THINK!DESK „China Standpunkte“ Nr. 4
The Giant Graduates: China’s strive for High-technology – Prof. Dr. Sonja Opper1




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nologies and the advancement of key tech-            and explain why some of the poorest coun-
nologies for environme...
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the specific needs of China’s economic de-           comes are not exceptional for knowledgeable
velopment. About 35%...
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ingly forced into research co-operations with                Upcoming reforms of the banking and finan-
local researc...
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1) Gad Rausing Professor of International
Economics, Lund University, Department of
Economics and Lund Research Insti...
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China’s strive for High-technology - THINK!DESK CHINA STANDPUNKT Nr. 4

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While China’s tremendous growth performance and catching-up process over the last few decades is undisputed, opinions on the sustainability of China’s economic growth could not be more diverse. On the one side analysts extrapolate the current growth performance and foresee world leadership within the next 20 years; others point to China’s lack of innovative capacity and expect the leveling out of the current growth dynamic as soon as China’s immense supply of cheap labor is absorbed and the potential for factor-driven growth recedes.

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China’s strive for High-technology - THINK!DESK CHINA STANDPUNKT Nr. 4

  1. 1. 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-
  2. 2. 2 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
  3. 3. 3 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
  4. 4. 4 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
  5. 5. 5 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

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