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China: Innovation in a
Centrally Planned Economy
ETM 520/620
November 30, 2009
Greg Bourque Dan Meador
Wilson Zehr Shawn Jiang
Lam Dinh Nametsegang Boemo-Mokhawa
Foundation
Innovation is: “…the creation and implementation of new
processes, products, services and methods of delivery, which
result in significant improvements in outcomes, efficiency,
effectiveness or quality.”
Mulgan, G and Albury, D (2003) Innovation in the Public Sector, Cabinet Office, London.
2Team 5
Why Innovate?
• Increase standard of living
• Achieve sustained economic growth
• Kontratieff’s Long Wave Cycle
Tale of Two Priorities
Central Planning
• Need for control
• Activity based rewards
• Follow the party line
• Top down decisions
• Planned growth
Market Driven
• Need to innovate
• Outcome based rewards
• Think outside of the box
• Bottom up decisions
• Organic growth
3Team 5
Can an innovation system in a centrally planned economy
be as successful as in a market driven economy?
Measuring Innovation
Metrics
• Human Capital
• Research and Development
Expenditures
• Patents granted
• Economic Performance
• Per Capita income
• Domestic Consumption
• Productivity
– Key to raising living standards
– Key to poverty reduction
– Key to a sound environment
Methods
• Ranking
• Trending
• Policy Analysis
• System Analysis - Analysis of
support structures
4Team 5
Education R&D Implementation
Linkages
Innovation System
End Use
5Team 5
China: Economic Miracle
10% Average GDP
Growth 30 Years
6Team 5
25% Average Export
Growth 2000 - 2005
Source: Stages of Economic Development (transcript) Speech at the Chinese Academy of Arts and Sciences
Beijing, June 19, 2004
Professor Jeffrey D. Sachs
Director, The Earth Institute at Columbia University
Economic Growth
Path to Sustained Growth
IncomeperCapita
Time0 n
Knowledge
Industrial
Commercial
Pre-commercial
Leverage low cost
resources such as labor
Add additional value
through innovation
7Team 5
MongoliaProvinces (22)
Autonomous Regions (5)
Guangxi
Inner Mongolia
Ningxia Hui
Xinjiang
Tibet
Municipalities (4)
Beijing
Shanghai
Tianjin
Chongqing
Special Administrative Regions (2)
Hong Kong
Macau
China: The Country
Population: 1.3B (1st
)
Land Area: 9.6M KM (4th
)
8Team 5
Source: The China Business Review, April 2009
Notes: NEA = National Energy Administration; SAFE = State Administration
of Foreign Exchange; SFDA = State Food and Drug Administration.
China: Government
National People’s Congress (NPC)
9
Source: http://www.china.org.cn/e-china
China: Government
NPC Composition
10Team 5
Demographics
80% men
77% over 35
31% college degree
Group Members Meet
Communist Party 73 million
National Party Congress 2,000 5 years
Central Committee 200
Politburo 24
Standing Committee 9 frequent
Source(s): BBC News
The China Business Review
Hu Jin
President
Hu Jintao
Chair
Hu Jintao
Chairman
General Secretary
Hu Jintao
11th
Five Year Plan
China: Government
Role (Rule) of Communist Party
11Team 5
Open to World
Deng Xiaoping
‘80
80% SOE
‘53 – ’57
1st
5 Year Plan
‘56
100% SOE
93.5% farm cooperatives
‘06 – ’10
11th
5 Year Plan
China: Economy
History of Growth
12Team 5
China GDP Growth (1950 – 2005)
Korean War Great Leap Forward Cultural Revolution Market-based economic returns since 1978
Farm privatization
WTO entrySEZ’s
1997 Asian Financial Crisis
‘58 Break with Soviet
Style Communism
‘96
43% SOE
‘76 – ’80
5th
5 Year Plan
Source: GDP data published by the People's Republic of
China and compiled by Hitotsubashi University (Japan) and
augmented with World Bank and other data.
China: Economy
Role of Special Economic Zone (SEZ)
Function
• Create Jobs
• Acquire technical knowledge
• Attract foreign direct investment
Common Incentives
• Access to low cost labor pool
• Favorable tax treatment (tax-free window)
• Greater independence for international trade
• Business friendly rules & policies
• Potential for subsidies
13Team 5
China: Economy
Special Economic Zones
1980 - 1984
Guangdong Province
- Shantou
- Shenzhen
- Zhuhai
Fujian Province
- Xiamen
Hainan Island
1984 (FDI)
Dalian
Qinhuangdao
Tianjin
Yantai
Qingdao
Lianyungang
Nantong
Shanghai
Ningbo
Wenzhou
Fuzhou
Guangzhou
Zhanjiang
Beihai
1985
expand coastal areas
open economic zones
Mountainous
Region
14
Source: Handbook of International Economic Statistics, Feb 1999
labor
labor
labor
China: Economy
Flow of Capitol & Labor
Government
Investment
Government
Investment
urban >
rural
2015
15
Mountainous
Region
Source: Handbook of International Economic Statistics, Feb 1999
Time0 n
Knowledge
Industrial
Commercial
Pre-commercial
Urban
China
Rural
China
Source: Stages of Economic Development (transcript)
Speech at the Chinese Academy of Arts and Sciences
Beijing, June 19, 2004
Professor Jeffrey D. Sachs
Director, The Earth Institute at Columbia University
IncomeperCapita
• Economic Development and Nation-Building: the Case of China
Shinichi Ichimura (Co-leader)
Professor Emeritus, Kyoto University, Japan
10,000*
modernization
2,000*
Industrialization
500*
Take Off
China: Economy
Evolutionary Stage
Ұ 13,786**
$ 1,907
Ұ 4,140**
$ 573
** Source: Thomson Reuters, Jan 24, 2008
growing
faster
US Medium
$ 48,000
n = 2007
16Team 5
HDI measures the average progress of a country in human development across
three dimensions: life expectancy, education, and standard of living.
United Nations Development Program
Human Development Report 2009
China: Innovation
Human Development
17Team 5
China: Economy
Preserve “Social Harmony”
Labor Force Composition
Agriculture: 43%
Industry: 25%
Services: 32% (2006 est.)
GDP Composition
Agriculture: 11.3%
Industry: 48.6%
Services: 40.1% (2008 est.)
18Team 5
Source(s): Stratfor, (www.stratfor.com) April 2, 2007
Urban to Rural Migration Population Aging Rapidly
5th
5 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 investment
11th
5 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 defense
Team 5 19
China: Planning
Changing Focus
5th
5 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 privatization
Guideline
Source: china.org.cn
National Party Congress (en.ndrc.gov.cn)
China Made
Top Manufacturer & Exporter
• Toys 70%
• Shoes 50%
• Color TV 45%
• Air Conditioner 30%
• Textile 24%
Export/GDP: 60%(2003); 64%(2005)
Excessive investment into processing
trade (OEM), resulting in, labor, land
and resource intensive products
China: Planning
The Torch Program
5th
5-Year Plan FDI China Made
CHINA TORCH PROGRAM
Independent Innovation China Created
China
Created
Policy
Capital Market
Talents
Independent Innovation
Technology
Industrial Construction
Climb Value Chain
STIP Locations:
• 29 in central cities with intensive
intellectual resources and sound
industrial base
• 13 in coastal cities with better
conditions of opening-up to
outside world
• 12 in the cities with intensive
military industries and traditional
industrial base
China: Planning
Science & Technology Industrial Park (STIP)
CHINA TORCH PROGRAM
China: Innovation
Research & Development
22Team 5
China’s R&D Expenditure/Percentage of GDP
China: Innovation
Research & Development
23Team 5
Source: Ministry of Science and Technology of the
People’s Republic of China
Team 5 24
China: Innovation
R&D Comparison
China: Innovation
Patent Activity
25
Team 5
Source: Ministry of Science and Technology of the
People’s Republic of China
26
Team 5
Source: Ministry of Science and Technology of the
People’s Republic of China
China: Innovation
Patent Activity
China: Innovation
Education
27Team 5
28
Team 5
Source: Ministry of Science and Technology of the
People’s Republic of China
China: Innovation
Science & Technology Publications
Domestic: Classified by Institution
China: Innovation
Income & Savings Growth
29Team 5
Source: Boston Consulting Group
Asia-Pacific excluding
Japan: 33%
China
Singapore
Malaysia
India
Thailand
South Korea
Australia
Philippines
New Zealand
2003 2004 2005 2006 2007
China Rank Globally
Factor 1960 2000
Income per worker 103 71
Total factor productivity 105 76
30Team 5
China: Innovation
Income & Productivity Rank
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 Research
Team 5 31
• http://www.china.org.cn/video/2009-
09/18/content_18549294.htm
Team 5 32

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China: Controlled Innovation

  • 1. China: Innovation in a Centrally Planned Economy ETM 520/620 November 30, 2009 Greg Bourque Dan Meador Wilson Zehr Shawn Jiang Lam Dinh Nametsegang Boemo-Mokhawa
  • 2. Foundation Innovation is: “…the creation and implementation of new processes, products, services and methods of delivery, which result in significant improvements in outcomes, efficiency, effectiveness or quality.” Mulgan, G and Albury, D (2003) Innovation in the Public Sector, Cabinet Office, London. 2Team 5 Why Innovate? • Increase standard of living • Achieve sustained economic growth • Kontratieff’s Long Wave Cycle
  • 3. Tale of Two Priorities Central Planning • Need for control • Activity based rewards • Follow the party line • Top down decisions • Planned growth Market Driven • Need to innovate • Outcome based rewards • Think outside of the box • Bottom up decisions • Organic growth 3Team 5 Can an innovation system in a centrally planned economy be as successful as in a market driven economy?
  • 4. Measuring Innovation Metrics • Human Capital • Research and Development Expenditures • Patents granted • Economic Performance • Per Capita income • Domestic Consumption • Productivity – Key to raising living standards – Key to poverty reduction – Key to a sound environment Methods • Ranking • Trending • Policy Analysis • System Analysis - Analysis of support structures 4Team 5
  • 6. China: Economic Miracle 10% Average GDP Growth 30 Years 6Team 5 25% Average Export Growth 2000 - 2005
  • 7. Source: Stages of Economic Development (transcript) Speech at the Chinese Academy of Arts and Sciences Beijing, June 19, 2004 Professor Jeffrey D. Sachs Director, The Earth Institute at Columbia University Economic Growth Path to Sustained Growth IncomeperCapita Time0 n Knowledge Industrial Commercial Pre-commercial Leverage low cost resources such as labor Add additional value through innovation 7Team 5
  • 8. MongoliaProvinces (22) Autonomous Regions (5) Guangxi Inner Mongolia Ningxia Hui Xinjiang Tibet Municipalities (4) Beijing Shanghai Tianjin Chongqing Special Administrative Regions (2) Hong Kong Macau China: The Country Population: 1.3B (1st ) Land Area: 9.6M KM (4th ) 8Team 5
  • 9. Source: The China Business Review, April 2009 Notes: NEA = National Energy Administration; SAFE = State Administration of Foreign Exchange; SFDA = State Food and Drug Administration. China: Government National People’s Congress (NPC) 9
  • 11. Demographics 80% men 77% over 35 31% college degree Group Members Meet Communist Party 73 million National Party Congress 2,000 5 years Central Committee 200 Politburo 24 Standing Committee 9 frequent Source(s): BBC News The China Business Review Hu Jin President Hu Jintao Chair Hu Jintao Chairman General Secretary Hu Jintao 11th Five Year Plan China: Government Role (Rule) of Communist Party 11Team 5
  • 12. Open to World Deng Xiaoping ‘80 80% SOE ‘53 – ’57 1st 5 Year Plan ‘56 100% SOE 93.5% farm cooperatives ‘06 – ’10 11th 5 Year Plan China: Economy History of Growth 12Team 5 China GDP Growth (1950 – 2005) Korean War Great Leap Forward Cultural Revolution Market-based economic returns since 1978 Farm privatization WTO entrySEZ’s 1997 Asian Financial Crisis ‘58 Break with Soviet Style Communism ‘96 43% SOE ‘76 – ’80 5th 5 Year Plan Source: GDP data published by the People's Republic of China and compiled by Hitotsubashi University (Japan) and augmented with World Bank and other data.
  • 13. China: Economy Role of Special Economic Zone (SEZ) Function • Create Jobs • Acquire technical knowledge • Attract foreign direct investment Common Incentives • Access to low cost labor pool • Favorable tax treatment (tax-free window) • Greater independence for international trade • Business friendly rules & policies • Potential for subsidies 13Team 5
  • 14. China: Economy Special Economic Zones 1980 - 1984 Guangdong Province - Shantou - Shenzhen - Zhuhai Fujian Province - Xiamen Hainan Island 1984 (FDI) Dalian Qinhuangdao Tianjin Yantai Qingdao Lianyungang Nantong Shanghai Ningbo Wenzhou Fuzhou Guangzhou Zhanjiang Beihai 1985 expand coastal areas open economic zones Mountainous Region 14 Source: Handbook of International Economic Statistics, Feb 1999
  • 15. labor labor labor China: Economy Flow of Capitol & Labor Government Investment Government Investment urban > rural 2015 15 Mountainous Region Source: Handbook of International Economic Statistics, Feb 1999
  • 16. Time0 n Knowledge Industrial Commercial Pre-commercial Urban China Rural China Source: Stages of Economic Development (transcript) Speech at the Chinese Academy of Arts and Sciences Beijing, June 19, 2004 Professor Jeffrey D. Sachs Director, The Earth Institute at Columbia University IncomeperCapita • Economic Development and Nation-Building: the Case of China Shinichi Ichimura (Co-leader) Professor Emeritus, Kyoto University, Japan 10,000* modernization 2,000* Industrialization 500* Take Off China: Economy Evolutionary Stage Ұ 13,786** $ 1,907 Ұ 4,140** $ 573 ** Source: Thomson Reuters, Jan 24, 2008 growing faster US Medium $ 48,000 n = 2007 16Team 5
  • 17. HDI measures the average progress of a country in human development across three dimensions: life expectancy, education, and standard of living. United Nations Development Program Human Development Report 2009 China: Innovation Human Development 17Team 5
  • 18. China: Economy Preserve “Social Harmony” Labor Force Composition Agriculture: 43% Industry: 25% Services: 32% (2006 est.) GDP Composition Agriculture: 11.3% Industry: 48.6% Services: 40.1% (2008 est.) 18Team 5 Source(s): Stratfor, (www.stratfor.com) April 2, 2007 Urban to Rural Migration Population Aging Rapidly
  • 19. 5th 5 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 investment 11th 5 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 defense Team 5 19 China: Planning Changing Focus 5th 5 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 privatization Guideline Source: china.org.cn National Party Congress (en.ndrc.gov.cn)
  • 20. China Made Top Manufacturer & Exporter • Toys 70% • Shoes 50% • Color TV 45% • Air Conditioner 30% • Textile 24% Export/GDP: 60%(2003); 64%(2005) Excessive investment into processing trade (OEM), resulting in, labor, land and resource intensive products China: Planning The Torch Program 5th 5-Year Plan FDI China Made CHINA TORCH PROGRAM Independent Innovation China Created China Created Policy Capital Market Talents Independent Innovation Technology Industrial Construction Climb Value Chain
  • 21. STIP Locations: • 29 in central cities with intensive intellectual resources and sound industrial base • 13 in coastal cities with better conditions of opening-up to outside world • 12 in the cities with intensive military industries and traditional industrial base China: Planning Science & Technology Industrial Park (STIP) CHINA TORCH PROGRAM
  • 22. China: Innovation Research & Development 22Team 5 China’s R&D Expenditure/Percentage of GDP
  • 23. China: Innovation Research & Development 23Team 5 Source: Ministry of Science and Technology of the People’s Republic of China
  • 24. Team 5 24 China: Innovation R&D Comparison
  • 25. China: Innovation Patent Activity 25 Team 5 Source: Ministry of Science and Technology of the People’s Republic of China
  • 26. 26 Team 5 Source: Ministry of Science and Technology of the People’s Republic of China China: Innovation Patent Activity
  • 28. 28 Team 5 Source: Ministry of Science and Technology of the People’s Republic of China China: Innovation Science & Technology Publications Domestic: Classified by Institution
  • 29. China: Innovation Income & Savings Growth 29Team 5 Source: Boston Consulting Group Asia-Pacific excluding Japan: 33% China Singapore Malaysia India Thailand South Korea Australia Philippines New Zealand 2003 2004 2005 2006 2007
  • 30. China Rank Globally Factor 1960 2000 Income per worker 103 71 Total factor productivity 105 76 30Team 5 China: Innovation Income & Productivity Rank
  • 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 Research Team 5 31

Editor's Notes

  1. 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% 。