic in the last quarter of the twentieth century. The transformation of science and technology (S&T) and the innovation policy of China have been just two of the channels through which it has promoted economic and social reform. This book provides an up-to-date, in-depth analysis of this process of reform, highlighting the transformation process, the strengths and weaknesses of China’s current innovation system, and the challenges the country now faces.

Chapter 2 of the book focuses on the gradual transformation of the Chinese economy and its integration into the global economy. The transformation, which began in the rural sectors and then expanded to the manufacturing sectors, has overhauled the micro-level institution, its macro-level policies, and foreign trade and investment. The old planned system has been replaced by a market-oriented economic system that dominates the economy of the country. However, the country must continue to transform what remains of the old planned system and improve the efficiency of the current market economy.

Since its inception, Chinese innovation policy has undergone complex and diverse changes. The changes prior to the 1990s have been covered in the literature by the International Development Research Center (1997), Gu (1999), Lu (2000) and others. However, the rate at which the evolution of China’s institutions and organisations has taken place has outpaced research since that time, which has led to a dearth of information. Thus, to provide an updated analysis of the strengths and weaknesses of China’s current innovation system, we focus on the following questions in Chapter 3 of this study: which government bodies are currently responsible for innovation policy at the national level, and which organisations are important participants in the policy-making process?

The reform of the Chinese S&T system has represented a tremendous governmental effort to transform the national innovation system into an effective and efficient entity. The reform was launched in 1985, when ‘The Resolution of the Central Committee of the Communist Party of China on the Structural Reform of the Science and Technology System’ was issued. Eager to build on the successful changes in the agricultural sector that took place in the late 1970s, Chinese leaders initiated a reform of the industrial and S&T sectors. One of the direct effects of this reform is that many new research and development (R&D) units have been established inside academic institutions and business enterprises. The S&T institutes that had undertaken nearly all of the R&D activities during the planned era have gradually been losing their dominance in the innovation system in China since 1985.

China’s two-decade reform of its S&T system is not unique in the world. A similar transformation took place in the post-socialist Central and Eastern European Countries (CEECs). The planned S&T system in the CEECs has been thoroughly examined by Hanson and Pavitt (1987), Meske (1998), the OECD (1969), Radosevic (1999) and others, who all pointed out that it was plagued by low productivity. Due to the similarities between the planned S&T systems of China and the CEECs, we believe that the scientific productivity of Chinese S&T institutes was also at a low level before the reform. If this was indeed the case, then it is pertinent to ask whether systematic reform has enhanced the efficiency of China’s S&T sector. Most of the recent literature on reform in China, including that by Zhou and Leydesdorff (2005), OECD (2002) and Cao (2002), focuses on the progress of scientific research and technological development, measured by the total number of publications and patent applications, respectively, However, few studies have examined the causal relationship between such policies and their performance. Thus, the question arises as to whether the explosive increase in the number of scientific publications in recent years can be attributed to a rise in scientific productivity or to more government investment in scientific pursuits. We have attempted to answer this question in Chapter 4 by measuring the scientific productivity of China’s S&T institutes using the econometric methodology developed in Adams and Griliches (1996a, 1996b) and Crespi and Geuna (2004). Our findings indicate that despite considerable government investment, the scientific productivity of the S&T institutes of China have experienced a negative average annual growth rate since the 1990s.

The Organisation for Economic Co-operation and Development (OECD asserted that an efficient innovation policy strategy must combine a number of macro-level policy actions, the success of which depends on the validity of the policy framework and the mutual support among the different policy actions (OECD, 1996). The lack of coherent policy practices in certain aspects of a national innovation system will limit the effect of other well-functioned policies, and thus harm the entire system. Few existing studies have adopted the view of the OECD and analysed Chinese innovation policy from a viewpoint of the balance and the coordination among the policies in different areas. Thus, to what extent has China developed a coherent innovation policy? In which areas of the innovation policy does China do well, and where does it lag behind other international practices? To fill this gap in the literature and answer these questions, we examine various components of China’s innovation policy framework in Chapter 5 by comparing practices in China with those of the OECD countries. We identify several weaknesses of the Chinese innovation system and examine two of them: policies in education and human resources and the protection of intellectual property rights.

Therefore, the remainder of the book is organised as follows. Chapter 2 outlines the milestones of China’s transformation to a market-oriented economy and its gradual integration into the global economy. Chapter 3 analyses its innovation policy framework. Chapter 4 studies the reform of the S&T sector in China, and how the scientific productivity of the Chinese S&T institutes in the reform period is measured by the polynomial distributed lag model is considered. Chapter 5 analyses China’s innovation policy framework and compares its practices with those of advanced OECD countries. Chapter 6 concludes the book and discusses the implications of the findings.

2

Dynamic China: economic transformation and integration into the global economy

Publisher Summary

In the last two to three decades, China’s transformation into a dynamic market economy and its integration into the global economic system have been astounding. This chapter focuses on the main macroeconomic data for these phenomena. It provides an analysis at the regional level, which reveals a critical aspect of China’s economic development in the past two decades: a growing economic imbalance among its various regions.

In the last two to three decades, China’s transformation into a dynamic market economy and its integration into the global economic system have been astounding. This chapter will analyse the main macroeconomic data for these phenomena. It will also provide an analysis at the regional level, which reveals a critical aspect of China’s economic development in the past two decades: a growing economic imbalance among its various regions.

Dragon’s rise: the fast-growing economy

China’s transformation into a dynamic market economy and its integration into a global economic system have been dramatic in the last quarter of the twentieth century. At the same time as this transformation was taking place, China underwent unprecedented economic growth. Official statistics show that the gross domestic product (GDP) grew from 658 billion renminbi (RMB) in 1978 to 6,776 billion RMB in 2004 (1990 constant pric...