Speaking on a 3-day national conference on science and technology opening on 9 January, both President Hu Jintao and Premier Wen Jiabao outlined ambitious plans to promote innovation in realizing China's goals of coordinated, balanced and sustainable economic and social development by 2020.
Priority will be given to technologies of energy and water resources and environmental protection. Emphasis is placed on breakthroughs in proprietary technologies in equipment manufacturing and information industries. Also targeted are technologies for live sciences, aeronautics, ocean sciences, as well as both 'foundation' and 'leading-edge' scientific research and training.
Premier Wen added that spending increase on science and technology during the 11th Five Year Plan (2006 -10) will be higher than the expected increase in national revenue. Banks and financial institutions will be required to support innovative activities and local authorities encouraged to develop high-tech zones.
Almost concurrently, on 8 January, Xie Xuren, Director of the State Administration of Taxation, outlined plans for tax reforms in 2006 which included support for technological upgrading and independent innovation.
It is not difficult to see why innovation merits such high-profile serious treatment. China has earned the international reputation of being the Factory of the World. It is quickly going up the technological scale, having just overtaken the US as the world's largest producer of IT products. Nevertheless, its largely OEM (Original Equipment Manufacture) on behalf of foreign brands has yet to achieve a major breakthrough in higher value-added and profit margins.
According to China Today, a China-made DVD exported for US$32 costs US$13 to make. After paying a proprietary fee of US$18 to the foreign company, it leaves US$1 as profit for the Chinese manufacturer. China's 'blood and sweat' export earnings are largely such 'processing fees' which average less than 10% of the products' price.
What is more important, China's manufacture at the low-end is threatening the livelihood of various less developed countries as they find it increasingly difficult to compete against China's cost efficiency and quality. Also threatening to industrialised countries are the high energy and mineral demands of China's burgeoning exports. (See my September back-number under Archives in Chinawatch.)
So it stands to reason that a more efficient and sustainable course for China's export earnings and competitiveness is through home-grown innovation and creativity. Indeed, with China's growth numbers multiplying, it can be argued that no change is simply not an option for long-term survival.
But how good is China's creativity, including science and technology?
China's recent successful launch of its second manned space flight (Shenzhou VI) on a televised five-day orbit was impressive. There is also a great deal to be impressed with on a visit to the massive Zhongguancun Life Science Park in Beijing and the Zhangjiang High-Tech Industrial Park in Shanghai.
There are examples of leading strengths in biotechnology, including genomics, stem cell research and gene therapy. China has also one of the largest agricultural science programmes in the world, particularly in genetically-modified crops (which are proving to be a highly attractive source for bio-fuels such as ethanol and bio-chemicals.)
Equally striking, as always, are China's big numbers. It has been reported that there are over 600,000 overseas-educated students in the last 25 years. Chinese students account for some 40% of post-doctorate degrees earned by overseas students in the US. 90% of 160,000 returnees hold Master or Doctorate degrees. 13 million citizens have received higher education.
China has perhaps the world's largest pool of scientists and technologists, estimated at some 32 million at various levels. It has the world's fifth largest number of published scientific papers.
Yet, there have been no home-grown Nobel Prize winners in science and technology. And the real money in China's manufacture is still being made by foreign proprietary technology and brands.
Nine major challenges were identified in an interview on 8 January by Xinhua Online reporters with two leading national experts, Wang Yuan and Mu Rong Ping, on science and technology development and policy respectively:
(1) Investment in science and technology as % of GDP stood at 1.23% in 2004, below the target of 1.5% (compared with 2.59% of the USA) and well below the historical height of 2.32 % in 1960.
(2) China's external technology reliance rate remains high at 50%, compared with 5% for USA and Japan.
(3) Home brands fail to command their fair share of the market. The saying 'Foreign goods, however expensive, are worth it. National brands, however attractive, are given second thoughts' is instructive.
(4) World-class talent remains extremely rare. Representation in the 158 world-class organisations amounts to 2.26% with only one chairmanship.
(5) There is still too much emphasis on research quantity rather than quality. The international quotation rate of scientific papers remains very low, almost non-existent amongst the top 100.
(6) There is too much gravitation towards short-term functionality and profits, knowledge absorption rather than creativity.
(7) Only 3% of enterprises possess core proprietary technologies.
(8) There is too much duplication and variegation of resources. The utilization rate of large-scale scientific installations remains low, at 25%.
(9) The ability of science and technology in helping to break through energy and other development bottlenecks to create an all-rounded well-off society remains uncertain.
A'National Medium to Long-Term Plan for the Development of Science and Technology 2006 ? 2020' has already been announced by the State Council as a blueprint for building a 'Nation of Innovation'.
Hot on the heels of its pledge to promote innovation and technology, the State Council issued a directive on 13 January, 'Enhancing Cultural System Reform', promoting China's cultural and creative industries. Science and technology alone are by no means sufficient for building a nation of innovation.
Recently, we are also seeing brisker enforcement of intellectual property violations. Cases involving Starbucks, Toto, and Ferrero Rocher come to mind. Better intellectual property protection is no doubt a pre-condition for nurturing creative talent and proprietary brands.
The likes of Lenovo, Haier,TCL, and even Mengnui (fresh milk) are all trying hard to build up global recognition. A casual look at current Chinese product advertisements on the Mainland cannot fail to convey a much greater consciousness of the importance of branding. References such as 'Top Ten' or 'Ten Strongest Brands' are commonplace.
Indeed, there is no lack of creativity potential in China. For example, Beijing Review reported that there has been active and sustained interest amongst China's TV champions such as Chanhong, Konka, TCL, Haier, Hisense and Skyworth and IT champions such as Lenovo and Great Wall, in exploring and developing an industry-wide protocol for the emerging '3C' industry (Computer, Communications, Consumer electronics, linked together interactively).
China approved an Intelligent Grouping and Resources Sharing Standard in June 2005, being the first of such standards for this promising new industry. It is estimated that over the next five years, Chinese IPTV (Internet Protocol Television) users may double from 300,000 to become one of the largest markets for 3C products.
At the 'fun' level, especially amongst China's 200 million 15 ? 24 year-olds, China Today reported that the Colouring Ring-back Tone Service (CRBT) has become something of a rage. 'Cool is out and Cute is in' 'Don't be surprised if a mock Bart Simpson voice answer cautions you to be nice to the handset holder as he or she has had a bad day!'
It is also interesting to observe that these fun-loving, web-surfing and more imaginative youngsters represent a whole new generation of much more individualistic consumers and workers, largely the product of the 'One Child Policy' (its worrying longer-term demographic consequences notwithstanding). They are likely to supply the human resources and the internal market demand for more creativity.
Really strong Chinese international brands are still very few and far between. But all indications are that the Long March for Brands has begun.
Andrew K P Leung, SBS, FRSA
