VIEW LI YANG Shanghai prospers, but fails to develop innovative capabilities
The central government earmarked Shanghai as a pioneer to explore the experience of building an innovation-driven growth model that can be transplanted nationwide. But Shanghai seems unprepared for the task, despite the establishment of the showcase pilot free-trade zone last year.
Shanghai has 210,000 research and development staff, similar to the R&D population in Italy or Canada. But the return is far from ideal. Shanghai boasts few household brands today, and even fewer known for innovation.
According to research by Wang Liangliang, an economist with Fudan University in Shanghai, each 10,000 yuan ($1,640) of R&D money spent in Shanghai yields 104,000 yuan output in 2010, much lower than the 203,000 yuan in Guangdong and 178,000 yuan in Jiangsu.
Obviously there is a big gap between knowledge and production in Shanghai.
The lack of entrepreneurship and a weak private economy in higher-end manufacturing industries in the city lowers the efficiency of the knowledge-toproductivity transformation and weakens Shanghai’s ability to absorb local innovation.
For example, Shanghai’s patents in biomedicine account for nearly 40 percent of the national total, but the production value of Shanghai’s biomedical industry is only about 10 percent of the national total.
Nearly 90 percent of Shanghai’s private hi-tech enterprises concentrate on telecommunication and office equipment manufacturing. The over concentration in a few fields increases their vulnerability to market changes.
Although domestic enterprises account for 40 percent of Shanghai’s hi-tech enterprises, their production value is only 9 percent of the overall output of the city’s hi-tech enterprises.
Most of them are Stateowned enterprises (SOEs), which have their advantages in the factory-driven development stage for their large scale.
But in the knowledge-economy stage, the uncertainties of new knowledge and technology, along with the high trade cost and the information asymmetry in research and production, distinguish the transformation from knowledge to technology and further to productivity as the decisive factor, rather than individual enterprises’ scale. Shanghai’s lackluster experience as an innovative center today is not caused by a lack of knowledge, but the absence of active, sensitive and brave entrepreneurs and supportive policy and market environment.
Shanghai has already entered the wealth-driven stage directly from a factory-driven stage. Yet, without a fully developed knowledge-economy stage, people prefer to work as investment managers rather than private entrepreneurs venturing to start their own business in new areas.
Large SOEs and famous foreign enterprises’ domination of Shanghai’s industries is a result of the city’s evolution in its recent history.
Shanghai was quickly Westernized after the first Opium War in 1840, and opened up to the West fast after 1990s. For most of the planned-economy period from late 1940s to early 1990s, the city’s SOEs had provided the nation with most of its daily necessities. There is no “spare time” for the development of private economies.
The neighboring Jiangsu and Zhejiang provinces saw a booming private economy from the late 1980s.
From 2002 to 2007, Shanghai experienced a round of re-industrilization. Yet, the temporary surge of industrial output mainly came from the SOEs because of the government’s supportive policies.
In 2010, Shanghai had 9,858 SOEs, 10.5 percent of the national total, more than any of the other provinces and cities in China. In 2012, the SOEs’ production value accounted for 49.3 percent of the Shanghai economy and private economy took 24.2 percent.
The net profit SOEs generate divided by their huge assets is even lower than the return of banks’ fixed-time deposits in recent years. Protecting SOEs seems like an intuition of the government. The “negative list” made up of 1,000 items meted out for the Shanghai FTZ drives home how difficult it is to start and run a private business in Shanghai.
Foreign enterprises promoted private economies in Jiangsu and Zhejiang. But that is not the case in Shanghai. Supported by the government, more than 600 large cross-border enterprises based their regional headquarters in Shanghai, especially in the financial sectors. The headquarters economy brings up living costs and people’s expectations for earnings, but not technologies and innovative spirit. Developing logistics, shipping and financial industries do not conflict with the development of higher-end manufacturing industries.
The Shanghai government should further simplify the procedures of starting a private business, and roll out preferential policies for hi-tech enterprises. The Shanghai FTZ is a good platform to re-industrialize Shanghai’s hi-tech and manufacturing industries in private enterprises.
Shanghai will not fully develop its innovation capabilities until it has a strong real economy of various ownerships.
Shanghai has become more prosperous than ever, but the city is still weak in innovation.