Intrinsic motivation for technological innovation is the way forward for Chinese enterprises

China has been slowly stepping up the pace of research and development investment, especially since the financial crisis of 2008, and has identified it as the new engine of economic growth in the country.

During the past five years, China has achieved growth rates of more than 20 percent in R&D expenditure. The spending increased from 461.6 billion yuan ($75 billion; 58 billion euros) in 2008 to 1.024 trillion yuan last year, a feat that made China the second largest nation in the world in terms of R&D expenditure. The percentage of R&D investment in GDP has also risen from 1.54 percent to 1.97 percent.

Although China's total investment in R&D is huge, the nation is still not an influential scientific and technological innovation center. Be it automobiles, mobile phones or large-scale industrial equipment that plays an important role in the national economy, the originality crown rarely falls on the head of Chinese enterprises.

As the main body of China's technological innovation, Chinese enterprises in general still lack intrinsic motivation for technological innovation.

Although the government defines scientific and technological innovation as the main driving force of development, for innovation-driven high-tech enterprises that have a certain number of patents, the macro social and economic environment has let them down, and they are struggling.

The government has invested heavily in technological innovation, but a lot of scientific research cannot be immediately translated into improved production efficiency and energy-saving productivity.

To make technological innovation the driving force behind the development of enterprises, the most important thing is that it should better support companies' profit growth. And if not engaged in scientific and technological innovation, enterprises will be subject to a double punishment from the market and the administration mechanism.

The rise of China's economy and enterprises is mainly supported by low-cost skilled labor, and possession of mining, energy, and financial resources and land, especially for large state-owned enterprises that have major control of these areas.

Most of these resources are not obtained through technological innovation but industrial monopoly. The mega state-owned enterprises, even if reluctant to foster innovation, will not lose these resources. The real problem is with private enterprises, who may find it difficult to compete with the state-owned ones for these resources. High investment, preparation, experiments and other research and development activities cannot guarantee high rewards.

Patent protection is the lifeblood of high-tech companies, but in China it is not well practiced. Chinese patent law for infringement currently is only compensatory, not punitive. The maximum fine for infringement is only 100 million yuan if without sales record.

This is also because some Chinese companies often infringe patent rights of multinational companies. The establishment of a standard that promotes heavy punishment will hurt the interests of Chinese enterprises.

It is also difficult for high-tech companies to obtain financing in China. Bank loans require sufficient collateral and three-year earnings on the Growth Enterprise Market. The government does not put up many obstacles, but in the present socio-economic environment, it gives way to other concerns such as protecting domestic markets and ensuring market order.

Be they held by state-owned or private enterprises, the number of patents is often a measure of innovation, and judging on the number, it looks quite fruitful. But this focus on quantity has actually dented China's R&D progress.

In the top 10 cutting-edge technologies, including aerospace, energy, healthcare and life sciences, China is not a leader, and falls behind in sectors such as advanced materials and automobile manufacturing.

To this end, China's science and technology policy needs to be changed from quantity-oriented incentives to focus on quality. It is important to implement key basic research projects led by the central government, establish joint research laboratories or teams to attract foreign talent, and strive to form a group with global significance.

Second, it is important to study and lay down policies that will help improve the efficiency of China's R&D output, and standardize research ethics, especially for high-quality patents, while for scientific papers, there must be greater incentives.

The most difficult problem that China faces in establishing R&D centers is how to effectively transfer R&D results into productive gains.

The Chinese government and enterprises should realize that a country's technological development capability refers to the combined force of investment in technology, science and technology resources allocation, and technological innovation. Technology investment cannot be the only indicator for innovation, and it must involve other factors such as innovation environment, and efficiency system. Improving R&D capability is a strategic investment in the future.

The author is a researcher at the Chinese Academy of Science and Technology for Development.

( China Daily European Weekly 07/12/2013 page9)