By Jeremy Chan

11 February 2014 - 16:27

China once gave the world a range of inventions, including the compass.
China once gave the world a range of inventions, including the compass. Photo ©

Walt Stoneburner, licensed under CC BY 2.0 and adapted from the original.

If China is to remain economically competitive, it needs to move away from its current strength of absorbing foreign inventions, argues the British Council's Jeremy Chan. He asks what becoming an innovating nation again might cost China and where the opportunities for UK universities lie.

Napoleon once famously said, 'Let China sleep, for when she awakes she will shake the world.' This has proved prophetic, if slightly apocryphal, as China has proceeded to shake the world to its very foundation since its reform and opening up 35 years ago.

The numbers alone are enough to give you a case of vertigo. Since 1979, China’s economy has increased more than 22 times after inflation, with per capita incomes rising nearly twice as fast over this period when measured in purchasing power terms. From two per cent of global output in 1979, China’s economy contributed more than 15 per cent of global GDP in 2013 (in PPP terms) – and roughly one third of all global economic growth.

Today, China is a global powerhouse -- the world’s largest trading nation, its largest manufacturer, and the largest market for everything from steel and automobiles to mobile phones and Internet users.

China is wide awake in everything but innovation

In nearly every aspect of modern life, the world’s second largest economy is wide awake. But in one crucial respect, China appears only now to be waking from a very long slumber -- for all of its economic might, China continues to produce surprisingly little in the way of innovation.

Lest we forget, this was not always the case. China was once a genuinely innovative nation, giving the world a range of inventions, including gunpowder, the compass, paper and block printing, not to mention noodles, rice cultivation and silk.

Yet if innovation is the act of creating something new, then China’s greatest modern innovation may be its ability to absorb and replicate the innovations and technological breakthroughs of other countries, without contributing much innovation itself.

In an ironic twist, China has even invented a term for its 'innovative' approach to creating knock-off products: shanzhai. With equal parts pride and shame, shanzhai refers to pirated and imitation versions of goods that have been invariably invented elsewhere. But China has ambitions to move beyond its shanzhai days.

Today, China ranks no. 33 in global innovation, according to the World Economic Forum’s global competitiveness index, although China has seen its ranking decline in four of the seven innovation sub-metrics since 2008. While it continues to possess the fastest growing major economy in the world, China has strangely seen its competitiveness slip in crucial measures of innovativeness, such as its availability of scientists and engineers, the quality of its scientific research institutions, and its amount of university-industry research collaboration.

The innovation conundrum: Why China has to move away from its current strengths

Even today, China’s leading 'innovations' more closely resemble improvements or refinements of existing technology, such as the world’s fastest supercomputer, the largest high-speed train network, or even industrial-scale genome mapping and pig cloning. While valuable contributions to science and technology, these are marginal improvements rather than innovations.

This phenomenon is partly to be expected, however, given China’s current stage of economic development. As a baby must learn to walk before it can run, a country such as China, which has per-capita income levels roughly one fifth those of developed countries, must first boost its productivity and efficiency before it can hope to reach the technology frontier.

That China has been able to grow as fast as it has for as long as it has, without significantly increasing its capacity for innovation, only speaks to how much mightier the country could still become – and how much more it could still shake the world.

This seeming contradiction also lies at the root of China’s innovation conundrum: China has enjoyed decades of rapid economic growth, and become a global behemoth in the process, without significantly improving its capacity for innovation. But to continue increasing living standards and creating jobs for its people, China will have to move away from its greatest strengths – absorption of foreign technology, a captive domestic market, and low-cost manufacturing – and become a global innovation hub.

This is easier said than done, as it will entail a largely new growth model and a number of dislocations in the current economy. China 1.0 saw a mass relocation of peasants from the countryside to factories and construction sites in cities, but China 2.0 will see workers move from factory floors to office buildings and design studios.

In this new model, however, the challenges are daunting. For one thing, the rapid productivity gains that Chinese manufacturing has enjoyed over the past two decades will be harder to replicate in service industries, meaning growth in wages will slow. For another, it’s unclear if China’s schools and universities are giving their students the necessary skills to perform in these new sectors, which means a large number of students will continue to seek education abroad.

To continue to grow, China must innovate. But in order to innovate, China will have to go through some growing pains.

The role of higher education and the opportunities for the UK sector

For their part, China’s leaders are well aware of the country’s innovation urgency and the huge challenges the country faces. Partly in response, they have targeted 2020 as the date by which China will become an innovation-led economy.

This ambition will require a great deal of new investments and capacity-building in the meantime, some of which the leadership has already enumerated in its current five-year plan (2011-15). These include increasing the number of patents and boosting R&D expenditure in the country.

On this front, China has made significant headway: It is already the world’s largest patent applicant, and spends more on R&D than any country outside of the US, with annual expenditure growing by more than 11 per cent in 2013 and a projected 10 per cent in 2014.

China has also made massive investments to increase its educational capacity, particularly in the tertiary sector. Since 2000, the number of higher education institutions in China has grown by nearly 150 per cent, while enrolment has increased at three times that rate. In 2013 alone, seven million students graduated from higher education institutions in China.

If the last decade was spent increasing educational capacity, however, China has set its sights on reaping the rewards and improving the quality and innovativeness of its work force over the next decade.

Part of this strategy has entailed a return to old habits – absorption of foreign expertise – and has taken three forms.

First, China has encouraged overseas Chinese to return to the mainland to work, luring them with the promise of greater economic opportunity as well as government subsidies in targeted industries. As a result, while nearly 400,000 Chinese students went overseas to study in 2012, the percentage of students who returned to the mainland from abroad is at a 20-year high.

Second, China has encouraged greater transnational education (TNE) partnerships, while at the same time choosing foreign partner institutions with greater care. The total number of TNE programme approvals in China has increased by more than 50 per cent over the last two years, with the number of Sino-UK partnerships continuing to lead the way.

Lastly, Sino-UK research partnerships have also begun to proliferate in recent years. There are dozens of co-operative research programmes currently operating in China, with a number of other partnerships in the works. These partnerships are nearly as diverse as they are numerous, with some representing co-operation among members of faculty, others between academic departments, and still others at the university or government level.

All told, a wide variety of Chinese universities have embraced the opportunity to collaborate with UK institutions, and some UK institutions have been particularly proactive in forging and growing research partnerships.

All that remains is the hard part

For China, as well as the foreign institutions operating there, the innovation story may have only just begun. At the moment, the challenges that China faces in improving its innovativeness can seemingly outnumber the opportunities.

China may apply for more patents than any other country, for example, but it receives far fewer of them than developed countries do, and it has weaker intellectual property rights protection for the patents it does receive. What’s more, increasing R&D expenditure will help improve China’s access to technology, but it remains to be seen whether innovation can be encouraged solely in a top-down direction and with tight controls over media and internet.

Lastly, expanding access to higher education has undoubtedly improved China’s human capital stock, but overstretched faculty, and staid educational methods and frequent plagiarism have contributed to widespread degree inflation and high graduate unemployment.

All of this is to say that China has a long ways to go to become the innovation-led economy that it aims to be, but if a journey of a thousand miles begins with a single step, then what matters most for China is that it is moving in the right direction. And if the distant past, as well as the recent past, are any indication, then the world may begin to shake again in no time.

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