VIEW LI YANG Shang­hai pros­pers, but fails to de­velop in­no­va­tive ca­pa­bil­i­ties

China Daily (Canada) - - SHANGHAI -

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.

GAO ERQIANG / CHINA DAILY

Shang­hai has be­come more pros­per­ous than ever, but the city is still weak in in­no­va­tion.

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