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Issue 41, December 2011

This newsletter is a monthly supplement to ChinaAnalysis.Com, a new website that aims to promote knowledge sharing in China-related analysis. This newsletter contains original content and may not be reproduced without exclusive written permission. If you have any questions, comments and suggestions, please email support@chinaanalysis.com.

ChinaCompass - China’s New Investment Plan in Emerging Technologies

On November 21, visiting U.S. Commerce secretary John Bryson got a message from the Chinese government that China will spend 10 trillion RMB ($1.7 trillion) on strategic sectors in the next five years. As noted by many reporters, the 10 trillion RMB investment plan is two and a half times bigger than the 4 trillion RMB stimulus package during the Financial Crisis. While reflecting the Chinese government's pessimistic outlook of the global economy, the eye-popping amount of investment is going to provide an enormous boost for Chinese industry and technology.

The investment plan echoes a strategic document issued by the State Council of China in October 2010. "The Decision to Accelerate the Development of Emerging Strategic Sectors" called for government investment and support of "backbone sectors" (environmental and energy-saving technologies, next-generation information technologies, biotech and high-end equipment manufacturing) and "pioneering sectors" (new energy, new materials and new-energy vehicles). Earlier this year, the definition of "backbone" and "pioneering" sectors was incorporated into various 12th Five-Year Plans by Chinese ministries and government bodies, such as Ministry of Science and Technology's Science & Technology Development Plan and National Science Foundation of China's funding plan. The allocation of fiscal resources to these strategic sectors provides further support to these plans, and shows once again that the Chinese government takes industrial development very seriously.

Such an enormous amount of investment is not likely to come solely from the government. On November 21, Caixin, a Chinese newspaper already noted that the government is counting on the business sector to provide a large chunk of the investment. It is not an unreasonable speculation. Chinese companies have already been leading producers of solar panels and wind turbines. And they are spending substantial sums of money to expand their scale and scope to compete globally. For example, Suntech, one of the three biggest Chinese solar power companies, has recently decided not to buy solar wafers from the Singaporeans and Americans. Rather the company is expanding into the extremely capital-intensive wafer manufacturing business to make the critical components by themselves. China has the history of using grants and subsidies to encourage companies to invest in import substitution for critical components. It is a strategy that has worked out very well in the wind turbine manufacturing business in the last few years. Therefore, many Chinese companies in the "strategic sectors" are likely to do what Suntech is doing; invest in technologies and manufacturing facilities to make more components by themselves.

The investment of 10 trillion RMB in strategic sectors will have huge impacts on the global economy. More competitive Chinese companies will emerge in high-tech sectors as has happened in wind turbines and solar panels. In the beginning, they will be competing globally on the basis of cheap capital, land, and labor. But over time, as the cost of factor inputs rises as part of China's development process, Chinese companies will be competing on the basis of powerful indigenous technological capabilities. As we at ChinaAnalysis.com have long argued, the long-term success of the Chinese economy depends on collaborative investments by government and business in indigenous innovation.

Top News of Last Month
Nov 03 China completes nation's first space docking
Nov 09 China's inflation slows most since 2009
Nov 09 China to form national office for IPR infringement, fake products crackdown
Nov 11 China launches 12 programs for recruiting, nurturing talents
Nov 16 U.S. to expand military in Australia over China risk
Nov 20 China home prices post worst performance this year on curbs
Nov 22 Full text: China's Policies and Actions for Addressing Climate Change
Nov 23 China November manufacturing hits 32-month low: HSBC
Nov 29 China prepares for big entry into vaccine market
Nov 29 China raises poverty line by 92 pct to benefit at least 100 mln
New Books
Industrial Dynamics in China and India: Firms, Clusters, and Different Growth Paths

Edited by Moriki Ohara, Manimegalai Vijayabaskar and Hong Lin

“This book is one of the first fully-fledged studies to examine the next world-class industrial leaders emerging from China and India; exploring the domestic and international factors that have led to their rise, and comparing their experiences with other East Asian late-comers such as Japan.” – from Palgrave Macmillan, November 2011


By Henry Kissinger, Niall Ferguson, David Daokui Li, Fareed Zakaria

“In this edition of The Munk Debates — Canada’s premier international debate series — former U.S. Secretary of State Henry Kissinger and CNN’s Fareed Zakaria square off against leading historian Niall Ferguson and world-renowned economist David Daokui Li to debate the biggest geopolitical issue of our time: Does the 21st century belong to China?” – from House of Anansi Press, November 2011
Incentives for Innovation in China

By Jun Li, Xuedong Ding

“There is concern in China that the strategy which has delivered massive economic growth is unsustainable in the long run, that China’s economy is too dependent on low value added manufacturing and not enough based on high value technological innovation. This book assesses the policies implemented in recent years to address this, policies which include increasing the pool of human capital, especially by training very large numbers of graduate engineers, investing massively in improved infrastructure such as institutions of higher education, telecommunications and transport, and providing financial incentives – both direct government funding for private sector innovation activities and fiscal incentives which encourage innovation by reducing the tax burden on innovators. The book examines the impact of these policies, providing detailed studies of firms’ innovation activities both in particular sectors and in particular regions. Throughout, the book discusses how effective China’s innovation policies are and how innovation in China is likely to develop in future.” – from Routledge, November 2011
Upcoming Events
Dec 08 - Dec 10 International Conference on International Higher Education
Dec 12 - Dec 13 Intl Conference on Information Capital, Property, & Ethics
Dec 29 - Dec 31 4th International Conference on Strategy and Marketing
Jan 05 - Jan 07 International Conference on Government, Law and Culture
Jan 05 - Jan 07 Intl Conference on Economics Marketing and Management

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