China needs to re­think in­no­va­tion

China Daily (Canada) - - E-COMMERCE -

The com­pass, paper money, moveable type print­ing, gun­pow­der and silk. These are a few of the in­ven­tions that un­til the early mod­ern era put China ahead of the West as an in­no­va­tor. But past glo­ries are in­suf­fi­cient to ad­dress cur­rent and fu­ture chal­lenges.

What should China do to sup­port its tran­si­tion to a more in­no­va­tive econ­omy? Lessons from other coun­tries point to three key steps.

The first is ed­u­ca­tion. It needs to be am­ply funded and ac­ces­si­ble to all re­gions and so­cial groups.

China cur­rently spends 4 per­cent of GDP on ed­u­ca­tion, which is lower than other mid­dle-in­come coun­tries. De­vel­oped economies gen­er­ally spend 5-7 per­cent.

China has made enor­mous progress in educational de­vel­op­ment, and there are pock­ets of educational excellence, for ex­am­ple in Shang­hai. To en­sure that high­qual­ity ba­sic ed­u­ca­tion is avail­able through­out the coun­try, in­clud­ing poor and re­mote ar­eas, spend­ing on ed­u­ca­tion needs to in­crease fur­ther.

China should move from rote­and exam-based learn­ing to stu­dent-cen­tered learn­ing, with an em­pha­sis on prob­lem solv­ing and cre­ativ­ity.

Ad­vanced economies have high­qual­ity ter­tiary ed­u­ca­tion sys­tems that are in­de­pen­dent and well re­sourced. China’s higher ed­u­ca­tion sys­tem has ex­panded rapidly, but qual­ity im­prove­ments have not kept pace. Rel­a­tive to its size and pop­u­la­tion, China still has few top­tier uni­ver­si­ties.

Sec­ond, in­no­va­tive economies spend a lot on re­search and de­vel­op­ment. China adopted a com­pre­hen­sive R&D pol­icy in 2006 and ex­pected to spend 2.2 per­cent of GDP on R&D in 2015. This is higher than Euro­pean economies’ 2 per­cent but less than Sin­ga­pore’s 2.3 per­cent or South Korea’s 4 per­cent.

Cut­ting-edge com­pa­nies need to trans­form R&D into in­no­va­tive pro­duc­tion. China has some highly in­no­va­tive com­pa­nies, par­tic­u­larly in telecom­mu­ni­ca­tions and con­sumer elec­tron­ics, such as Huawei and Len­ovo. But most Chi­nese com­pa­nies fo­cus on process and pro­duc­tion im­prove­ments rather than break­through in­no­va­tion.

And third, in­no­va­tive com­pa­nies need a dy­namic fi­nan­cial sec­tor and pol­icy en­vi­ron­ment. In­no­va­tion is driven by the pri­vate sec­tor. Poli­cies and in­cen­tives should en­cour­age com­pa­nies to in­no­vate. The mar­ket­place should of­fer in­no­va­tive com­pa­nies fi­nanc­ing op­tions.

In China, small and medi­um­sized en­ter­prises gen­er­ate 65 per­cent of patented in­ven­tions and 80 per­cent of in­no­va­tive prod­ucts. Lim­ited ac­cess to cap­i­tal, in turn, re­stricts their ac­cess to skills and tech­nol­ogy. En­cour­ag­ing banks to lend to SMEs, and pro­vid­ing poli­cies to sup­port en­trepreneur­ship, would un­leash their dy­namism.

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