2. Professor Song CHEN, Ph.D. Deputy Dean, School of Economics & Management Tongji University E-mail: chens@tongji.edu.cn Oct. 7, 2013 The Changing National Innovation System in China: Policies and Challenges

3. 2 Agenda 1.Introduction and NIS in China 2. The Changing Innovation Policy in China 3.The Challenges of Innovation for China 4.Implications for Developing Countries

4. 1. Introduction and NIS in China China’s Position in Global Technology Competition 3  A Rising Technology Exporter

5. 4 1. Introduction and NIS in China China’s Position in Global Technology Competition

6.  In 2004, China became the world’s largest exporter of IT products (US$180 billion, vs US$149 billion for the US)  This shift has occurred entirely within the foreign invested companies  Some component manufacturing networks have shifted to China 5 1. Introduction and NIS in China China’s Position in Global Technology Competition

7.  The huge Chinese market  Low labor costs of R&D engineers  Improved innovation and policy environment. 24 100 200 400 600 800 1200 0 200 400 600 800 1000 1997 2000 2001Feb. 2003Jun. 200420062009 1. Introduction and NIS in China Growing MNCs’ R&D Centers in China

8.  Major MNC R&D Centers in China focus on product localization or develop new products for China market while some start shifting towards global innovation 1. Introduction and NIS in China Growing MNCs’ R&D Centers in China

9. Government  Coordinator Companies  Development Universities  Basic Research Research Institutes  Applied Research 1.Introduction and NIS in China Major Players of National Innovation System  Innovation network, with functional division of lalour in innovation.

10. 9  2012, China ranked 34 according to GII 2013 WIPO  2013, China ranked 35 out of 142 countries and economies 1.Introduction and NIS in China Global Innovation Index Ranking

11.  Institutions –Political Environment –Regulatory Environment –Business Environment 10 1.Introduction and NIS in China Global Innovation Index Ranking

12.  2 Human Capital & Research 11 1.Introduction and NIS in China Global Innovation Index Ranking

13.  3 Infrastructure 12 1.Introduction and NIS in China Global Innovation Index Ranking

14.  Market Sophistication 13 1.Introduction and NIS in China Global Innovation Index Ranking

15.  Business Sophistication 14 1.Introduction and NIS in China Global Innovation Index Ranking

16.  Knowledge & Technology Outputs 15 1.Introduction and NIS in China Global Innovation Index Ranking

17.  Creative Outputs 16 1.Introduction and NIS in China Global Innovation Index Ranking

18. 2.1 National Strategy and Deregulation Policy –National strategy is to build an innovation-driven country by 2020 –Further Economic Reform Market oriented Reform Deregulation by new Prime Minister LI Keqiang –“Open Door” Policy pilot Free Trade Zone in Shanghai in 2013 Special Economic Zone at Shenzhen near Hong Kong in 1980 –Local Governments Competition technology upgrading Competing to become a “Innovative City” –Better Government Service 17 2. The Changing Innovation Policy in China

19. 2.2 Education Policy –Growing Government Expenditures on Education: 4% of GDP in 2012, 2 Billion RMB a year, meeting the target of Education Law for the first time in 19 years. –Culture tradition: “Knowledge changes your life” –Internationalization GMAT Scores: Ranked 7 th in the world, while USA ranked 51 st GMAT takers: No. 1 in the world in term of numbers –More than 6 million university graduates, most majored in engineering and technology in 2013 Stronger Science Base 18 2. The Changing Innovation Policy in China

20. 2.3 Science and Technology Policy –Increased Fund for National Natural Science Foundation –Stronger Government Support in Public Research Institutes Chinese Academy of Sciences –Public R&D Platform Generic technology Enabling technology 19 2. The Changing Innovation Policy in China

21. 2.4 Policy for Innovation in Businesses –Preferential Policy for MNC’s R&D Centers in China Lower land price Tariff free for R&D testing equipment Local government incentives –Tax Incentives 150% of R&D expenditure as cost deduction in business income tax since 2008 Accelerated depreciation for R&D equipment High-tech businesses in National High-tech Zones may enjoy two year tax-free after becoming profitable 20 2. The Changing Innovation Policy in China

22. 2.4 Policy for Innovation in Businesses –IPR Protection Policy Clear Strategy on IPR protection Incentives to Patent Application: local government subsidies for patent application China ranked the 4 th in the world in patents application, with 18627 cases, 13.6% higher than 2011. ZTE, A Chinese ICT company based in Shenzhen, ranked No.1 in PCT patent application ( 3906) in 2012, the next is Panasonic and Sharp. 21 2. The Changing Innovation Policy in China

23. 2.4 Innovation Financing Policy –Private Banking To finance innovative SMEs and Start-ups –Internet-based Financing –Venture Capital and Equity Investment –Government emerging Industry Development Fund Joint investment with private equity fund 22 2. The Changing Innovation Policy in China

24. 3.1 Rising labour costs –Stricter Enforcement of Labour Law –Competition of MNCs 3.2 Higher Living Costs –Soaring Real Estate Price, preventing overseas Chinese scholars from returning back to China –Air pollution 3.3 Constraints of Talents –Technology –Management talents with global perspectives 23 3. The Challenges of Innovation for China

25. 3.4 Infrastructures –Better Education system Student Loan Higher education costs for children –Mass Transportation System to ease high price of real estate –ICT infrastructure 3.5 Impartial Enforcement of Law –Pollution and Food Security –IP Infringement in some rural areas 24 3. The Challenges of Innovation for China

26. 4.1 Stable and Open Economic Policy –FDI Policy Joint Ventures –MNCs’ R&D Centers –Holistic Economic Policy –Stable Environment for Investment 25 4. Implications for Developing Countries

27. 4.2 Education Policy –Human Capital for Innovation More graduates in science and technology Technology Management and Entrepreneurship education –Build up Science Base and Absorption Capability –Global Sourcing for Talents, including technology and management talents Application of business model for local market –International links: Global Innovation Networks 26 4. Implications for Developing Countries

28. 4.3 Better Infrastructures –ICT Infrastructure IT Gap Winner-take-all –Transportation and Communication Infrastructure Physical Infrastructure –Social Security for better FDI environment 4.4 A Clear Government Innovation Policy –Strong support for innovation activities in universities, research institutes and businesses. 27 4. Implications for Developing Countries

29. 28 Thank You ！ Q & A Further Reading: OECD Reviews of Innovation Policy: China, 2007