By Lv Wei, Research Team on "Innovation Strategy and Policy in the Course of Adjusting and Upgrading Industrial Structure", Department of Techno-Economic Research of DRC

Research Report No. 158, 2013 (Total 4407)

I. Features Related to China's Current Industrial Technology Innovation in China

Since the beginning of the 21st century, China's science and technology input has witnessed a swift growth, with the science and technology funds and the R&D expenditures both growing faster than GDP growth. After years of science and technology input,its effects are taking place,the industrial technology advance has accelerated, and the innovation capabilities of enterprises gradually improved.

1. Total science and technology expenditure ranks top in the world, but R&D intensity still lags far behind innovation-oriented countries

Currently, China's total R&D expenditure ranks the second in the world and the proportion of the country's R&D expenditure in its GDP (R&D intensity) ranks the top place among developing countries, surpassing some high-income countries but still lagging far behind the innovation-oriented countries. During 2002~2012, China's total R&D expenditures grew by 5.7 times, with its aggregate standing at over RMB one trillion yuan, and the R&D increased from 1.07% to 1.97%. The total number of China's human resources engaged in science and technology and the country's R&D personnel comes out on top in the world. During 2002~2011, the full-time equivalent of R&D personnel saw a 1.8-fold increase from 1.0351 million to 2.883 million.

2. The manufacturing capability ranks first in the world and the innovation ability above the average level

Internationally, the ranking of China's manufacturing capability has turned out higher than the country's ranking of industrial competitiveness, and the ranking of the country's industrial competitiveness higher than the ranking of its innovation ability. At present, the value added of China's manufacturing industry ranks first in the world. According to the ranking of UNIDO's global industrial competitiveness index 2009, China's industrial competitiveness index ranked 5th in the world; in line with the rankings of national competitiveness released by the World Economic Forum, China has ranked 26th~29th in recent years; based on the 2012 global innovation index jointly released by INSEAD and WIPO, China ranked 34th among 141 countries.

3. Elements of innovation aggregate gradually among enterprises and the enterprise innovation ability shows a dual structure

On one hand, enterprises have become the main source of innovation input. During 2002~2012, the proportion of R&D expenditures of enterprises in the whole society increased from 61% to 74%, higher than that of the United States, UK and France but slightly lower than that of South Korea and Japan. In 2011, the proportion of the full-time equivalent of enterprise R&D personnel in the whole society was 75%, the on-duty invention accounted for 64% of the national total, and the workable patents for invention made up more than 55% of all social sectors.

On the other hand, the technological levels and innovation abilities of enterprises begin to differentiate. A small number of innovation-oriented enterprises coexist with a large number of follow-up enterprises. The technical equipment of some pacesetter enterprises can reach the world levels on the whole and some enterprises with core technologies can compete with transnational corporations in some fields. For example, a number of innovation-oriented enterprises that have some influence in the international market, such as Huawei, ZTE and Lenovo, are coming into being. However, most enterprises stay at the stage of technology follow-up, simulated manufacturing, low-end processing and manufacturing and low-price competition, making it difficult to accumulate sufficient funds and build up technical abilities rapidly. In terms of the average level, innovation activities are not popular among enterprises. In 2011, the proportion of large and medium-sized industrial enterprises involved in R&D activities was less than 30%, with the average R&D intensity being 0.93%; the proportion of industrial enterprises above the designated with R&D activities accounted only for 12%, the average R&D intensity being only 0.71%.

4. Market forces drive enterprises to make innovations in various forms, and the innovations are focused on integrated innovation and on innovation in assimilating, absorbing and improving introduced technologies

Through years of assimilation and absorption of imported technologies, the ability of Chinese enterprises to accumulate technologies and funds has improved constantly, and their innovation abilities have gradually strengthened. In recent years, enterprises have intensified effort to make input in independent research and development and in assimilation and absorption of imported technologies, and relevant progress has been made in industrial technologies by shifting gradually from relying on technological follow-up and imitation to introducing of production capacities combined with independent research and development. Of all R&D expenditures nationwide, funds from enterprises increased from 46.06 billion yuan in 2003 to 642.06 billion yuan in 2011. According to statistics, during 2004~2011, the ratio of R&D expenditures spent by industrial enterprises above the designated size to funds spent on introduction of technologies increased from 2.78 times to 13.3 times, the ratio of technology assimilation funds to funds spent on introduction of technologies increased from 15.4% to 45%, and the ratio of funds spent on purchase of domestic technologies to funds spent on introduction of technologies increased from 20% to 49.1%.

5. Hi-tech industries call for innovation, and China's traditional industries enjoy innovation advantages

At present, although R&D expenditures aggregate among moderately technical and hi-tech industries, yet compared with developed countries, China's traditional moderately technical and hi-tech manufacturing industries have more innovation advantages than hi-tech manufacturing industries. For example, compared with the R&D intensity of 12 OECD member countries recorded during 1991~1999, during 2004~2009, the R&D intensity of China's low-technology manufacturing industries found the minimum disparity with that of OECD member countries (even higher than that of those countries in some years), and the R&D intensity of moderately technical and hi-tech manufacturing industries was much lower than that of 12 OECD member countries recorded during 1991~1999. Compared with Europe, USA, Japan and South Korea, the average R&D intensity of China's manufacturing industries is evidently higher than that of hi-tech manufacturing industries. The R&D intensity of China's manufacturing industry is about 1/3 that of USA and Japan, 43.5% that of Germany, 52% that of South Korea, while the R&D intensity of the hi-tech manufacturing industries is only 1/10 that of USA, 16% that of Japan, 24.6% that of Germany and 29% that of South Korea (Table 1).

Table 1 International Comparison of R&D Intensity of China's Manufacturing Industry in 2011 (%)

Source: Based on data of the Strategy Institute of the Ministry of Science and Technology; data in the Table are "China's R&D intensity/foreign R&D intensity", and data about China are from the year of 2011.

Since many hi-tech manufacturing industries of China are low-end processing, manufacturing and assembling industries and are less innovative, the gap between the output value-added rate of such industries and that of developed countries is wider than the gap in moderately technical and low-tech manufacturing industries. For instance, during 2004~2009, the average output value-added rate of China's hi-tech manufacturing industries was less than 50% that of USA, 60% that of Germany and was about 63% that of Japan and 86% that of South Korea; whereas the average output value-added rate of China's low-tech manufacturing industries was about 84% that of USA, 97% that of Germany, 76% that of Japan and 127% that of South Korea (according to OECD website data, and the labor value-added rate has been converted into RMB at the official exchange rate). The output value-added rate of China's hi-tech manufacturing industries is even lower than that of China's moderately technical and low-tech manufacturing industries. During 1999~2009, the output value-added rate of China's hi-tech manufacturing industries was 22.78%, while that of low-tech, moderately low-tech and moderately hi-tech manufacturing industries registered in the same period was 30.06%, 26.23% and 25.51%, respectively. Therefore, China should continue to maintain the manufacturing and innovation advantages of its traditional industries and constantly improve the innovation abilities of its hi-tech industries so as to realize the transformation from a large manufacturing country into a strong manufacturing country.

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