China: Controlled Innovation

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When discussing the growth in China we tend to view it using our own (capitalistic/democratic) filter. However, the economy in China is much different than our own. This piece tries to help

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  • 中国制造:在多个行业中,中国都位居全球第一大生产国和第一大出口国。 玩具 占全球产量的 70% , 鞋类 占全球产量的 50% , 彩电 占全球产量的 45% , 空调 占全球产量的 30% , 纺织品服装 占全球产量的 24% 。 中国制造:在多个行业中,中国都位居全球第一大生产国和第一大出口国。 玩具 占全球产量的 70% , 鞋类 占全球产量的 50% , 彩电 占全球产量的 45% , 空调 占全球产量的 30% , 纺织品服装 占全球产量的 24% 。 中国制造:在多个行业中,中国都位居全球第一大生产国和第一大出口国。 玩具 占全球产量的 70% , 鞋类 占全球产量的 50% , 彩电 占全球产量的 45% , 空调 占全球产量的 30% , 纺织品服装 占全球产量的 24% 。 jjjj 中国制造:在多个行业中,中国都位居全球第一大生产国和第一大出口国。 玩具 占全球产量的 70% , 鞋类 占全球产量的 50% , 彩电 占全球产量的 45% , 空调 占全球产量的 30% , 纺织品服装 占全球产量的 24% 。
  • China: Controlled Innovation

    1. 1. China: Innovation in aCentrally Planned EconomyETM 520/620November 30, 2009Greg Bourque Dan MeadorWilson Zehr Shawn JiangLam Dinh Nametsegang Boemo-Mokhawa
    2. 2. FoundationInnovation is: “…the creation and implementation of newprocesses, products, services and methods of delivery, whichresult in significant improvements in outcomes, efficiency,effectiveness or quality.”Mulgan, G and Albury, D (2003) Innovation in the Public Sector, Cabinet Office, London.2Team 5Why Innovate?• Increase standard of living• Achieve sustained economic growth• Kontratieff’s Long Wave Cycle
    3. 3. Tale of Two PrioritiesCentral Planning• Need for control• Activity based rewards• Follow the party line• Top down decisions• Planned growthMarket Driven• Need to innovate• Outcome based rewards• Think outside of the box• Bottom up decisions• Organic growth3Team 5Can an innovation system in a centrally planned economybe as successful as in a market driven economy?
    4. 4. Measuring InnovationMetrics• Human Capital• Research and DevelopmentExpenditures• Patents granted• Economic Performance• Per Capita income• Domestic Consumption• Productivity– Key to raising living standards– Key to poverty reduction– Key to a sound environmentMethods• Ranking• Trending• Policy Analysis• System Analysis - Analysis ofsupport structures4Team 5
    5. 5. Education R&D ImplementationLinkagesInnovation SystemEnd Use5Team 5
    6. 6. China: Economic Miracle10% Average GDPGrowth 30 Years6Team 525% Average ExportGrowth 2000 - 2005
    7. 7. Source: Stages of Economic Development (transcript) Speech at the Chinese Academy of Arts and SciencesBeijing, June 19, 2004Professor Jeffrey D. SachsDirector, The Earth Institute at Columbia UniversityEconomic GrowthPath to Sustained GrowthIncomeperCapitaTime0 nKnowledgeIndustrialCommercialPre-commercialLeverage low costresources such as laborAdd additional valuethrough innovation7Team 5
    8. 8. MongoliaProvinces (22)Autonomous Regions (5)GuangxiInner MongoliaNingxia HuiXinjiangTibetMunicipalities (4)BeijingShanghaiTianjinChongqingSpecial Administrative Regions (2)Hong KongMacauChina: The CountryPopulation: 1.3B (1st)Land Area: 9.6M KM (4th)8Team 5
    9. 9. Source: The China Business Review, April 2009Notes: NEA = National Energy Administration; SAFE = State Administrationof Foreign Exchange; SFDA = State Food and Drug Administration.China: GovernmentNational People’s Congress (NPC)9
    10. 10. Source: http://www.china.org.cn/e-chinaChina: GovernmentNPC Composition10Team 5
    11. 11. Demographics80% men77% over 3531% college degreeGroup Members MeetCommunist Party 73 millionNational Party Congress 2,000 5 yearsCentral Committee 200Politburo 24Standing Committee 9 frequentSource(s): BBC NewsThe China Business ReviewHu JinPresidentHu JintaoChairHu JintaoChairmanGeneral SecretaryHu Jintao11thFive Year PlanChina: GovernmentRole (Rule) of Communist Party11Team 5
    12. 12. Open to WorldDeng Xiaoping‘8080% SOE‘53 – ’571st5 Year Plan‘56100% SOE93.5% farm cooperatives‘06 – ’1011th5 Year PlanChina: EconomyHistory of Growth12Team 5China GDP Growth (1950 – 2005)Korean War Great Leap Forward Cultural Revolution Market-based economic returns since 1978Farm privatizationWTO entrySEZ’s1997 Asian Financial Crisis‘58 Break with SovietStyle Communism‘9643% SOE‘76 – ’805th5 Year PlanSource: GDP data published by the Peoples Republic ofChina and compiled by Hitotsubashi University (Japan) andaugmented with World Bank and other data.
    13. 13. China: EconomyRole of Special Economic Zone (SEZ)Function• Create Jobs• Acquire technical knowledge• Attract foreign direct investmentCommon Incentives• Access to low cost labor pool• Favorable tax treatment (tax-free window)• Greater independence for international trade• Business friendly rules & policies• Potential for subsidies13Team 5
    14. 14. China: EconomySpecial Economic Zones1980 - 1984Guangdong Province- Shantou- Shenzhen- ZhuhaiFujian Province- XiamenHainan Island1984 (FDI)DalianQinhuangdaoTianjinYantaiQingdaoLianyungangNantongShanghaiNingboWenzhouFuzhouGuangzhouZhanjiangBeihai1985expand coastal areasopen economic zonesMountainousRegion14Source: Handbook of International Economic Statistics, Feb 1999
    15. 15. laborlaborlaborChina: EconomyFlow of Capitol & LaborGovernmentInvestmentGovernmentInvestmenturban >rural201515MountainousRegionSource: Handbook of International Economic Statistics, Feb 1999
    16. 16. Time0 nKnowledgeIndustrialCommercialPre-commercialUrbanChinaRuralChinaSource: Stages of Economic Development (transcript)Speech at the Chinese Academy of Arts and SciencesBeijing, June 19, 2004Professor Jeffrey D. SachsDirector, The Earth Institute at Columbia UniversityIncomeperCapita• Economic Development and Nation-Building: the Case of ChinaShinichi Ichimura (Co-leader)Professor Emeritus, Kyoto University, Japan10,000*modernization2,000*Industrialization500*Take OffChina: EconomyEvolutionary StageҰ 13,786**$ 1,907Ұ 4,140**$ 573** Source: Thomson Reuters, Jan 24, 2008growingfasterUS Medium$ 48,000n = 200716Team 5
    17. 17. HDI measures the average progress of a country in human development acrossthree dimensions: life expectancy, education, and standard of living.United Nations Development ProgramHuman Development Report 2009China: InnovationHuman Development17Team 5
    18. 18. China: EconomyPreserve “Social Harmony”Labor Force CompositionAgriculture: 43%Industry: 25%Services: 32% (2006 est.)GDP CompositionAgriculture: 11.3%Industry: 48.6%Services: 40.1% (2008 est.)18Team 5Source(s): Stratfor, (www.stratfor.com) April 2, 2007Urban to Rural Migration Population Aging Rapidly
    19. 19. 5th5 Year Plan v1.0 (1976 – 1980)• Steel Output – 60M tons• Oil Output – 250M tons• 10 oil & gas fields• 120 large projects• Steel, non-ferrous metal, coal• Ұ70B government investment11th5 Year Plan (2006 – 2010)• Scientific approach to development• New socialist countryside• Upgrade industrial structure– Technology-based industries– Modernize manufacturing– Strength before scale• Develop service industry• Balance among regions• Environmentally sensitive• Science and education• Institutional reforms• Harmonious socialist society• Socialist democratic politics• Socialist cultural development• Strengthen national defenseTeam 5 19China: PlanningChanging Focus5th5 Year Plan v2.0 (1978 – 1980)• Modernization (revised focus)• Principles of readjustment, reform,rectification and improvement.• Market-based reforms• Open to world• Foreign direct investment• Agricultural privatizationGuidelineSource: china.org.cnNational Party Congress (en.ndrc.gov.cn)
    20. 20. China MadeTop Manufacturer & Exporter• Toys 70%• Shoes 50%• Color TV 45%• Air Conditioner 30%• Textile 24%Export/GDP: 60%(2003); 64%(2005)Excessive investment into processingtrade (OEM), resulting in, labor, landand resource intensive productsChina: PlanningThe Torch Program5th5-Year Plan FDI China MadeCHINA TORCH PROGRAMIndependent Innovation China CreatedChinaCreatedPolicyCapital MarketTalentsIndependent InnovationTechnologyIndustrial ConstructionClimb Value Chain
    21. 21. STIP Locations:• 29 in central cities with intensiveintellectual resources and soundindustrial base• 13 in coastal cities with betterconditions of opening-up tooutside world• 12 in the cities with intensivemilitary industries and traditionalindustrial baseChina: PlanningScience & Technology Industrial Park (STIP)CHINA TORCH PROGRAM
    22. 22. China: InnovationResearch & Development22Team 5China’s R&D Expenditure/Percentage of GDP
    23. 23. China: InnovationResearch & Development23Team 5Source: Ministry of Science and Technology of thePeople’s Republic of China
    24. 24. Team 5 24China: InnovationR&D Comparison
    25. 25. China: InnovationPatent Activity25Team 5Source: Ministry of Science and Technology of thePeople’s Republic of China
    26. 26. 26Team 5Source: Ministry of Science and Technology of thePeople’s Republic of ChinaChina: InnovationPatent Activity
    27. 27. China: InnovationEducation27Team 5
    28. 28. 28Team 5Source: Ministry of Science and Technology of thePeople’s Republic of ChinaChina: InnovationScience & Technology PublicationsDomestic: Classified by Institution
    29. 29. China: InnovationIncome & Savings Growth29Team 5Source: Boston Consulting GroupAsia-Pacific excludingJapan: 33%ChinaSingaporeMalaysiaIndiaThailandSouth KoreaAustraliaPhilippinesNew Zealand2003 2004 2005 2006 2007
    30. 30. China Rank GloballyFactor 1960 2000Income per worker 103 71Total factor productivity 105 7630Team 5China: InnovationIncome & Productivity Rank
    31. 31. Conclusions• Enormous Economic Growth Over the Past 30 Years– Foreign Direct Investment (FDI - open to outside world)– Low cost Labor (Export oriented)– Urban Development• Improvements Innovation System– Education– R&D– Implementation– Linkage– (End-use)• Factors to Sustain Growth– Central Planed S&T DevelopmentIndividual Enterprise R&D / Entrepreneurial Collaboration– Government Intervention, Primary ActorsSecondary Actors– Planned EconomyMarket Based– Focus is on short-term economic benefit Focus must be on long-term S&T ResearchTeam 5 31
    32. 32. • http://www.china.org.cn/video/2009-09/18/content_18549294.htmTeam 5 32

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