The reform of the S&T system underlies China’s impressive performance. The period of reform that began in the mid-1980s has tried to address issues such as improving the link between S&T and the economy, increasing research efficiency, improving the administration of public research and development (R&D) activities and organisations, establishing a modern R&D system and expanding institutional autonomy.
Yet, a massive injection of funds, better-trained researchers and sophisticated infrastructure have not produced many truly innovative and competitive technologies or products, nor has it brought China cutting-edge breakthroughs worthy of a Nobel Prize. Tu Youyou’s discovery that won her the 2015 Nobel Prize in Medicine — the first for a Chinese mainlander — took place in the 1960s and 1970s.
The commercialisation of public R&D results, a mandated goal of the reform effort, has been difficult if not impossible, due to the view that these results are public goods. This disincentivises researchers from engaging in technology transfer or becoming entrepreneurs themselves.
The role of the state has been highly visible in shaping S&T policies. Its posture shifted from kejiao xingguo (rejuvenating the nation with science, technology and education) in the mid-1990s to rencai qiangguo (empowering the nation with talent) at the turn of the 21st century. This led to the conception of the Medium-to-Long-Term Plan for the Development of Science and Technology (MLP) in early 2006.
The MLP set ambitious national goals and formalised the government’s commitment to allocate substantial financial and human resources to develop China into an innovation-oriented nation by 2020 and a world leader in S&T by 2050. The plan defines its major objectives as enhancing indigenous innovation capabilities, leapfrogging in key scientific disciplines and mobilising S&T to lead future economic growth.
Nevertheless, Chinese government contributions to total R&D expenditure have remained at some 20 per cent for some time. Insufficient government funding has not only resulted in lower expenditure on basic and applied research but has also caused free-riding concerns in the United States and other developed countries.
The state-led approach is characterised by a ‘top-level design’ and ‘whole-of-nation system’. The former entails a balanced and focussed approach that considers the interests of the Chinese Communist Party and the country and ensures comprehensive and sustainable development. There is also a focus on promoting coordinated innovation in economic, political, cultural and social domains.
A whole-of-nation system represents a way of organising R&D activities through the mobilisation and concentration of resources in priority areas. As a mechanism of unifying resource organisation, China utilises the nation’s coercive power and mobilises the support of public finance to achieve national interests. Operating under an economic system with the nation at its core, it is also a way of planning S&T development through the state-led implementation of major projects.
The Party’s Central Committee and government’s State Council have repeatedly called for improving the S&T whole-of-nation system. The implementation of 16 mega-engineering programs under the MLP — from next-generation broadband wireless mobile communications to nuclear power stations and major pharmaceutical innovation — have revived the system and demonstrates the effectiveness of the state-led model.
Stemming from the MLP, the Chinese government has devised several critical programs in accordance with the indigenous innovation rhetoric. The Strategic Emerging Industries (SEI) program prioritised seven critical high-tech industries, including advanced information technology, automated machine tools and robotics and biopharma and advanced medical products.
The Made in China 2025 (MIC 2025) program expands on the SEI and the MLP. It highlights ten sectors, including robotics, artificial intelligence and energy-efficient cars, as part of the fourth industrial revolution that is expected to drive the world economy in the coming decades.
As well as channelling government support and subsidies towards upgrading industrial and manufacturing technologies, MIC 2025 called for utilising indigenous patents, inventions and ideas, rather than those imported from abroad. It expects China to increase the use of domestic components in production to 40 per cent by 2020 and to 70 per cent by 2025.
Ultimately, market forces will be required to achieve the desired upgrades and to adopt international technical standards and benchmarks.
And China’s state-led approach has faced challenges. Costing billions of yuan each, the MLP’s mega-engineering programs have generated mixed outcomes at best. The MLP’s indigenous innovation strategy also evoked so much international unease that the policy drafters had to clarify that the programs were not ideologically or politically charged.
The international business community has also raised concerns about MIC 2025’s promotion of unfair competition through the subsidising of Chinese companies and limiting of market access for foreign businesses. The administration of US President Donald Trump argues that MIC 2025’s ambitious targets motivate questionable behaviours that threaten US companies and national security, including forced technology transfer and cyber theft.
The state-led approach is certainly not suitable for every S&T program. The development of China’s semiconductor industry demonstrates a failure of the state-led approach as it has not significantly eased China’s dependence on foreign technology. The last decade has also seen a recurrence of overinvestment in prioritised sectors, from solar panels and wind turbines to electric vehicles and robotics. Such an approach has led to the inefficient allocation of resources, rent-seeking and misuse of funds — disincentivising or even deterring innovation.
Cong Cao is Professor of innovation studies at the University of Nottingham Ningbo China.