Innovative Flanders Innovation Policies for the 21st Century: Report of a Symposium (2008) / Chapter Skim
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III: RESEARCH PAPER--Innovative Flanders: Innovation Policies for the Twenty-first Century
III: RESEARCH PAPER--Innovative Flanders: Innovation Policies for the Twenty-first Century
Pages 125-150
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From page 127... ...
Howell, its lead research experts Rachel Howe and Maki Hishikawa, and the devoted assistance of Gabriel Key and Maxine Walker. I also benefited from confirmation of my conclusions gained through exposure to discussions with many experts on the subject of Chinese innovation at the Levin Institute in July 2006, when this project was already well formed.
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And for the European Union: "Ten priority actions to achieve a broad-based innovation strategy for the European Union. The aim of the Communication is to present ‘a broad based innovation strategy for Europe that translates investments in knowledge into innovative products and services'.
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A world view in 1950 would have been unlikely to have anticipated Japan's achievements in manufacturing and inter national trade during the next 40 years nor the successful creation of a European common market, and its joint endeavors like the Airbus. Architecture of the Chinese Innovation Policy System This is a fascinating time in Chinese development.
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, and the remainder by miscellaneous other government agencies, including MII and MOFCOM. State Council of the People's Republic of China, Outline of the National Medium-and Long-Term Program on Scientific and Technological Development, (2006-2020)
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on Encouraging Technology Introduction and Innovation and Promoting Reform of Foreign Trade, July 14, 2006. This document identifies nine industries in which foreign technology acquisition will be particularly encouraged.
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. 12Ma Kai, Minister, National Development and Reform Commission, The 11th Five-Year Plan, March 19, 2006, available at |
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Therefore, adherence to "the lowest protection standards of the WTO [World Trade Organization" allows China to honor the letter of its WTO commitments while protecting and preserving China's domestic markets for domestically produced "innovation" goods. The schizophrenia over the need for and reaction against the influx of foreign technology is also evident in discussion of potential for use of China's new antimonopoly law (discussed further below)
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The recently promulgated Shanghai Municipal Government Intellectual Property Strategy demonstrates how standards setting can be used to foster innovation. The Shanghai Strategy states: 14 [We shall]
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. Finance departments at provincial level shall work with the science and technology departments at the same level to establish implementation plans for developing indigenous innovation government procurement policies for their provinces.19 Due to the prominent role China's centralized governmental structure plays in China's economy, the use of a discriminatory government purchasing policy at the central, provincial, and local levels can provide a significant amount of protection to foster indigenous innovation and may have a very powerful negative effect on trade.
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According to China's Ministry of Commerce -- [Foreign direct investment] …is an important element of China's fundamental principle of opening up to the outside world, and also an important component of Deng Xiaoping Theory, and is one of the great practices of building up [a]
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One of the first sectoral Opinions of the State Council, this one relating to the "equipment manufacturing industry," states that "imports of key equipment using foreign capital will be subject to "strict examination and study."25 Given WTO commitments, there is little that can be done through direct controls to slow the inflow of undesired imports (outside of the government procurement measures mentioned above)
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released a report claiming that certain multinational companies utilize technological advantages and IPR to dominate sectors of the Chinese market.31 The report specifically names Kodak, Tetra Pak, and Microsoft as both examples and potential targets of any forthcoming Chinese Anti-Monopoly Law.32 Additional press reports indicate that other advanced technology and innovative companies such as Intel could also be a target of such legislation.33 28When Japan liberalized inward FDI in the 1960s, policymakers regarded the Antimonopoly Law as a foil to prevent the feared "monopolization" of the domestic market by "foreign capital." A Ministry of Finance official serving on the Foreign Investment Deliberation Council, which was developing Japan's FDI policy, commented "When Foreign capital comes out strong, not only in terms of technological or capital strength but starts stirring up the market using violent force, I believe there is a strong underlying desire by all to use the Antimonopoly Law to police illegal transactions." Fujio Yoshida in "Preparation of Legal System for Capital Liberalization (Part 3) ," Panel Discussion in Zaikei Shoho, July 17, 1967.
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. 38"Anticompetitive Practices of Multinational Companies and Countermeasures," Administration of Industry and Commerce, Office of Anti-monopoly, Fair Trade Bureau, State Administration of Industry and Commerce, May 2004, pp 42-43.
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One example from the current Chinese experience consists of the measures to promote the development of a domestic equipment manufacturing industry, measures which include:39 • Preferential taxation;40 • Incentives for purchase of Chinese-made machinery;41 • VAT rebates on imported parts and materials; • Allocation of special funds for technologically advanced products; 42 and • Relief of enterprises' "social responsibilities." While the phrase "relief of enterprises of social responsibilities" has not been defined, American automobile producers (and former executives of former steel manufacturing companies) can testify that if this means "legacy costs," that is, health and pension costs of retired workers, among other "social responsibilities," relief of these costs can mean the difference between profitability, stunning losses, and in the extreme, but all too well known cases, bankruptcy.
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For the time being, the entity is fully government-owned and financed by an investment company associated with the Hubei Provincial Government, Wuhan City Government, and the Wuhan East Lake New Technology Development Zone. SMIC describes its participation as a management contract under which SMIC "will not invest any money to construct or equip the wafer manufacturing facilities but will manage the operations, including the wafer loadings, of the facilities."[Semiconductor Manufacturing International Corp.
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Particular emphasis is given to attracting foreign R&D facilities. Fifteen Korean companies have R&D 47Professor Li Jianjun, Director General, Tianjin Science and Technology Commission, "The Development and Opening of Tianjin Binhai: New Area & China's Biotechnical Innovations" as presented at Levin Institute Conference, "Industrial Innovation in China," July 2006.
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These concentrate on development of technology and product models for the Chinese market.51 Factors driving and inhibiting innovation Major Positive Factors Innovation efforts in China are a vast work in progress, conjuring up images of past grand public works efforts -- more like perhaps the building of Grand Canal system52 than the Great Wall, but there are more than a few trace elements of the latter, protective element, that appear in the statements of Chinese planners and regulators. Growth There are strong innovation drivers in China at present.
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China is now third in the ranking of countries in R&D expenditures. Another crude measure of success is the number of domestic patents filed with China's State Intellectual Property Office (SIPO)
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But critical levers of control remain firmly in official hands. Do you need a bank loan, foreign exchange, a site for a new plant or access to scarce raw materials?
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A key roadblock to accelerating innovation is the inadequate protection of intellectual property. This exists in part because there is relatively little history or culture of protecting intellectual property rights and there is only a recent history 56Framing the Engineering Outsourcing Debate: Placing the United States on a Level Playing Field with China and India, Duke University Master of Engineering Management Program.
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62Dr. Hu Zhijian, Deputy Director General, Deptartment of Policy, Regulation and Reform, Ministry of Science and Technology, "IPR Policies In China: Challenges and Directions," presentation at Levin Institute Conference, "Industrial Innovation in China," July 2006.
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The measures taken and threatened have been enumerated above, and include the whole panoply of investment controls, conditional financial support, possible administrative guidance to avoid payment of foreign royalties, threatened use of the antimonopoly law, regulatory approvals of all sorts, and the like. As this is a paper focused on government measures, other market factors, such as lack of physical infrastructure, availability of feedstocks, and constraints caused by limited opportunities for synergies with local partner companies, will be reserved for other studies.
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A series of "ifs" exist -- they always do. The move toward indigenous innovation will continue if political stability is maintained, if the instinct to techno-nationalism is checked (not manipulating trade, the antimonopoly law or product standards for mercantilist reasons, for example)
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The relevance of Japan's experience is however limited by the very different path that China has taken, welcoming foreign investors and goods for its vast home market. What is present in China is the will to succeed, and an excitement about China's growth potential and scientific and engineering possibilities that is somewhat reminiscent of the faith that the American settlers had in moving west in the mid-19th century.
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