Will China Ever Be on the Cutting Edge of Global Innovation?

Will China Ever Be on the Cutting Edge of Global Innovation?
Will China Ever Be on the Cutting Edge of Global Innovation?
Will China Ever Be on the Cutting Edge of Global Innovation? Top

    Innovation is a critical component of a national power. Countries that develop new products or methods of production are able to generate wealth by producing desirable goods. This creative process often entails the development of new technology, which in turn can form the foundation of further innovation. New technology can also contribute to social well-being, the development of new industries, and improved military capabilities. Examining Chinese innovation, therefore, provides key insights into the country’s expanding international influence.

    Charles W. Freeman III

    Charles W. Freeman III

    International Principal with Forbes-Tate and directs its international efforts

    Edward Tse

    Edward Tse

    Founder and CEO of Gao Feng Advisory Company

    Jonathan Woetzel

    Jonathan Woetzel

    Senior Partner, McKinsey & Company Global Leader, Cities Special Initiative Director, McKinsey Global Institute

    What makes some countries stronger in innovation than others and does China have these qualities?

    In 2014, China spent nearly $200 billion on research and development, the second-largest investment by any country in absolute terms (and about 2 percent of its gross domestic product).

    Woetzel: China’s got what it takes, clearly on the consumer side: big market, very aggressive consumer facing companies, very innovative. It’s also doing well on factory innovation. If you look at other things like engineering and the learning capacity, it’s a little bit more mixed. . . If you look at classic science innovation, clearly China is not yet where it needs to be. Watch

    Freeman: It’s become commonplace in the United States to equate innovation with Silicon Valley and I don’t think that’s always fair. There are multiple kinds of innovation and if you look at China’s national innovation goals they aren’t to develop the kind of ecosystem that Silicon Valley represents but they are still trying to have an innovative ecosystem. Watch

    Tse: Clearly there are also different types of innovation. Innovation that is driven by technology or technological development and innovation that is driven by … business model changes. Listen

    Woetzel: China has the potential to become an innovation powerhouse pretty much across the board, but it will take some changes. Watch

    Tse: China has now become the wellspring ground for business innovation. Listen

    Freeman: I think in practice a lot of Chinese innovation is quite groundbreaking. It’s just not as groundbreaking as I think a lot of Chinese that want to see: the frontier innovations. Watch

    Energy Footprint
    Over the past decade China has also emerged as a global leader in wind and solar energy. In 2015, China accounted for one third of global wind energy capacity. How is China’s energy footprint changing?

    Are most of China’s innovation leaders foreign educated or are they a product of the Chinese education system?

    Tse: If you look at this range of entrepreneurs and the different generations of entrepreneurs, by definition the first generation and the second generation of entrepreneurs were primarily if not exclusively locally educated or not educated[.]

    Freeman: I think one of the telling signs is that any really successful Chinese technology venture has at its core Chinese that have been educated in the West. Watch

    Woetzel: If we look at the high-tech sectors and scientific institutions, a high percentage of people have had global exposure. … At the same time, they all operate in a Chinese context … There is a large portion of foreign exposure amongst the innovators of China, but by no means can you say that it is a foreign-led or a foreign-driven innovation effort. Watch

    Tse: [T]here’s not exactly a very clear pattern whether or not an education outside of China actually is required or is a key ingredient for being successful as an entrepreneur in China. Listen

    According to McKinsey & Company, China’s over 1 million engineering graduates each year are more than any other country. China also leads the world in patent applications – more than 825,000 were filed in 2013 as compared with about 570,000 for the United States.

    Do startups in China face more or less regulation than startups elsewhere in Asia or around the world?

    Web Connectedness
    China’s first Internet café opened in Beijing in November 1996. Curious what the internet is like in China?

    Woetzel: In the Chinese context … it’s not so much about regulation, but about the regulatory environment. . . . Because government plays such a leading role in society, what we have is rule by man, not rule by law … Chinese start-ups could benefit from having more business-friendly regulations in place that allow them more access to capital, to allow them to get more defense of their intellectual property, to allow them to perhaps recruit more freely. Watch

    Tse: By definition policy and regulation are always behind the times. No government in the world, the Chinese government included, can predict precisely and exactly what new developments are going to happen and therefore come up with policy ahead of time. In that respect I think that the Chinese entrepreneurs have been quite courageous and bold[.] Listen

    Freeman: Starting a new technology company … in China is relatively easy, but once you’ve started it having access to things like banking services, or legal services, or the kind of capital services that venture capital provides is a lot harder. The infrastructure for supporting innovations is far underdeveloped[.] Watch

    According to the Economist, venture capital investment in China was $15.5 billion in 2014 – marking a more than threefold increase from 2013. The Wall Street Journal reports that the Chinese government created a $6.5 billion startup fund in 2015. Before the creation of the fund, there were over 80,000 tech startups employing 1.75 million people in China.

    What steps can China take to more effectively promote innovation?

    In 2014, China’s State Intellectual Property Office (SIPO) processed nearly 35 percent of all patent applications in the world. China processed 160 percent more applications than the United States and 285 percent more applications than Japan. How do patents contribute to Chinese innovation?

    Woetzel: Government actually has a big role to play in setting a standard for what it expects for private enterprises to deliver. Watch

    Freeman: If you talk to Chinese entrepreneurs or even Chinese researchers … the most common complaint is the constrictions on their ability to access information, technical or otherwise, that is critical to moving their businesses forward, or moving their research forward. Watch

    Woetzel: There are still a lot of sectors in the Chinese economy which are relatively oligopolistic, so you have large state enterprises, you have small groups of companies that control critical resources, and breaking up those monopolies, allowing for competition is a critical prerequisite to getting more innovation into the economy. Watch

    Tse: The Chinese government has been very supportive of innovation. The Chinese government have actually made innovation and entrepreneurship a priority for the national strategy going forward. And in fact Premier Li Keqiang has repeatedly said that he wants everybody to be entrepreneurs and everybody to be innovative. Listen

    The fasted supercomputer in the world, Tianhe-2, was developed by a team of 1,300 scientists and engineers and is located in National Supercomputer Center in Guangzhou. It achieved 33.86 petaflops, while second-place finisher Titan, housed at the US Department of Energy’s Oak Ridge National Laboratory, achieved 17.59 petaflops.