China’s agenda is to become an innovation-led nation by 2020 and a world leader in science and technology by 2050. China spends more on R&D than any other economy, besides the USA. It has increased R&D spending from US$23 billion in 2012 to about $284 billion in 2014. It stills trails most developed countries as a percentage of total economic output. Analysts suggest the gap will close as China continues to increase spending.

To meet its target, China is transforming its higher education and innovation environment. It introduced preferential tax policy for priority industries. The country is also buying-up and absorbing foreign technology. Intellectual property rights (IPR) protection is improving. It is also investing hugely in its higher education system. Its research is already becoming a powerhouse. It has more than doubled its number of scholarly publications from 2006 to 2012. China trails only the USA in the number of articles it publishes every year. In 2012, China became the world’s largest patent applicant.

Even though China spends more on R&D than most nations, its innovation output is low. Its economy is now larger than Japan and Germany combined, but according to the Boston Consulting, it is home to fewer of the world’s most innovative firms than either country. While 11 Chinese companies currently rank among the 100 largest in the world, all of them are state-owned enterprises (SOEs) operating in industries such as oil, banking and railways, where the state effectively monopolises.

China’s failure to generate more innovation is due to the government. Jeremy Chan, education researcher based in Beijing, points out that China is the world’s most top-heavy country in the world. “Power flows in only one direction – downward” said Chan.

This top-down approach to development, Chan argues, is how China came to possess gleaming infrastructure ranging from the world’s longest high-speed railway to the world’s fastest super computer. It has even announced ambitious plans to return humans to the moon and to reach the deepest depths of the sea. Yet Beijing’s top heavy approach has meant more money on boosting research output than improving research quality. According to the annual Global Competitiveness Index, China’s capacity for innovation rank highest on metrics such as government procurement for advanced technological products and company spending on R&D. These are areas where the biggest wallet often wins out, points Chan. “The country performs far more poorly in areas such as number of scientists and engineers and quality of scientific research institutions”.

What does China need to do to address its growing innovation paradox? Chan suggests at least two approaches. First, encouraging innovation from the bottom-up. Though IPR protection is improving, it still lags behind developed countries. This is an obvious disincentive for potential innovators and entrepreneurs. Besides strengthening IPR, the government should increase financing for small-and medium enterprises (SMEs). Funding is also hard to come by for SMEs. This means that entrepreneurism and the start-up culture that thrives in the Silicon Valley have yet to take root in China. Beijing neglects the country’s private sector at its own peril.

Second, promoting innovation through education. China has targeted increasing the number of high-skilled workers in its labour force. This means expanding its higher education system. In 2000, the number of higher education graduates grew from fewer than 1m to 7.3m in 2014. The concern to China’s innovation agenda is not volume, Chan suggests, but whether the students who progress to tertiary levels are being taught to think critically and creatively. Secondary school education still consists of drilling and rote memorisation. At universities, little time is spent in classrooms or extracurricular activities that promote critical thinking. Elite universities such as Peking University and Tsinghua University are changing. They now want their students to enrol in liberal arts courses – including literature, philosophy and history. This approach needs to multiply across the sector

The paradox of China’s innovation will not disappear by addressing the country’s considerable strengths, but by addressing its institutional weakness.

Reference: Jeremy Chan, China’s innovation paradox, 2015, Perspective: Policy and Practice in Higher Education, 19:1, 23-27