China seeks quantum leap to a new economic model

4 October, 2016 / Articles
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China has placed innovation firmly at the centre of its new five-year plan, with President Xi Jinping putting the country on course to catch up with the west in everything from aircraft engines to “quantum teleportation”.

“Pursuing these projects will help China break free from external dominance in these strategic areas,” said Mr Xi, according to state news agency Xinhua, listing brain science, deep space, smart manufacturing and robotics as other key technological goals.

But for many the Star Trek-like ambitions go boldly — nowhere. China’s innovation bulls believe the country is already on the path, spending huge amounts on R&D and leapfrogging technologies in telecoms and tech with agility. Detractors, meantime, demur that innovation simply means copying.

On the surface, China has already made strides. It has some of the world’s most innovative companies, including Huawei and ZTE in telecoms, and web groups Baidu, Alibaba and Tencent. The online giants, known collectively as BAT, are each in the world’s top 10 internet companies by market capitalisation, traffic and revenues, boasting artificial intelligence labs, big data and innovative business models.

These and other companies have seen smartphone penetration leap from emerging-market to rich-country levels in just a few years, and the internet, while heavily censored, play a larger role in everyday life for many Chinese than it does in the west.

Last year China spent nearly $200bn on research and development, the global number two in absolute terms and about 2 per cent of gross domestic product, according to McKinsey. Research by the consultancy also shows that China leads the world in patent applications, with more than 825,000 in 2013, compared with about 570,000 for the US.

However, these numbers obscure doubts about the true nature of Chinese innovation. Up until now, says McKinsey, the country has been a mere “innovation sponge”, absorbing and adapting technology, best practices and knowledge from overseas.

China has so far failed to build an internal combustion engine for export. And while it has built advanced military aircraft, it lacks a civil aviation industry to rival that of Europe or the US — although the unveiling to much fanfare this week of the untested C919 passenger jet may mark a turning point.

The country still has a very small share of international markets in innovation-heavy sectors such as biotechnology and semiconductor design. While China is the world’s largest consumer of computer chips, mainly for exported electronics, it imports 90 per cent of them.

China needs to boost productivity if it is to escape the “middle income trap” where a low-wage manufacturing economy fails to make the leap to one based on invention and technology. However, multi factor productivity, a broad proxy for innovation, is actually declining, accounting for just 30 per cent of GDP growth in the past five years — a fall from 40-48 per cent in 1990-2010, according to McKinsey.

Industrial espionage is rife — one US law enforcement official says the five-year plans are treated as a “road map” for Chinese government-sponsored hacking priorities.

Chinese scientific culture has also been stung by faking and plagiarism scandals. Chinese scholars dominated the 64 articles retracted by German academic publisher Springer this year because of fake peer reviews, as well as the 43 by the UK’s BioMed Central.

A former president of Peking University this week publicly criticised the country’s scientific community for being a “journal machine” more focused on publication than on practical breakthroughs.

“The overall environment for fundamental research is not very favourable,” wrote Chen Jiaer in an article published on the Ministry of Science website. “We often blindly pursue publishing a large number of articles, being cited in the top journals. We don’t really look at what achievements are being made in pushing back the frontiers, or contributing to national economic development.”

However, Chris DeAngelis, of Beijing-based Alliance Development Group, believes China’s resources will eventually win out. “In areas such as software development I am already seeing huge amounts of creativity percolating out of the universities and younger graduates,” he says.

Meanwhile, experts caution that true innovation is very hard to measure. Apple, for instance, spent half the amount of its chief global rival Samsung last year on research and development but remains an innovation powerhouse.

Likewise, one of China’s most innovative brands is Xiaomi, which briefly became the largest-selling smartphone maker in China this year before Huawei regained its crown. Xiaomi, however, has relatively few patents and little research and development spending, sourcing most of its components commercially.

In the case of Alibaba, one of the keys to high-tech success has been a distinctly low-tech army of cheap couriers who deliver ecommerce purchases at about a 10th of the price of equivalent services in the US, making the sector not only viable but explosive in China.

Looking for innovation in China may mean looking in places where it would grow organically — in private companies, rather than state monoliths. The five-year plan, in other words, may be part of the problem rather than part of the solution.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.

 

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