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Innovation-driven Development in China’s Transformation Phase: Status and Problems

Aug 14,2017

By Lv Wei, Dai Jianjun & Xiong Hongru

Research Report Vol.19 No.4, 2017

With remarkable progress in scientific and technological innovation, China has now entered the third echelon in the world as an innovative country. However, compared with developed countries, there are still deficiencies and difficulties in satisfying the requirements of economic transformation under the new normal. Weak in technology foundation, China still has a long way to go in order to improve innovation (especially original innovation) and not to be pinned down for core technologies in key areas. Reaching the industrial transformation and upgrading bottlenecks, we need to further enhance the contribution of science and technology to economic growth. And considering the overall relatively-low effectiveness of the innovation system, institutional obstacles should be lifted to facilitate the implementation of pertinent policies and measures and to give full play to the creative potential of the whole society. On the whole, addressing the deficiency of innovation motivation and capability is an important and fundamental task for the current phase of economic transformation in order to make innovation truly the greatest driving force behind development.

I. Entering a new Stage of Innovation-driven Development, China needs to Comprehensively improve Innovation Motivation and Capability

With long-term steady accumulation, China has become a great power of science and technology with active innovation, and is now pushing the innovation improvement process from quantitative change toward qualitative change. The global innovation index published by the World Intellectual Property Organization (WIPO) in 2017 shows that China ranks the 22nd of the 141 countries that are included in the assessment after ranking among the top 25 for the first time in 2016. As an innovative country, China is especially eye-catching for its business maturity, knowledge and technology output, and so on. However, compared with developed countries, there is still a large gap in terms of institutional environment, human capital, infrastructure (information infrastructure, energy efficiency, ecological environment, etc.), creative output, and so forth.

First, China is one of the countries that lead the world in the total spending on technological development, but the input per capita is relatively low. Since 2000, the growth of science and technology investment has always been higher than that of GDP. Currently, China ranks the second highest in R&D investment in the world; in 2016, the R&D investment ratio reached 2.1%, the highest of developing countries and even higher than some high-income countries. Besides, China’s total number of researchers is the largest in the world, but their structure needs to be improved.

Second, scientific and technological achievements have increased substantially, but their quality and commercial application capacity need to be improved. At present, China accounts for about 20% of the total scientific publications of the world, and ranks the 2nd largest in the world in the volume of international scientific and technological works, the 4th in terms of citation frequency, and the highest in the number of domestic invention applications for six consecutive years. However, the quantity of high-quality foreign patents (Europe, United States, and Japan) is still insufficient, and we need to further enhance the transformation efficiency of scientific and technological achievements.

Third, innovation factors are flowing to enterprises, which contributes to the progressive improvement of the innovation capability of the business sector, but the investment intensity and technical competence are still relatively backward. The R&D investment and researchers of enterprises accounted for 75% and over 70% of the total respectively during recent years. And the proportion of technology import to absorption expenditure continues to decline. The quantity of R&D activities carried out by industrial enterprises above state-designated scale is increasing rapidly. The R&D investment in 18 industries exceeds RMB 10 billion and a number of innovative enterprises are springing up. However, the innovation capacity and motivation of the enterprises still need to be enhanced, for in 2015, the ratio of R&D investment of industrial enterprises above state-designated scale was only 0.9%.

Fourth, although China has shifted from the industrial innovation strategy of comprehensive technology tracking and catching-up to that of “following, keeping pace with and leading other countries in the world,” there are still many weaknesses. The Chinese industrial innovation model mainly focuses on improvement and integration innovation. China has certainly second-mover advantages and even takes its place in the front ranks of the world in some areas. However, due to its insufficient original innovation capability, some core technologies are relatively highly dependent on foreign countries, and most industries are still in the middle and low ends of the value chain. China is still a net importer of intellectual property, and the overall efficiency of its innovation system is actually low. In such a context, the contribution of innovation to economic growth has yet to be improved.

Fifth, the institutional mechanism and policy environment for stimulating innovation have witnessed gradual improvement, but it is still difficult to satisfy the requirements of innovation-driven development. In recent years, both the central and local governments have introduced various policies to support the scientific and technological progress and innovative development, a comprehensive policy system and an institutional framework covering the entire innovation chain have been basically developed, while policy instruments have gradually shifted the focus from fiscal and taxation support to relying on institutional reform, inclusive preferential policies and the role of market mechanism to a greater extent. However, due to the inadequate implementation and non-coordination of these policies, it has been difficult to effectively promote the reform in some key areas or give full play to the market mechanism in resources allocation. To some extent, the creativity of various participants has been inhibited by these prominent issues.

Entering the critical stage, China is now on the whole prepared for accelerated innovative development, and has promoted its status from mainly relying on technology tracking to “following, keeping pace with and leading other countries in the world”, shifting its strategic focus from point breakthrough to overall improvement. China has now stimulated mass innovation, in sharp contrast with the past situation where technical personnel were the main body of innovation participants, replaced the approach of absorption and integration with original innovation, and the relatively closed policy with that of opening-up, and moved from the low end to the middle and high ends of the industrial value chain.

II. Prominent Problems and Underlying Factors that Restrict the Motive for and Capability of Innovation

Although China has entered the third echelon of innovative countries in the world, there are still many weak links in the innovative development compared with the developed countries. At present, the insufficiency in innovation motivation and capability is the most prominent issue, which is mainly reflected in the following five aspects.

1. The institutional mechanism for talents motivation and human resource structure need to be improved

Talents are the most important element for innovation. The deficiency of talent incentive and imbalance of structure pose great challenges that restrict the development of innovation-driven development.


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