Transcript The Chinese Innovation Policy Framework

Organization, Program and Structure:
An Analysis of Chinese Innovation Policy
Framework
Ph.D School on National Systems of Innovation and Economic Development,
May 25- June 3, 2004, Lisbon, Portugal
Can Huang
Department of Economics, Management and
Industrial Engineering
University of Aveiro
Aveiro, Portugal
[email protected]
1
Some Words Before
Presentation

The paper to be presented is descriptive.

My recent quantitative analysis work is added
after the presentation of this paper.

The motivation and purpose of writing this paper
2
Background (1)

Transition and development of Chinese
economy and society in the past 25 years

Complicated and diverse change of
Chinese innovation policy in the past 25
years
3
Background (2)
Latest Changes in China till early of 2004






China’s entry to the WTO (2001)
Reverse inflow of overseas Chinese (From 1986-2001, 7.5% Doctor
Degree of S&T in US is confered to Chinese-born Scientists)
Foreign companies have started to establish local R&D centers
(More than 100 MNCs)
Domestic firms are already sourcing know-how directly in US,
Europe and Japan, or have created their own powerhouse of
innovation, aiming at compete in the global market (HuaWei and
Zhongxing in Telecomnunication, TCL and Haier in Consumer
Eletronics, thousands of SMEs, etc.)
China’s S&T institutions and universities experienced large scale
shake-up and received unprecedented investment from the
governemnt. (Gradual transition since 1985; radical one began in
1999)
4
Amend the Constitution to protect the private property right
( March, 2004)
Background (3)
GDP: 6th largest economy in the world
International Trade: 4th biggest trader in the world
Highway Kilometers: 2nd in the world
GERD/GDP in 2002: 1.2%
R&D Expenditure : 3th largest spender in the world (measured by
PPP) (Source: OECD)
The number of “Science Citation Index” Papers: 5th in the
world(Source: Chinese Government)
Patent (US? Or “Triadic” Patent Families) of Nanotechnology: 3rd in
the world (Source: Chinese Government)
5
Questions

Which government bodies have become responsible for
innovation policy at the national level?

Which organizations can be considered important participants in
the process of policy making?

To what extent has China developed an innovation policy?

In which area of the innovation policy does China do well, and
where does it lag behind compared with international practices?
6
Steps to Approach the
Questions
First - Identifies the stakeholders; compares them with different
government systems in selected OECD countries.
Second - Examine China's innovation policy in five categories: reform
in the public S&T institutions, financial policy, business
innovation support structure, human resource policy and
legislative actions.
Third - Several weak components of the Chinese innovation policy
framework are identified; two of them are selected for further
analyzis: education and human resource policy, and protection of
Intellectual Property Rights (IPR).
Fourth – Provides some priorities and possible actions for future
innovation policy developments in China.
7
The Governance Models of
Innovation Policy Matter in China (1)

A coordination mechanism in China’s State Council --- State
Steering Committee of S&T and Education, founded in 1998.
Mission: decides national strategy for S&T and education, important
projects and programs in the S&T and education fields, and
coordinates the innovation policy in the ministry and local levels.

Ministry of Science and Technology ( MOST) --- Center of the
design and implementation of innovation policy.

Other important stakeholders: Ministry of Education, Chinese
Academy of Science, etc..
8
Figure 1 Chinese Innovation Policy
Institutions
State Council – State Steering Committee of S&T and
Education
Other
Government
Ministries
Ministry of Science and Technology (MOST)
National
Development
and
Reform Commission
Design
and
Implement national
comprehensive
development
strategy in the form
of
5-year
development
plan,
having
great
influence in China’s
innovation policy
Ministry
Commerce
of
Ministry
Finance
of
State
Intellectual
Property Office
Patent
Other
Issues
and
IPR
Ministry
Education
Ministry
Personnel
Productivity
Promotion
Center
Chinese Academy of
Science
National
Natural
Science Foundation
of China
of
Conducting Research
and
Promoting
Innovation
Attracting
Overseas
Chinese
Scholars, Managing post-doctor
program, etc.
Innovation Fund
for
Small
Technology Based
Firm
of
R&D Program, Science
Park, Human Resource
Development related to
University
State Administration for Industry and
Commerce
Support
Innovation
Ministry of
Industry
Information
Design
and
Implement
development strategy of
sectors in China
Competition Rules
Tax Relief Policy to
Export
of
High-Tech
Products; FDI Preference
Policy
to
High-Tech
Industry Sectors
Funding
Basic
Research
the
ICT
SMEs
Funding the Basic Research Programs
such as 973 Program; Funding the HighTech R&D Programs such as 863
Program
Funding the Technology
Transfer Programs such
as Spark Program
Promoting Science Parks and
incubators
through
the
programs such as Torch
Program
9
The Governance Models of Innovation
Policy Matter in some Selected OECD
Countries
Three categories of institutional frameworks
Category

Example
No separation between the government
departments that design policy and those that
implement measures
UK (This category is
very similar to China’s
governance system.)
Policy is framed by ministries but delivered by
semi-autonomous agencies
Ireland
Innovation policy framework is more complex
with interaction of federal and local
governments
Austria, Belgium,
Germany, Spain
Similar practices of Chinese co-ordination structures at ministerial level in
the EU countries,
 In Finland - the Science & Technology Council, chaired by the prime minister,
is composed of seven Ministers and ten representative organizations. 10
The Policy Actions Implemented in
China for Promoting Innovation (1)

Some scholars endeavored to create a theoretical scheme to
compare the different national innovation system in the diversified
social and economic context (Nelson, 1993; Liu and White, 2000;
Shyu et al., 2001; Chang and Shih, 2003)

The collected literature does not elicit many scattered policies in
China to gives us a comprehensive answer, especially for the
question in which area the policy has been catching up and in which
it is still weak.
11
Figure 2 Chinese Innovation Policy
Framework
Figure 2 Chinese Innovation Policy Framework
Business Innovation Support
Financial Policy
Structure
• Current S&T Programs (Grants,
• Science Park and Incubators
Loans, Interest Subsidiary, etc.)
• China High-Tech Fair
• Tax Preference Policy and FDI
•
Productivity Promotion
• Venture Capital and Stock
Centers
Market
Reform in the Public S&T
Institutions
Human Resources Policy
• Education Development Policy
for Basic Education
• “211 Project” for Higher
Education
•
Ministry of Education’s
Human Resource Programs
Legislative Actions
•
IPR
and
Competition
Legislation
• S&T Legislation
• Education Legislation
12
Reform in the Public S&T Institutions (1)
Gu (1995) discussed intensively the policy reform for the S&T System in
China by dividing the evolution of the reform policy into several phases.
Recently, Suttmeier and Cao (1999), Liu and White (2001), Liu and Jiang
(2001) and Cao (2002) extended the empirical observation of policy
initiative after 1995.
However, the analysis on the newest round reform since 1999, called “the
transformation of the R&D institutes”, is seldom seen in the published
literature.
13
Table 1: Chinese Reform Policy for Public
S&T Institutions: 1978-2004
Period
Policy Actions Target
Policy Actions
Reformation of Planning Practice
(1978-1984)
Recover and develop the R&D system and
integrate it into the planned economic practices.
• Rehabilitation and improvement of R&D institutions after the
damage during Culture Revolution (1966-1976).
• Integration of R&D activities into the 6th National Five-Year
Plan (1980-1985).
• Replace the former S&T funding method that is mainly through
planned appropriation by the program projects competition
mechanism.
• Diminish the government grants to force the R&D institution to
establish cooperation with industry.
• Create a “Technology Market” to legitimize paid transactions for
technology and set up the agencies to support the transactions.
• Promote the autonomy of R&D institutions and mobility of the S&T
Personnel.
• Attempt merging the R&D institutions into enterprises.
• Support the spin-off enterprises.
Performing the S&T activities in the
“Market”
(1985-1991)
Establish the horizontal and regular connection
between S&T sector and enterprises.
Bridging S&T activities closely to
“ Socialist Market Economy”
(1992-1998)
Run non-basic research R&D institutions as run
enterprises.
• Endow the R&D institutions the comprehensive economic
autonomy as the same hold by normal enterprises.
• Encourage spin-off activities through promoting science park
and incubators.
• Continue the merging strategy.
Large Scale Transformation of
R&D institutions
(1999 till now)
Transform nearly all of the government owned
R&D institutions.
• Transform the R&D institutions into enterprises, non-profit
organizations, intermediary organizations or merged them into
universities.
14
Table 2: Transformation of Public R&D
Institutions in China After 1999
Transf
ormati
on
Year
Number of
Transformed
R&D
Institutions
Owners of the
Transformed R&D
Institutions
1999
242
Ex-State Economy and
Trade Commission
2000
134
11 Ministries: Ministry
of Construction, etc.
1999 2002
660
Local Governments
2001
98
2002
107
2004
43
4 Ministries and
Agencies: Ministry of
Land and Resources,
etc.
9 Ministries and
Agencies: Ministry of
Agriculture, etc.
5 Ministries and
Agencies: Ministry of
Health etc.
Status After Transformation
Enterprises
89 institutions: Non-profit
Organizations
61 institutions: Enterprises
Others: Merged into
universities, transformed into
intermediary organizations
Preliminary Result
MOST Survey in 2002 May on 290 Transformed R&D
Institutions
• Revenue in 2001: 1.5 times of in 1999; Profit in 2001: 2.6
times of in 1999; Tax in 2001: 1.9 times of in 1999.
• R&D expenditure annual increase rate in 2001: 16.2%; in
2000: 6.84%.
• Patent application annual increase rate in 2001: 9.6%.
• Employee average salary in 2001: 142.6% of that in
1999.
• 92.6% of them set up enterprises accounting system;
88.65% entered the local unemployment insurance; over
10 of them went public in the stock market.
N/A
15
Financial Policy (1)
• Current Current S&T Programs (Grants, Loans, Interest
Subsidiary, etc.)
• Tax Preference Policy and FDI
• Venture Capital and Stock Market
16
Table3: China’s current S&T programs
Initi
atin
g
Yea
r
Objective
Program Characteristics
Key Technology R&D
Program
(Gong Guan Ji Hua)
198
3
Concentrate resources on key and common technologies that
direly needed by industrial upgrading and social sustainable
development.
The program target set in 10th five-year plan from 2001 to 2005 is:1) By 2005 the general agriculture
technology is increased to the level that lags behind international advanced level 5 years; 2)The technology and
equipment level in several key industry sectors like ICT and manufacturing sector matches the level of
developed countries in the mid of 1990s;3) Develop the technology related to environment protection and
sustainable development; 4) Support the enterprises to be the major technological innovators.
State Key
Laboratories Program
(Guo Jia Zhong Dian
Shi Yan Shi Ji Hua)
198
4
Support selected laboratories at public or private facilities.
This program is intended to promote the research and advanced training in the 159 laboratories (2002 data)
belonging to universities and R&D institutions and establish a string of national engineering research centers.
Spark Program
(Huo Ju ji Hua)
198
6
Support technology transfer to rural area to promote the
rural area development.
In 1990s the government appropriation for this program hardly surpassed 5%. The bank loan and enterprises
own capital occupied the majority investment of the projects. In fact, the projects sponsored by this program
attain the government credit for the bank loan application. In 2000, 16.8% of total investment of this program
came from bank loans.
National Natural
Science Foundation of
China (NSFC)
(Guo Jia Zi Ran Ke
Xue Ji Jin)
198
6
Support basic research through directly funding the projects.
From its establishment of 1986 to 2000, the NSFC has funded over 52,000 research projects of various
categories by investing a total sum of RMB 6.6 billion. More than 60,000 scientists are supported by NSFC to
conduct basic research. In 2004, the NSFC received over 40,000 funding applications.
High Technology
R&D Program (863
Program)
(863 Ji Hua)
198
6
Enhance China's international competitiveness and improve
China's overall capability of R&D in high technology.
The Program is concentrating on mid to long-term development in both civilian and military areas. This
Program is co-managed by MOST and the Commission of S&T and Industry for National Defense. The
Program covers 20 subject topics selected from eight priority areas: Biotechnology, Information, Automation,
Energy, Advanced Materials, Marine, and Space and Laser. Recent years 863 program continuously increased
the funding for R&D projects undertaken by enterprise.
National New Product
Program
(Guo Jia Zhong Dian
Xin Chan Pin Ji Hua)
198
8
Compile the annual list of new and high technology product
and fund those products selectively through the grants and
interest subsidiary.
In 2002, 71.86% of the program’s funding is by the means of grants and 28.14% is through interest subsidiary.
Program
17
Table3: China’s current S&T programs
(Cont. )
National New Product
Program
(Guo Jia Zhong Dian
Xin Chan Pin Ji Hua)
1
9
8
8
Compile the annual list of new and high technology
product and fund those products selectively through the
grants and interest subsidiary.
In 2002, 71.86% of the program’s funding is by the means of grants and 28.14% is through
interest subsidiary.
Torch Program
(Huo Ju Ji Hua)
1
9
8
8
Support high technology industry sector development
through setting up science park and incubator, funding
projects, and human resource training etc.
By the end of 2003, through Torch Program the governments have established the structure
such as science park, incubator, software park, university science park etc. Inside these science
parks and incubators, 28,504 high technology enterprises had been founded and created 3.49
million jobs. The program had funded 10,261 projects.
Key Basic Science
R&D Program (973
Program)
(973 Ji Hua)
1
9
9
7
Support basic science research.
The 973 Program’s specific tasks are to support the implementation of key basic research in
important scientific areas related to agriculture, energy resources, information, resources &
environment, and population & health; to provide a theoretical basis and scientific foundation
for innovation; to foster human resource; and to establish a number of high level scientific
research units.
The Innovation Fund
for Small Technology
Based Firms (IFSTBF)
(Ke Ji Xing Zhong Xiao
Qi Ye Chuang Xin Ji
Jin)
1
9
9
9
Support the establishment of Newly Technology Based
Firms.
The financial support includes interest subsidiary, grants and capital investment. The fund
connects to Key Technology R&D Program, 863 program and Torch Program to facilitate the
technology transfer from the R&D projects funded by them.
18
Financial Policy (3)
The biggest three funding programs led by MOST in 2004:
• 863 Program
• Key Technology R&D Program
• 973 Program
Holding 72% of the funding managed by MOST for R&D in
the country. (National Natural Science Foundation of China
is independent from MOST and reports directly to State
Council.)
19
Table 4: The Funding for Current
Chinese S&T Program (1996-2004)
(Unit: Billion RMB)
1996
1997
1998
1999
2001
1.545
1.545
4
4
1.542
1.737
38.43
48.21
3
0.889
1.084
0.65
0.67
N/A
N/A
0.135
Not
Start
0.6254
0.6254
2004
3
1.18%
2.212
N/
A
N/A
1.72%
N/A
N/A
N/
A
N/A
53.83%
1.284
1.598
1.968
N/
A
2.2
46
1.43%
0.8
0.9
Over
2
Over
4
N/
A
5.5
1.00%
0.14
0.14
0.14
0.138
6
N/
A
N/A
0.16%
0.625
0.625
4
4
N/A
N/A
N/
A
0.9
0.70%
1.064
1.064
1.064
1.064
National Key Laboratories
Program
N/A
N/A
N/A
N/A
Spark Program
28.804
35.754
34.008
National Science Foundation of
China
0.646
0.777
863 Program2
0.45
National New Product Program
973 Program
Not
Start
200
3
1.5
1.064
Not
Start
2002
N/
A
Key Technology R&D Program
The Innovation Fund for Small
Technology Based Firms
2000
Not
Start
0.816
0.695
0.8
0.5
NA
NA
Ratio of Funding in 2000 to Gross
Domestic Expenditure on R&D (GERD)5
0.78%
20
Financial Policy (3)
The biggest three funding programs led by MOST in 2004:
• 863 Program
• Key Technology R&D Program
• 973 Program
Holding 72% of the funding managed by MOST for R&D in
the country. (National Natural Science Foundation of China
is independent from MOST and reports directly to State
Council.)
21
Financial Policy (4)

Chinese central government continuously implements tax
advantage and deduction policies targeted towards foreign
investors, but shifts the focus of preference fiscal policy from lowtech and labor-intensive industry to high-tech manufacture and
service sectors.

In July 2003 MOST and the Ministry of Commerce developed a list
of high-tech products that China’s government is going to attract
FDI to produce in China.

Currently in China, there does not exist a specific law to regulate
venture capital development.

At the local level the Shenzhen, Chongqing, Shenyang municipal
governments have enacted some local regulations to protect and
promote venture capital development in their administrative areas.
22
Financial Policy (5)

Additionally, the Chinese stock market is acting in support of high
technology companies listed on the market.

By August 1999, the listed high technology companies accounted
for 17.8% of all companies listed.

Their average earnings per share and return on equity compared
with the average of the ordinary listed companies are 64% and
45.5% higher respectively (Zhou, 1999).

The debate of the feasibility of creation of “Chinese NASDAQ” has
not concluded yet and recently it seemed that the favorable
decision for the establishment of Chinese SME board has been
made (Securities Times, 2004)
23
Business Innovation Support
Structure (1)
By 2002 at the national level alone

over 400 business incubators

53 high-technology development zones
They have been developed through governmental support, mainly
through Torch Program.
They contributed much to build China as “World Factory”
24
Table 5: Chinese Science Park and
Incubator Development (Unit: Billion
RMB)
199
1
199
2
199
2
199
4
1995
1996
1997
1998
1999
2000
Total Revenue of the 53 National High-Technology
Zones1
8.7
3
23.0
9
56.3
6
94.2
6
152.9
230.0
3
338.7
8
483.9
6
677.4
8
920.9
3
1192.84
1532.
64
Output Value of the Enterprises inside 53 National
High-technology Zones1
7.1
2
18.6
8
44.7
3
85.2
7
140.2
8
214.2
3
310.9
2
433.3
6
594.3
6
794.2
1011.68
1293.
71
Output Value at Current Prices of High Technology
Sector across China1,2
409.8
490.9
597.2
711.1
821.7
1041.
1
1226.3
Output Value at Current Prices of Manufacture Sector
across China1,2
4870
5130.
1
5998.
5
5966.
8
6395.
4
7510.
8
8442.1
Ratio of Output Value of the Enterprises inside 53
National High-technology Zones to Output Value at
Current Prices of High Technology Sector across
China
34.23
%
43.64
%
52.06
%
60.94
%
72.33
%
76.28
%
82.50
%
Ratio of Output Value of the Enterprises inside 53
National High-technology Zones to Output Value at
Current Prices of Manufacture Sector across China
2.88
%
4.18
%
5.18
%
7.26
%
9.29
%
10.57
%
11.98
%
Number of Incubator
43
61
61
73
73
90
100
77
110
131
280
436
Number of Tenants
500
1,01
3
1,50
0
1,39
0
1,854
2,476
2,670
4,138
5,293
7,693
12,821
23,37
3
Number of Graduated Tenants
190
364
648
825
1,316
1,934
2,770
2001
3,994
25
2002
6,927
Business Innovation Support
Structure (3)

As an intermediary event, China Hi-Tech Fair (CHTF) now receives
strong support from the central government to play a role of
linking Chinese and overseas high-tech industry sectors.

Productivity Promotion Centers (PCCs) in China are deemed for a
group of intermediary and consulting organizations, established
since 1992 throughout the country to support innovation in the
business sector.
26
Strengthening Human Resources
Measures
Figure 3 Ministry of Education’s Human Resource Programs
Cheung Kong Scholar Program
(Chang Jiang Xue Zhe Jiang Li Ji Hua)
First Level
Second Level
University Young Scholar Award
(Gao Xiao Qing Nian Jiao Shi Jiang)
New Century Talents Training Program
(Kua Shi Ji You Xiu Ren Cai Pei Yang Ji Hua)
Source: Ministry of Education, 2002
Third Level
Promising Young Scholar Funding
Program
(You Xiu Qing Nian Jiao Shi Zi Zhu
Ji Hua)
University Key Scholar Funding
Program
(Gao Deng Xue Xiao Gu Gan Jiao
Shi Zi Zhu Ji Hua)
Overseas Returnee Scientific
Research Fund
(Liu Xue Hui Guo Ren Yuan Ke Yan
Qi Dong Zi Jin)
27
Legislative Actions

In the competition and IPR protection field

In the S&T and innovation field

In the education field
28
The Analysis of China’s Innovation
Policy in the OECD context (1)

The EU launched a project in 1999 entitled “ Trend Chart on
Innovation in Europe”. We try to utilize innovation policy
classification in Trend Chart database, which contains the EU
countries’ diversified practices in innovation policy, to present the
difference between Chinese and EU countries’ policy development..

And we also cite the data from “OECD Science Technology Industry
Scoreboard 2003” to form a quantitative illustration of the China and
OECD innovation performance discrepancy.
29
Table 6: Comparison of innovation
policy objectives in China and the
European Countries
The EU Trend Chart Innovation Policy
Classification System
Policy
Category
Fostering
an
Innovation
Culture
Establishing
a
Framework
conducive
to
Innovation
Examples of Policy Practices in China
Policy Priority
Education and initial
and further training
Regulations on Degrees (1980), Compulsory Education Law (1986), Teachers Law (1993), Education Law (1995), Vocation al
Education Law (1996) and Higher Education Law (1998) showed the government’s legislative efforts since 1980s. “211 Project” and
series of award and training programs including Cheung Kong Scholars Program proved the recent policy actions. However, the
education and training in China are still insufficiently invested. The further discussion is seen in the paper section 4.1.
Mobility of students,
research workers
and teachers
Policy co-developed by Ministry of Education and Ministry of Personnel, supporting foreign experts working in China, attracting
overseas Chinese students and scholars to return, and encouraging the placement of Ph.D graduate for post doctoral research in
enterprises.
Raising the
awareness of the
larger public and
involving those
concerned
Fostering innovative
organizational and
management
practices in
enterprises
Public
authorities
and support to
innovation policymakers
Enactment of Dissemination of Science and Technology Knowledge Law (2002). Tax preference policy to activities and institutions
disseminating S&T knowledge. Grants for the project of increasing public awareness of S&T.
Not Available.
Not Available.
Promotion of
clustering and cooperation for
innovation
Many of the strategies are developed by local governments. For example, the cooperation of the Shanghai municipal government and
other neighboring provinces in the Yangtze river delta for strategy design and the similar one among Guangdong province, Hong kong,
Macau and other neighboring provinces in south of China.
Competition
Enactment of Unfair Competition Law (1993), Protecting Consumer’s Rights and Interests Law (1993) and Regulations on Anti-dumping
and Anti-subsidization (1997), Price Law (1998) justified the government’s legislative efforts. However, this young competition policy
regime needs to be improved and strengthened (Lin, 2003).
30
Table 6: Comparison of innovation
policy objectives in China and the
European Countries (Cont.)
Establishing a
Framework
conducive to
Innovation
Competition
Enactment of Unfair Competition Law (1993), Protecting Consumer’s Rights and Interests Law (1993) and Regulations on Anti-dumping and Antisubsidization (1997), Price Law (1998) justified the government’s legislative efforts. However, this young competition policy regime needs to be improved
and strengthened (Lin, 2003).
Protection of
intellectual and
industrial property
MOST issued several regulations on IPR protection and exploitation. State Intellectual Property Office launched the projects to strengthen the awareness in
the innovation-intensified organizations and disseminate the result to the populace. However, the IPR policy in China is still needed to restructured and
improved. The further discussion is seen in this paper section 4.2.
Administrative
simplification
Amelioration of legal
and regulatory
environments
Legislative actions taken in China cover the field of IPR, S&T and education, etc. The further discussion is seen in this paper section 3.5.
Innovation financing
Foundation of IFSTBF.
Taxation
Strategic vision of
research and
development
Strengthening research
carried out by
companies
Gearing
Research to
Innovation
Regulations of simplifying administration to encourage creation of Newly Technology Based Firms (hereafter NTBFs) and attract FDI.
Start-up of technologybased companies
Intensified co-operation
between research,
universities and
Strengthening
companies the
ability of companies,
particularly SMEs, to
absorb technologies and
know-how
Tax preference policy for encouraging creation of NTBFs and attracting FDI. However, the current tax preference policy for encouraging innovation in the
established enterprises did not achieve excellent performance (Wu, 2003).
Ongoing development of an outline document “2006-2020 Chinese National Science and Technology Development Plan”.
Some tax preference policy for enterprises in some industry sectors, like in integrated circuit manufacture sector. However, the effect of this group of fiscal
policy is weak according to Wu (2003). 863 Program increasingly supported the R&D projects done in industry. In 2002, 30% of the projects financed by
the program are implemented in the enterprises (863 Program, 2004)
Policies targeting science parks and incubators, attracting overseas Chinese to set up NTBFs in China.
Created a new type of agency titled “Technology Transfer Center” in 2003.
Not Available.
31
Table 7: Selected Science and Technology
Indicators for China and some OECD and
non-OECD Countries
Russia
n
Federat
ion
Singap
ore
Gross Domestic Expenditure on R&D GERD (million
current PPP$)1
72,07
6.80
6,359.7
0
14,190.
40
2,129.7
0
162,81
3.30
578,74
9.40
13,556.
502
96,532.
30
2,367.7
0
9,232.7
0
252,93
8.50
GERD as a percentage of GDP1
1.29
4.73
1.24
2.19
1.93
2.33
1.072
3.09
0.67
4.27
2.82
Total Researchers per Thousand Total Employment1
1.10
N/A
7.50
9.00
5.802
6.502
2.902
10.20
3.80
10.60
8.603
Percentage of GERD financed by Industry1
57.602
69.602
32.902
55.002
56.20
63.60
43.004
73.00
30.80
71.90
68.30
Percentage of GERD financed by Government1
33.402
24.702
54.802
40.302
34.50
28.90
50.804
18.50
64.80
21.00
26.90
Business Enterprises Expenditure on R&D BERD
(million current PPP$) 1
44,099.
20
4,643.5
0
9,915.7
0
1,308.2
0
105,12
1.20
403,24
3.60
7,275.2
0
71,119.
10
848.40
7,166.8
0
188,12
2.80
BERD as a percentage of GDP1
0.79
3.46
0.87
1.34
1.062
1.48
0.434
2.25
0.21
3.07
1.92
Number of “Triadic” Patent Families Per Million
Population5
0.055
54.167
0.490
19.118
35.897
37.417
12.103
89.400
0.233
94.216
52.712
Number of Patents in the ICT Sector Applications to
the EPO Per Million Population5
0.031
61.714
0.320
22.177
35.313
30.754
9.360
60.810
0.129
88.793
40.337
Number of Patents in the Biotechnology Sector
Applications to the EPO Per Million Population5
0.008
0.095
2.294
5.341
5.153
Italy
1.042
Japan
4.691
Poland
Swede
n
Israel
11.739
EU 15
OECD
Total
China
0.052
32
7.456
US
9.634
The Analysis of China’s Innovation
Policy in the OECD context (5)
The areas that Chinese Innovation Policy are deemed to be undeveloped:

Education and initial and further training;

Fostering innovative activities including promoting the research carried out
in enterprises, particularly SMEs;

Public authorities and support to innovation policy-makers;

Protection of intellectual and industrial property;

Innovation financing;

Intensified co-operation between research, universities and companies.
33
Education and Human Resources (1)
China’s education reform since 1980s has been discussed comprehensively in
the literature, from the point of view of public policy (Kwong, 1996; Mok and
Wat, 1998; Yang, 1998), the finance (Tsang, 1996), and the legislation (Law,
2002). Some empirical studies (Liu, 2004) and even the official address of the
Chinese leaders (Zhu, 2001) also provided evidence for the conclusion
reached in the theoretical analyses.
OECD and UNESCO’ s World Education Indicators (WEI) Program
WEI Countries: Argentina, Brazil, Chile, Egypt, India, Indonesia, Jordan, Malaysia,
Paraguay, Peru, Philippines, Russian Federation, Sri Lanka, Thailand, Tunisia,
Uruguay, Zimbabwe.
China not only lags much behind the OECD countries’ average level in many
indicators but also stays in an unfavorable situation compared with WEI
countries.
34
Table 8: China’s Education Performance
in World Education Indicators Program
Table 8: China’s Education Performance in World Education Indicators Program
China’s
Performance
WEI
Average
OECD
Average
Ratio of China’s performance to
WEI Average
Ratio of China’s
performance to OECD
Average
School Expectancy for a five-year-old Child (Year)
(2000)
10.3
13.0
16.8
79.2%
61.3%
Gross Entry Rates to Upper Secondary Education (2000)
42%
64%
-
65.6%
-
Entry Rates to Tertiary Education (2000)
14%
40%
60%
35.0%
23.3%
Average Years of Schooling in the Population Aged 1564 (Years) (2000)
5.96
7.63
-
78.1%
-
Public Expenditure on Educational as a Percentage of
GDP (1999)
2.1
4.3
5.2
48.8%
40.4%
Relative Proportion of Private Expenditure on Education
Institutions (1999)
44.2%
28.3%
12%
156.2%
368.3%
35
Education and Human Resources (3)
The Education Law stipulates that the governments of various levels have the
legal obligation of enforcing that “ the increase of education expenditure of
government at various levels shall be at a higher rate than the growth of
normal financial revenue”.
However, after its promulgation in 1995, the increase rate of total education
appropriation of central and local governments in 1996 and 1997 were still
lower than that of budgetary revenue. From 1999 to 2001 the central
government itself failed to fulfill this legal obligation.
Additionally, after the implementation of the reform strategy of education
finance
decentralization
and
diversification,
local
government’s
appropriation dominates public expenditure in education, showed by the
decreasingly low ratio of appropriation of central governments to local
government.
36
Table 9: China’s Budgetary
Appropriation for Education in 1990s
1991
Government Appropriation for Education
Expenditure1
(Thousand RMB)
Government Budgetary Revenue1 (Thousand
RMB)
Annual Increase Rate of Government
Appropriation for Education Expenditure 1
Annual Increase Rate of Government Budgetary
Revenue1
Ratio of Appropriation of Central Governments
to Local Government
45,97
0,000
314,9
48,00
0
5.9%
7.2%
N/A
1992
53,87
0,000
348,3
37,00
0
17.2%
10.6%
N/A
1993
64,44
0,000
434,8
95,00
0
19.6%
24.8%
N/A
1994
1995
1996
88,40
0,000
102,8
40,00
0
121,1
90,00
0
521,8
10,00
0
37.2%
20.0%
N/A
624,2
20,00
0
16.3%
19.6%
N/A
740,7
99,00
0
17.8
%
18.7
%
N/A
1997
1998
1999
2000
2001
15,70
7,730
19,96
6,660
21,53
9,610
21,85
4,192
26,65
5,680
120,0
64,90
0
136,5
92,51
0
160,0
36,36
3
186,7
13,72
8
231,5
81,93
9
422,6
92,00
0
489,2
00,00
0
584,9
21,00
0
698,9
17,00
0
858,2
74,00
0
442,4
22,00
0
498,3
95,00
0
559,4
87,00
0
640,6
06,00
0
780,3
30,00
0
27.1%
7.9%
1.5%
22.0
%
13.8%
17.2%
16.7%
24.0%
15.7%
19.6
%
19.5
%
22.8
%
12.7%
12.3%
14.5%
21.8%
14.6%
13.5%
11.7%
11.5%
12.0
%
16.8
%
13.1%
37
Data
Breakdown
Central
Governme
nt
Local
Governme
nt
Central
Governme
nt
Local
Governme
nt
Central
Governme
nt
Local
Governme
nt
Central
Governme
nt
Local
Governme
nt
Protection of Intellectual and
Industrial Property (1)
Since 1990s the issue of protection of IPR in China has been not only a national
economic and juridical dilemma, but also a significant economic and political
concern for a number of industry interest groups and governments in
developed countries.
The piracy problem in China has provoked much dispute between Chinese and
its western counterparts, particularly between China and US (Oksenberg et
al., 1996).
According to Business Software Alliance (2003), China had still the second
highest piracy rate with 92% in the world after Vietnam and caused losses of
US$ 2.4 billion in 2002, representing 44% of the total dollar losses in the
Asia/Pacific region and 18% of the total world dollar losses.
38
Table 10: Estimated Trade Losses (US$
Millions) Due to Piracy and Piracy Rate
in China: 1999-2003
Industry
1999
2000
2001
2002
2003
Los
s
Piracy
Rate
Los
s
Piracy
Rate
Los
s
Piracy
Rate
Los
s
Piracy
Rate
Los
s
Piracy
Rate
Motion Pictures
120.
0
90%
120.
0
90%
160.
0
88%
168.
0
91%
178
.0
95%
Records and Music
70.0
90%
70.0
93%
47.0
2
90%
48.0
90%
286
.0
90%
Business Software
Applications1
437.
2
91%
765.
1
94%
114
0.2
92%
163
7.3
92%
N/
A
N/A
Entertainment
Software
138
2.5
95%
N/A
99%
455.
0
92%
N/A
96%
568
.2
96%
Books
128.
0
N/A
130.
0
N/A
130.
0
N/A
40.0
N/A
40.
0
N/A
Total
213
7.7
-
108
5.1
-
193
2.5
-
189
3.3
-
-
-
39
Protection of Intellectual and
Industrial Property (3)
Oksenberg et al. (1996) examine the cultural and historical tradition of the
denounced performance of IPR protection in China, that is, the Confucian
tradition and the policy of the regimes in most of the time of the 20th century,
particularly in the Mao Era (1949-1976).
However, recently Yang and Maskus (2003) demonstrated under the certain
condition, the stronger IPR protection in the South would increase the rate of
innovation and the extent of high-quality licensing from the North to the
South. The condition specified in their work that the labor force input in
innovation must be sufficiently small compared with that in production and
the labor cost in the South must be sufficiently low, perfectly matches the
case of China.
Clarke (2001) pointed that stronger institutions and better protection of property
rights encourage greater R&D expenditures in developing countries.
40
Conclusion
Future Possible Priority for Chinese Innovation Policy Actions:
It is clear that in China education must be set as the priority in central and local
governments’ budget appropriation and outlays.
Moreover, it is necessary to define a long-term strategy to strengthen the legal
and administrative regimes for IPR issues, especially at the local level. A
“Rigorous Policy for IPR Protection”.
41
Recent Quantitative Work (1)
Focus:
The latest Performance of Chinese S&T Institutions
The Efficiency Change of Chinese S&T Institutions since the reform began in 1985
Background:
The innovation system in planned economy:
Enterprises are not the center of innovation; research is seperatedly carried out in
S&T institutions without the much interaction with the enterprises;extreme low
mobility of R&D personnel, idea, fund etc; S&T institutions are run inefficiently.
The innovation system in market economy:
Firms are the center; R&D institutions interact strongly with the firms; high
mobility of resources etc.; market mechanism ensure the efficiency of the S&T
activities
42
Table 1 S&T Institutions’ Weight in
China’s Innovation System: 1987-2001
Year
Universities
Ratio of the
value of
Universities to
the Sum
Ratio of
the value
of
Enterpris
es to the
Sum
Sum
47.23%
178.29
21.82%
252.78
30.94%
201.00
N/A
145.00
N/A
N/A
N/A
185.00
31.41%
144.00
24.45%
260.00
44.14%
168.00
21.76%
176.00
22.80%
428.00
55.44%
148.00
16.88%
171.00
19.50%
558.00
63.63%
10.68
60.70%
0.70
3.98%
6.21
35.32%
7.90
52.21%
1.37
9.05%
5.86
38.73%
14.66
44.34%
4.23
12.79%
14.17
42.86%
26.08
45.42%
6.35
11.06%
24.99
43.52%
28.85
34.63%
10.24
12.29%
44.23
S&T
Institutions
Ratio of value
of S&T
Institutions to
the Sum
385.86
19871
1991
R&D Personnel
(Thousand Person
Year, Full Time
Equivalent)
1995
1999
2001
19872
1991
R&D Expenditure
(Billion RMB,
Current Price)
1995
1999
2001
43
53.08%
Table 1 S&T Institutions’ Weight in
China’s Innovation System: 19872001 (Cont.)
Ye
ar
19873
1991
Patent of
Invention
Application
(Items)
1995
1999
2001
S&T
Institutions
Ratio of
value of S&T
Institutions
to the Sum
Universities
Ratio of the
value of
Universities
to the Sum
Ratio of
the
value of
Enterpri
ses to
the Sum
Sum
1844.00
29.35%
1360.00
21.65%
3078.
00
49.0
0%
831.00
33.15%
718.00
28.64%
958.0
0
38.2
1%
865.00
34.26%
574.00
22.73%
1086.
00
43.0
1%
1413.00
23.99%
988.00
16.77%
3490.
00
59.2
4%
2659.00
18.13%
2636.00
17.97%
9371.
00
63.9
0% 44
Patent vs GERD: OECD (1999 Data )
and Selected Non-OECD Countries
(2000 Data)
45
Patent vs Researcher (FTE): Selected
OECD and non-OECD Countries (1998
Data)
46
Some hypothetic reasons for these
two graphics (1)
1st: China is not doing frontier research to let Chinese patent in US, Europe and
Japan.
(Possible Contradictory Evidence: Publication Data (I failed to find, somebody
could help me?))
2nd: China is doing some frontier reseach ( It is reported that only 15% scientific
research projects in China approach the leading level in the world) , but in
the area where the company does not patent; or due to lack of incentives to
patent; or due to limited consciousness of Chinese Scientists; or due to
exclusive right of patenting belonging to MNCs.
(Possible Contradictory Evidence: Survey Data; Qualitative Interview)
3rd: The low quality Chinese statistics data for GERD and Researcher (FTE),
i.e.,the denominator is larger than the true value
(Possible Contradictory Evidence: Qualitative Interview)
47
Some hypothetic reasons for these
two graphics (2)
If the first three hypotheses are not disproved (Personal intuition: the
publication data might show a different picture),
4th: Till 2000, the patent data shows that the reform begining in 1985 has not
fundamentally improved the R&D performance in Chinese S&T institutions in
the international context.
48
Some hypothetic reasons for these
two graphics (3)
If this hypothetic reason is true, several possible reasons explaining the low
performance in Chinese S&T sector:
1st: Condition Insufficiency Hypothesis. Poor scientific facilities and research
condition in China. Only a small number of scientist, mainly in Beijing and
Shanghai can utilize the advanced equipments. A majority of Chinese
scientist are still poorly paid.
2nd:Resource Mis-Allocation Hypothesis. Low efficient evaluation system
(project evaluation; fund allocation; scientist performance evaluation and
cronyism; corruption and plagiarism etc.) (Nature, 2002, 2003, 2004)
3rd:Confucian Culture and Politics Hypothsis. Hierarchy in society; fear of
challenging the superior; lack of academic freedom etc. (Nature, 2004)
49
One Simple Regression
Test Structural Stability of Regresion Model:
Y i = a1 + a2 DYi + ß1X I +ß2(DY i* X I )+ų
If regard 1994 as a turning point, (DYi = 0| i <1994; DYi = 1| i>=1994)
Note: Do not consider the “distributed-lag” effect of patent simply because country patent
data of China are highly correlated in various continious year (1985-2002) (Pearson
Correlation of Patent Application t and lagged Patent Application t-1 is 0.923, I.e.
significant at 0.01 level).
All Variables are in Logarithm.
Y I : Patent Application
Model 1: X I : R&D Expenditure (The data before 1990 is not available. Regress the data of
S&T Activities Budget on the data of R&D Expenditure after 1990 to estimate the data
before 1990. (Adj. R2=0.964))
Model 2: X I : R&D Researchers (Full Time Equivalent) (The data before 1990 is not
available. Regress the data of Scientist and Engineers on the data of R&D
Researchers after 1990 to estimate the data before 1990. (Adj. R2= 0.739))
50
Regression Result
Model 1
1993
Model 2
1993
Model 1
1994
Model 2
1994
Model 1
1995
Model 2
1995
a1
5.055 ***
13.043
5.054***
12.171
5.177 ***
12.004
a2
-2.994
.207
-4.377 **
.244
-6.031 ***
(High
Collinearity,
Excluded)
ß1
.303 ***
-.465
.303 ***
-.363
.287 ***
-.347
ß2
.303
.020
.439 **
.014
.605 ***
.032 **
Adj. R2
.823
.37
.855
.319
.874
.35
** Significant at the 5% level.
*** Significant at the 1% level.
51
Regression Explaination and Future
Work



The R&D Expenditure efficiency has significant improved since 1994.
Regarding 1995 as a turning point, the model fits better the data, which
means one year after the government implemented the reform policy
comprehensively and fundamentally, the efficiency jumped. More strictly
speaking, the Chinese S&T institutions achieved more research outcome
which could be patented or are inclined to patent more since 1995.
The Researchers data failed to test the efficiency change, probably
because the change of the staff number from 1985 to 2002 is irrelevant to
the scientific activities, or because my before-1990 data estimation
method does not work.
Future Work:
 Test Publication Data (Again, I can not find the data. I guess they do not
exist!)
52
General Conclusion

The reform and transition taking place in Chinese S&T Institutions since
1995 significantly improved the efficiency or productivity of the scientific
activities, if we measure the output through patent application in China.

However, China is still far behind the world leading level in terms of
scientific performance, if we measure the output through patent
application of “Triadic Patent Families”.
53