Value addition

Updated: 2016-01-15 07:41

By Fu Jing(China Daily Europe)

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Value addition

A visitor talks with an intelligent robot at an exhibition in Shenyang, Liaoning province, in December. [Photo provided to China Daily]

China's stress on innovation will be a major focus at the World Economic Forum in Davos

As far back as a decade, China set itself the task of transforming the country into an innovative society by 2020 and a world leader in science and technology by 2050.

But as it faces global headwinds amid a slowing economy and the waning of its manufacturing prowess due to rising costs and wages, that task appears even more pressing.

Value addition

As the low-cost manufacturing and export model that served the country so well in the past three decades appears increasingly frayed, the country is pursuing innovation to drive the economy up the value chain and avoid the so-called middle-income trap that has snared many nations.

China need only look back at its own history for inspiration. After all, the Middle Kingdom invented the compass, gunpowder, printing and papermaking before losing its technological edge in the past two centuries.

It is still far behind almost all major developed economies when in comes to innovation, a tough reality that has led China's leadership to list "innovative development" as the first choice in its policy toolbox while charting the economic roadmap for the next five years.

Such initiatives will be at the core of the Jan 20-23 World Economic Forum's summit in Davos, where the main theme is "Mastering the Fourth Industrial Revolution". Global leaders are expected to share insights and innovations on how best to navigate the future in a fast-paced and interconnected world, where breakthrough technologies, demographic shifts and political transformations have far-reaching societal and economic consequences.

Sessions on China's economy and the country's reform and transformation efforts will be organized during the four days, and Chinese Vice-President Li Yuanchao will be joining the gathering of global politicians, business leaders, academics and media leaders.

According to the World Economic Forum's Global Competitiveness Report 2015-16: "China ranks 28th - unchanged from last year. Its overall performance has barely budged in the past six years. Faced with rising production costs, an aging population, and diminishing returns on the massive capital investments of the past three decades, China must now evolve to a model where productivity gains are generated through innovation and demand through domestic consumption."

If that process goes smoothly, China's ranking in measuring innovation levels may rise quickly. The government estimates it is now around the 18-20th place globally based on major ranking indexes.

The Global Innovation Index 2015 - co-published by Cornell University, INSEAD, and the World Intellectual Property - ranked China in 29th place. When the report was first published in 2007, China's ranking was the same.

In March, when China's National People's Congress holds its annual session, the national legislators will debate the 13th Five-Year Plan (2016-20), which will detail goals and the roadmap to ramp up innovation.

One promising area is the Internet-led industrial revolution worldwide where China can be a leader and build innovative capabilities, say China watchers.

China has a mature and sizable information technology market, the world's largest reservoir of research talents and role models such as the so-called BAT (Baidu, Alibaba, Tencent), they say, pointing out that the country has already made breakthroughs in strategic areas such life sciences, new materials and, new energy.

Charles-Edouard Bouee, global CEO of consulting firm Roland Berger, is one of the optimists. He says the merging of Chinese resources with the global industry ecosystem in past years has geared up the growth of local manufacturing.

"China has aggressively built capabilities in high-speed computing, robots, new-energy vehicles and electric equipment," says Bouee.

"For now, they are still focusing on the domestic market, but in the next five years I won't be surprised to see another Chinese company like Huawei or Lenovo (both global technology giants)."

Bouee bases his confidence on the fact that China has an impressive talent pool, saying its students are among the world's best graduates, especially in engineering.

Official figures show that China has a headcount of 71 million in the science and technology sector, with 5.35 million involved in research and development. In the past five years, 1.1 million Chinese graduates educated overseas have returned to China, three times the number between 1980 and 2010.

Also, Chinese companies are increasingly buying European companies for their R&D strengths, with the latest example being ChemChina's acquisiton of German industrial machinery KraussMaffei Group for $1 billion (925 million euros) on Jan 11. From an average of $1 billion a year from 2004 to 2008, Chinese investment in Europe surged to $18 billion in 2014.

Dennis Pamlin, founder of 21st Century Frontiers in Sweden, a consultancy that has long tracked the development of China and India and how they fare in innovation compared with European powers, says, "It is clear that a new generation of entrepreneurs in China have the confidence to provide world-class ICT (information and communication technology) solutions."

Pamlin says the impact of role models such as Alibaba founder Jack Ma cannot be underestimated.

"So China is expected to encourage the link between high-tech research, ICT implementation, transformative solutions and sustainable urban development, including in the next five-year plan," he says.

Niels B. Christiansen, CEO of Denmark-based Danfoss, a global business that offers heating and cooling solutions both for industrial and residential purposes, says China needs a new approach to transit its growth model to a higher level by focusing more on innovation.

"Going smarter, greener and more global will be some of the key components for China to succeed in this grand strategy for transition."

Li Yan, CEO of Beijing Weipass Panorama Information Technology Co Ltd, which offers payment and transfer solutions, says one key advantage China has over other countries is the largest number of industrial clusters of high-tech electronic device manufacturing, which allows high levels of skill integration.

"For example, you can find all kinds of components and materials very easily in Shenzhen, and also lots of well-trained professional workers. That is why tech giants such as Apple make China their manufacturing base," Li says.

"That is not just an advantage of cheap labor, but the industrial clusters formed over these decades."

China has 146 national high-tech parks and 2,500 incubators, in which about 100,000 companies are in high-tech businesses.

Li also says many new Chinese hi-tech companies have their own tech innovation and unique business models.

Pamlin says China has built key ICT infrastructure and allowed the use of smart high-tech solutions in a way that makes a rapid transition to a smart society possible. It has also encouraged the new generation to use new technology in ways that support the transition to more sustainable lifestyles.

"Now the challenge is, as it is all over the world, more on the organizational and cultural side," he says.

He also says the use of dematerialized solutions, more teleworking, co-sharing, investments in smart buildings that are net producers of renewable energy and a focus on nonmaterial goods among the richer parts of society will require new role models as well as new policy frameworks.

"It is important to review current structures and incentives for business, but maybe more important to question current images of a successful life and see how sustainable lifestyles can drive innovation and allow 9 billion people to live a good life."

Pamlin warns that the major obstacle for China is to avoid only following best practices from the West and exploring "next practice", solutions that no one else has implemented.

Gao Shuang contributed to this story in Brussels.

R&D spending by China

The government set a target of taking research and development spending to 2.2 percent of GDP from 2011 to 2015, but it fell short of the goal, reaching the highest annual ratio of 2.1 percent in 2015.

In 2014, the government spent 263.6 billion yuan; businesses, 981.7 billion yuan; and other sectors, 56.3 billion yuan. The breakdown for 2015 is not available.

The government is expected to set a target of 2.5 percent for five years starting 2016, according to Wan Gang, minister of science and technology.

Value addition

Workers for Lianyugang Zhongfu Lianzhong Composites Group check the quality of wind turbine blades. Experts say China has already made breakthroughs in strategic areas such as new energy. [Photo by Geng Yuhe / For China Daily]

( China Daily European Weekly 01/15/2016 page1)