THINK!DESK „China Standpunkte“ Nr. 4
The Giant Graduates: China’s strive for High-technology – Prof. Dr. Sonja Opper1
While China’s tremendous growth perform- National Technology Programs
ance and catching-up process over the last Four complementary S&T programs build the
few decades is undisputed, opinions on the framework of China’s national technology
sustainability of China’s economic growth policy. Each of the programs supports a close
could not be more diverse. On the one side science-business interface, in order to secure
analysts extrapolate the current growth per- innovation activities with good prospects for
formance and foresee world leadership within productivity growth and to maximize the
the next 20 years; others point to China’s lack commercialization of R&D-output.
of innovative capacity and expect the leveling
The “Key Technologies R&D Program,” im-
out of the current growth dynamic as soon as
plemented as early as 1982, was designed to
China’s immense supply of cheap labor is
support specific key projects within the scope
absorbed and the potential for factor-driven
of national priority sectors. A key concern is
growth recedes.
the research-business interface and the sup-
Overall, the debate appears highly politicized port of joint projects between universities,
and to a large extent emotionalized, as the research institutes and enterprises. The
Western world fears the emergence of a new “Spark Program” was implemented in 1986 to
(authoritarian) economic superpower in the speed up the development and technological
Far-East that will inevitably alter the global upgrading of China’s rural areas. In particular
industrial landscape and the competitiveness the program aimed at the acquisition of S&T
of countries across the world. And while the inputs by China’s rural, predominantly labor-
advanced industrial countries are still strug- intensive township-village enterprises (TVEs).
gling with the structural consequences of ”Program 863,” also implemented in 1986,
China’s entry into the world market as a ma- reinforces the role of education and human
jor supplier of labor-intensive products such resource development. A major tool of the
as textiles and shoes, the country has long program is the funding of international co-
embarked on a far more ambitious develop- operations. Current research priorities include
ment trajectory aiming for technological lead- the development of the telecommunication
ership. Three mutually supporting building sector, key biological, agricultural and phar-
blocks can be identified, which are driving maceutical technologies, research on new
China’s technological catching-up process. materials and advanced manufacturing tech-

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nologies and the advancement of key tech- and explain why some of the poorest coun-
nologies for environmental protection, re- tries do not grow at all (Romer 1990). Particu-
sources and energy development. Finally the larly the recent development performance of
“Torch-Program,” launched in 1988, focuses NICs such as Taiwan, Korea and Singapore,
on the development and provision of a high countries of the so-called East Asian miracle,
quality research infrastructure and beneficial supports the importance of human capital
innovation climate. The program provides formation within national growth strategies
facilities, encourages funding by banks or (Nelson and Pack 1999).
state-owned enterprises, and develops man-
China’s leadership has understood the multi-
agement skills among technical personnel.
ple effects of human capital formation and the
Through the clustering of technology-rich
need for an educated and skilled workforce,
enterprises in technology zones, the program
and has emphasized the role of education -
seeks to create beneficial synergies across
particularly higher education - since the mid
key industries. Successful examples of com-
90s. Overall educational funds increased
panies that developed under the Torch Pro-
from 2.8% of GDP in 1991 to 5.2% in 2002.
gram are “Legend Computers” and “Founder”
Government funding equaled 3.3% of GDP in
(a producer of typesetting software).
2002, while the remaining educational funds
Concurrent to the structural changes within were generated by tuition fees and non-
China’s research-landscape, the central gov- government funding organizations (State Sta-
ernment has gradually increased the relative tistical Bureau 2004). In terms of public ex-
role of R&D policies. In 1995, the ”Decision penditure of GDP on education, China is
on accelerating scientific and technological meanwhile comparable with Singapore and
progress” formulated a target value of 1.5% ranks only slightly lower than Japan and Ko-
of GDP for national S&T expenditures. While rea. Institutions of higher education enjoy
China has not yet reached its target value, special attention, and received 23% of gov-
the recent development of R&D expenditures ernment appropriations for education in 2002.
over the last few years is indeed impressive.
Particularly, the capacities of institutions of
Between 1999 and 2003 the annual R&D
higher education have been extended by a
expenditures increased from 0.8% to 1.3%,
great margin. Student enrollment increased
meanwhile surpassing even the average
from only 0.9 million at the outset of reforms
value of the EU-15 countries.
in 1978 to more than 11 million in 2003. Over
Human Capital Development the last decade the number of university
The crucial role of the human capital supply graduates has more than doubled and
as a determinant of national growth is undis- reaches approximately 1.9 million p.a. today.
puted. Countries with a larger source of hu- Due to China’s centralized system of univer-
man capital tend to grow faster, while too little sity entry exams, the structural composition of
human capital can have a constraining effect university graduates is closely aligned with
© 2005 THINK!DESK China Research & Consulting

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the specific needs of China’s economic de- comes are not exceptional for knowledgeable
velopment. About 35% of China’s university and ambitious faculty members.
graduates hold a degree in engineering, 15%
“Learning from Abroad” also plays a crucial
in business administration and another 9% in
role, as China’s reformers embraced foreign
natural sciences (State Statistical Bureau
technology to jump-start national economic
2004). This makes China the worldwide big-
development. Foreign direct investment
gest producer of engineers (in absolute num-
(FDIs) emerged as a core element of the na-
bers) along with the US.
tional reform agenda from the outset of eco-
A supportive business environment nomic reforms in the late 70s. FDIs were
The local business environment in China im- promoted to serve two complementary pur-
proved significantly over the last decade. A poses: First of all, they obviously alleviated
thriving private economy with a large propor- China’s capital constraint; secondly, the new
tion of small and medium-size firms devel- FDI policies were specifically designed to
oped, ready to serve as a major engine of speed up the country’s technological catch-
innovation and productivity growth. Tight ing-up process through channels such as
competition and low entry barriers reinforce reverse engineering, skilled labor turnovers,
the role of innovation. Firms often benefit and demonstration effects. The design of
from close university-business ties. Particu- special economic zones with generous tax
larly in China’s new high-tech industries, uni- and fiscal incentives not only facilitated the
versity-business R&D collaboration and inflow of scarce capital, they also served as
knowledge transfers play a crucial role, with entry ports for advanced technologies, west-
many high-tech start-ups being university ern-style management techniques and organ-
spin-off companies. The development of a izational blueprints. The concept of preferen-
supportive university-business interface is tial FDI-policies quickly dispersed and the
driven by a close alignment of the individual country-wide development of technology
incentive structures of entrepreneurs and parks and development zones facilitated an
scientists. While entrepreneurs need to de- immense inflow of FDIs across the whole
velop their innovative performance in order to country. Meanwhile, China ranks number one
survive in China’s highly competitive market worldwide among FDI recipient countries with
environment, marked by strong competition in an FDI inflow of 115 billion USD in 2003
international firms and small and medium (State Statistical Bureau 2004). Local content
national firms, scientists are often driven by regulations guaranteed that national firms
material concerns. Due to the unfavorable benefited from the growing FDI inflow as sup-
wage structure in the institutions of higher pliers of input factors and machinery. More
education, scientists are eager to start up recently, local content regulations even in-
their own businesses or to work as consult- cluded R&D activities in order to deepen the
ants for the business sector. Consulting hon- technological exchange between MNCs and
oraries of up to 95% of total personal in- local firms. International MNCs are increas-
© 2005 THINK!DESK China Research & Consulting

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ingly forced into research co-operations with Upcoming reforms of the banking and finan-
local research laboratories and university cial will pose critical economic risks that may
institutes if they want to gain market access. easily reduce China’s short-term growth per-
And none of the big MNCs such as General spectives. Political stability needs to be se-
Electric, Microsoft, IBM, Motorola or Siemens cured, and will increasingly depend on the
is willing to miss its chances. The deal is as leadership’s ability to deal with rising social
clear as it could be: The Chinese are trading instability as a consequence of widening in-
market access for technology. come gaps and regional development dispari-
ties. But after reviewing China’s determined
Taking Stock
catching-up performance since the end of the
The national production of higher value-
Cultural Revolution, who would actually doubt
added products increased dramatically over
that China will achieve its ambitious goals?
the last few years, though the starting values
Doubts are better founded as to whether the
were admittedly small (see table). Exports of
West will be prepared to accept the chal-
China’s high technology industries increased
lenge.
from 13 billion USD in 1995 to 110.4 billion
US dollars in 2003, accounting for about 25
percent of total exports and Table: Selected Industrial Products, 1995-2003
clearly surpassing the high-tech Household Air-conditioners Micro- Integrated
refrigerators for rooms Computer Circuits
share in Germany’s exports of (million) (million) (million) (billion)
about 18%. Patenting also de- 1995 9.18 6.82 0.83 5.52
veloped dramatically with only 1996 9.79 7.86 1.39 3.89
about 100,000 patents granted 1997 10.44 9.74 2.07 2.55
in 1999 and more than 180,000 1998 10.60 11.57 2.91 2.63
patents granted in 2003. 1999 12.10 13.38 4.05 4.15
2000 12.79 18.27 6.72 5.88
Nonetheless, the country still
2001 13.51 23.33 8.78 6.36
has a ways to go to become a
2002 15.99 31.35 14.63 9.63
high-tech superpower. High-
2003 22.53 48.21 32.16 14.83
tech production is not yet “Chi-
State Statistical Bureau (2004).
nese”, as Sino-foreign joint ven-
tures contribute more than 50% to China’s
total high-tech exports. But the rapid devel-
opment over the last few years sends a clear
signal that China strives to be more than the
world’s biggest socks-and-buttons producer.
Of course, China won’t become a technologi-
cal superpower this year or next year. And
there are still a couple of risks along the way.
© 2005 THINK!DESK China Research & Consulting

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1) Gad Rausing Professor of International
Economics, Lund University, Department of
Economics and Lund Research Institute.
References
Do you have any comments, suggestions or
State Statistical Bureau (2004). China State
questions concerning our new “Viewpoint
Statistical Yearbook 2004, State Statis-
China” by Prof. Dr. Sonja Opper?
tical Publishing House, Beijing.
Nelson, Richard R. And Howard Pack (1999). Just contact us!
“The Asian Miracle and Modern Growth
THINK!DESK
Theory”, The Economic Journal, China Research & Consulting
109(457): 416-436.
Romer, Paul M. (1990). “Endogenous Tech- info@thinkdesk.de
nological Change”, The Journal of Po- www.thinkdesk.de
litical Economy, 98(5):S71-S102.
© 2005 THINK!DESK China Research & Consulting