Innovation Survey on Chinese Industrial Enterprises Department of Social, Sciences and Technology Statistics National Bureau of Statistics of China (NBS) December 2010, Nepal

The presentation outline: The background and motivation for carrying out the first innovation survey in China The Structure of the Chinese questionnaire The similarities and differences between Chinese questionnaire and CIS questionnaire The Survey Methodology The preliminary results from the first innovation of China The concluding remarks and future plan for the development of innovation survey

Background & motivation 1. Needs from the perspective of policy-making 2. Needs for achieving international comparability through exchange and mutual learning. 3. Needs for further developing the statistical system of China

Needs from the perspective of policy-making In the Chinese process of building a well-off society in an all-round way, the economic reform and openness will remain as crucial development strategies. Beyond the introduction of advanced foreign technology, indigenous innovation capacity building will be the focus of future development strategies when promoting the openness of the Chinese economy.

Needs from the perspective of policy-making On the other hand, improving the enterprise’ innovation ability is very important to transforming the economic growth mode and reducing the consumption of resource and energy. In this background, the Chinese government declared the new development strategy in 2006, namely to transfer China to an innovation-oriented and strong indigenous innovation capacity.

Needs from the perspective of policy-making At the current stage, there are a large number of innovation policy instruments, which are being implemented by the Chinese government. To meet the information needs of such macroeconomic management and to reflect/measure the effects of these innovation policies, the S&T statistical agency in China have an important task.

Needs for achieving international comparability through exchange and mutual learning In recent years, the innovation capacity and activities of Chinese enterprises have received considerably attention, from many foreign/ European governmental agencies and researchers from universities and research institutes. Some proposals for research co-operation with the NBS regarding innovation of enterprises in China have been developed.

Needs for achieving international comparability through exchange and mutual learning At the same time, China also considers innovative countries in Europe a target to catch up. Therefore, it is necessary to carry out international comparative studies to meet the need for benchmarking with more advanced innovative countries.

Needs for further developing and completing the statistical system of China In the last two decades, only R&D statistics was included in the national indicator system. While most of EU countries have carried out Community Innovation Survey (CIS) on a regular basis, China did not have regular innovation survey praxis. Human resources involved in S&T indicator system has been also limited.

Needs for further developing and completing the statistical system of China Due to these restraints, it leaves large room for improvement, in terms of international comparability, in fields of survey practices, personnel training, data quality, research methodology and data collection. Therefore, we would like to take this opportunity when S&T and innovation are becoming increasingly important issues, not only for the Chinese government but also for the international community, in the face of globalization, to develop the S&T statistics system, and to establish the regular innovation survey system.

Background & motivation Based on the above perspectives, according to the standard /spirit of Oslo manual and CIS4, with the technical aids from Nordic experts, the first innovation survey of China in the scope of industrial enterprise was conducted in 2007.

The structure of the questionnaire The survey aims to collect information for the period 2004-2006, regarding the industrial enterprises’ innovation in terms of expenditure, effects and influencing factors as well as the understanding (perception) of innovation of the CEOs (at the managing /decision-making level). The survey questionnaire is divided into two parts. The first part is Information on Industrial Enterprises’ Innovation, the second part is the Manager/CEO Survey.

The structure of the questionnaire Part 1: Industrial Enterprises’ Innovation information S1. General information about the enterprise S2. Product innovation S3. Process innovation S4. Ongoing or abandoned innovation activities and reasons for abandoning innovation activities

The structure of the questionnaire S5. Innovation activities and expenditure S6. Output of Innovation S7. Intellectual property rights Protection

The structure of the questionnaire Part 2:Manager/CEO Survey Questionnaire S1. Information about the manager /CEO S2. Opinion on the importance of innovation S3. The effects of product and process innovation S4. Source of information of innovation

The structure of the questionnaire S5. Promoting factors for the success of innovation S6. Incentive for innovation S7-S8. Effect of various government policies on innovation S9. Future innovation strategy

The similarities and differences between Chinese questionnaire and CIS questionnaire The structure presented above shows considerable similarities between the Chinese survey questionnaire and the CIS questionnaire. In briefly, to a large extent, the Chinese questionnaire covers the same topics and the same questions as in the CIS questionnaire.

The similarities and differences between Chinese questionnaire and CIS questionnaire On the other hand, there are also some differences, which can be summarised as follows : 1. The questionnaire is divided into two parts. the first part is supposed to be completed jointly by units of S&T management, coordination and accounting, organised by the responsible for innovation activities of the enterprise. The second part is expected to be completed by the manager/CEO who is in charge/responsible for decision making concerning innovation activities of the enterprise.

The similarities and differences between Chinese questionnaire and CIS questionnaire 2. In the CEO questionnaire, there are a number of China-specific questions, such as promoting factors, incentive instruments, effects of various government policies and enterprises’ future innovation strategy. They are of great policy interest.

The similarities and differences between Chinese questionnaire and CIS questionnaire 3.The key concepts and definitions are slightly different, such as product innovation, process innovation and new product, etc. (due to the article space limitations, the concrete differences no longer are pointed out in this report. If you are interested in these issues, please contact with us)

The similarities and differences between Chinese questionnaire and CIS questionnaire In a word, there are some modifications in the Chinese innovation survey questionnaire compared to the CIS questions, which are motivated by the need to maintain the international comparability as well as the need to reflect the China-specific context.

The survey methodology The time period The innovation survey of China covers the period 2004-2006, whereas the CIS4 covers the observation period 2002-2004.

The survey methodology 2. The survey object: Industrial enterprises Large and Medium-sized industrial Enterprises (LMEs) Small-sized industrial enterprises with annual turnover above 5 million RMB Classification of Large, Medium and Small Enterprises Large Medium Small Employment (Person) 2000+ 300-2000 300- Turnover (Million Yuan) 300+ 30-300 30- Total assets (Million Yuan) 400+ 40-400 40- Firms are classified as large if all three criteria in column (1) are satisfied. The remaining firms are classified as medium if all three lower bounds in column (2) are satisfied. Otherwise they are classified as small

The Survey methodology Census survey on LMEs Sample survey on small-sized enterprises 3. Coverage of the survey Totally 67,242 LMEs and small enterprises were included The sample size of small-sized enterprises drawn by NBS were 42,600 and the sampling ratio was equal to 16.3% the response rate was 82% The non-responses were caused by the changes (deviation) in the population frame, i.e. some of small enterprises no longer exist.

The Survey methodology The survey is organized by the department of Social, Science and Technology statistics of NBS. It is responsible for organisation and leadership, and undertakes the specific statistics work, including the questionnaire and guideline design, Provincial and Municipal statistician training, data processing and publishing, and so on. Provincial and Municipal Bureaus of statistics are responsible for enterprises’ personnel training, collecting and processing data, submitting the data to NBS, etc. The questionnaires are filled out by the enterprises’ respondents after being trained and reading the guideline.

The survey results Innovation activity during 2004-2006. Who developed product and process innovations? Innovation expenditures in 2006. Information source of innovation during 2004-2006. Effects of innovations. Share of revenue in 2006 from product innovations. Promoting factors for success of innovations. Hampering factors for innovations.

Innovation activity during 2004-2006 28.8 % of surveyed enterprises conducted innovation activity of which: 19.9% introduced both product and process innovations. 3.6% introduced product innovations only. 4.4% process innovations only. 0.9% had ongoing or abandoned innovation activity.

Innovation activity 2004-2006

Electricity, Gas and Water Innovation activity by size & industry (Share of enterprises with innovation activities, %) Size All Mining Manufacturing Electricity, Gas and Water Large 83.5 72.3 85.6 70.8 Medium 55.9 30.5 58.7 31.6 Small 25.2 8.8 27.6 10.5 28.8 12.2 30.0 15.7 Large enterprises were most likely to conduct innovation activity

Innovation activity in LMEs by ownership (Share of LMEs with innovation activities, %) Domestic 61.8 Overseas from Hong Kong, Macao & Taiwan 49.6 Foreign 53.0 All 58.2

Who developed innovations Who developed innovations? (Share of different forms of conducting innovation, %) Product and process innovations were mostly developed by the enterprise or enterprise group . 76.3% of product innovations and 69.9% of process innovations respectively. A larger share of process innovations were developed by others compared to product innovations.

Who developed innovations in LMEs ? By ownership (product innovation,%) Itself Together Other Domestic 77.8 17.9 4.3 Overseas from Hong Kong, Macao & Taiwan 84.2 11.7 4.1 Foreign 82.6 12.7 4.7 All 79.6 16.1

Who developed innovations in LMEs ? By ownership (process innovation,%) Itself Together Other Domestic 67.5 17.6 14.9 Overseas from Hong Kong, Macao & Taiwan 75.4 11.5 13.1 Foreign 75.8 10.7 13.5 All 70.0 15.7 14.4

Innovation expenditures 2006 (Share in total expenditure, %) The total expenditure amounted to 582.1 billion RMB, up by 23.1 percent over the previous year, it accounted for 1.86 percent of turnover.

Innovation expenditures in LMEs, 2006 By ownership Domestic Overseas Foreign Innovation expenditures (Billion RMB) 355.48 32.51 84.34 Intramural R&D (%) 33.6 46.2 36.8 Extramural R&D 3.3 3.0 5.9 Acquisition of machinery, equipment and software (%) 57.1 42.6 41.9 Acquisition of other external knowledge 6.0 8.2 15.4

Information source for innovation Degree of importance High All (%) LMES Own 33.1 35.6 Enterprise group 16.4 26.3 Clients and Customers 58.6 63.0 Suppliers 21.6 21.0 Competitors 29.8 33.0 Technology market & consulting org. 17.0 20.2

Information source for innovation Degree of importance High All (%) LMES Industrial associations 14.7 19.0 Universities 8.9 11.8 Independent Institutions 12.4 17.1 Governmental authorities 12.3 15.0 Trade fairs, exhibitions 26.0 27.4 S&T literature 11.9 14.4 Internet information 17.5 17.3

Effect of innovation Degree of importance High All (%) LMEs Product oriented effects 1. Increased range of goods 54.1 61.5 2. Improved quality of goods 56.6 62.7 3. Entered new markets or increased market share 58.9 64.1

Effect of innovation Degree of importance High All (%) LMEs Process oriented effects 4. Improved flexibility of production 38.3 41.1 5. Increased capacity of production 56.3 60.0 6. Reduced labour costs per unit output 37.9 41.4

Effect of innovation Degree of importance High All (%) LMEs Process oriented effects 7. Reduced materials per unit output 35.4 41.5 8. Reduced energy per unit output 36.1 42.5 9. Reduced environmental impacts 39.4 43.5 10. Improved working conditions and enhanced safety 42.3 45.0

Effect of innovation in LMEs by Ownership Degree of importance high Domestic (%) Overseas (%) Foreign Product oriented effects 1. Increased range of goods 61.5 60.3 62.7 2. Improved quality of goods 63.3 59.7 63.2 3. Entered new markets or increased market share 64.5 62.6 63.9

Effect of innovation in LMEs by Ownership Degree of importance high Domestic (%) Overseas (%) Foreign Product oriented effects 4. Improved flexibility of production 40.3 42.1 43.6 5. Increased capacity of production 60.3 58.1 59.9 6. Reduced labour costs per unit output 42.0 39.5 40.4

Effect of innovation in LMEs by Ownership Domestic (%) overseas (%) Foreign Process oriented effects 7. Reduced materials per unit output 42.3 37.9 40.8 8. Reduced energy per unit output 43.9 38.1 40.3 9. Reduced environmental impacts 44.3 40.6 10. Improved working conditions and enhanced safety 46.0 41.5 43.8

Share of revenue from product innovation 12.7 % of revenue in 2006 came from new products. 6.8% from new to the market. 5.9% from new to the firm.

Share of revenue from product innovations ( by size & degree of novelty) Size class New for market New for firm Large 10.0 8.6 Medium 6.1 5.0 Small 4.0 3.8 All 6.8 5.9

Share of revenue from product innovations in LMEs (by Ownership & degree of novelty) New for market New for firm Domestic 7.2 6.4 Overseas 10.5 5.2 Foreign 10.0 9.4 All 8.2 7.0

Promoting factor for success of innovation Degree of importance high All (%) LMEs Manager /CEO with innovative spirit 66.0 72.9 Sufficient financial support 44.8 54.3 Highly qualified human resource 57.0 66.7 Commitment of employees 41.8 46.9

Promoting factor for success of innovation Degree of importance high All (%) LMEs Incentive instruments 40.6 46.9 Effective technological strategies & planning. 44.6 53.2 Fluent information channels 40.0 43.6 Reliable partners in innovation co-operation 30.2 34.0 Favourable governmental support 30.8 33.6

Hampering factors for innovation Degree of importance high All (%) LME Immature technology 37.9 37.4 Mismatch b/w new technology & production capacity 27.1 22.5 Emergence of newer/better technology or product 29.1 33.5 Lack of technical personnel or brain drain 28.0 23.8

Hampering factors for innovation Degree of importance high All (%) LME Lack of funds during process of industrialisation 34.1 25.8 Reduction of market demand 40.3 53.0 Counterfeiting or import competition 12.3 12.5 Policy or regulation constraints 10.9 13.3

The concluding remarks and future plan for the development of Innovation survey The first innovation survey of China can be considered a great step forward accomplished by the NBS in a close co-operation with its Nordic partners. It is a promising start for an enlarged and deepened capacity building in the S&T indicator system of China and its co-operation with a broad international community.

The concluding remarks and future plan for the development of Innovation survey The Survey has also provided us with rich information on the China-specific economic and social context and greatly enhanced our understanding of the innovation environment, in which enterprises in China are operating. Although there is no obvious evidence of the use of these results for policy making, the related government departments hope that NBS of China continues to conduct this survey in the future. It was well known that it is a valuable survey.

The concluding remarks and future plan for the development of Innovation survey With respect to the coordination with the R&D survey, you can find that the R&D expenditures of large- and medium sized enterprises in 2006 were approximately equal in both surveys, because we used the data of R&D survey in innovation survey. In fact, the R&D expenditure in innovation survey is larger than it in the R&D survey. We believe that the data quality of R&D survey is higher because the R&D survey was conducted every year.

The concluding remarks and future plan for the development of Innovation survey However, we can also see that the first innovation survey of China leaves large room for improvement, in terms of international comparability regarding survey practices and methodology. More specifically, departing from the current achievement, the NBS plans to continue their work on the innovation survey in the following directions:

The concluding remarks and future plan for the development of Innovation survey To set up a regular innovation survey system and to enlarge the scope of the Survey, covering enterprises in service sector. To increase types of innovation in the Survey, including organisational and marketing innovation. To make the coverage and time point for survey as consistent as possible with the CIS.

Acknowledgements Many helps was provided from international experts during our first innovation survey: Mrs Birgitta Mannfelt at Statistics Sweden and Mr. Mikael Åkerblom at Statistics Finland provided us many technical assistances for the questionnaire design. Ms. Maria Säfström (Statistics Sweden) and Ms.Viveca Koch (Statistics Sweden) provided us the excellent training course. Dr. Nannan Lundin (Research Institutes of Industrial Economics, IFN) provided considerable assistance in co-coordinating the cooperation project. we deeply appreciate their helps and hope that more international experts can cooperate with us on our S&T statistics including innovation survey.

Many thanks !