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Issue 31, February 2011

Happy New Year! 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 - Can China Innovate?

We know that China can manufacture at low costs, but can Chinese companies innovate? With many of China’s exporting markets facing prolonged recession, the question is becoming more urgent. For China to become a worthy global economic engine, it has to move beyond specializing in cheap-labor exports. Evidence is mounting on both sides. On the one hand, China claims the world’s largest number of engineering graduates and the second highest amount of R&D spending. Its registered patents exceeded those of Germany in 2007. On the other hand, China’s rigid political and educational systems are seen as crippling creativity. Chinese enterprises sit low in the global production chain so they have low profit margins with little room for long-term R&D investment. China’s weak intellectual property rights protection is another popular explanation for lack of innovation. Debates also rage on who will lead Chinese technological changes. Some believe that multinational corporations (MNCs) are the leaders. Others believe that China has become too dependent on Western technology. The Chinese government stresses “indigenous innovation” as a national priority.

In her book " Inside Story of China’s High-tech Industry: Making Silicon Valley in Beijing", Professor Yu Zhou argues that Chinese domestic companies can become technology leaders, but only when they successfully collaborate with foreign MNCs. Her research traces the emergence and development of China’s high-tech industry since the mid-1980s in Beijing’s Zhongguancun–the so-called China Silicon Valley. By detailing the stories of the region, collected over six years through interviews, Zhou argues the following:

1. MNCs have limitations in bringing technological transformation to China. Chinese firms have a competitive edge in the home market, which may serve as a launching pad for their international ambitions in the long run.

2. The key constraint for Chinese companies to produce cutting-edge innovation is the sophistication of the Chinese market, but this will change.

3. The competition between Chinese indigenous firms and MNCs is not a zero-sum game.

To read more, visit http://www.chinaanalysis.com/opinion/2011/01/can-china-innovate/

Top News of Last Month
Jan 01 China's stocks: world's worst in 2010
Jan 07 China's development of stealth fighter takes U.S. by surprise
Jan 14 China's stock capitalization overtakes Japan as world's No.2
Jan 15 China's economy grew 10.1 pct in 2010 - official
Jan 18 China's President Hu Jintao visited the U.S.
Jan 18 China lent more money in 2009 and 2010 than World Bank
Jan 19 China's massive annual holiday migration begins
Jan 27 China approves property tax trials in two cities to curb prices
Jan 28 China's leading science organ announces decade goals
Jan 30 China to allow corporate currency swaps March 1
New Books
Advantage: How American Innovation Can Overcome the Asian Challenge

By Adam Segal

"The emergence of India and China as economic powers has shifted the global landscape and called into question the ability of the United States to compete and maintain its technological lead. Advantage sorts out the challenges the United States faces and focuses on what drives innovation, what constrains it, and what advantages we have to leverage. Recasting the stakes of the debate, Adam Segal, an expert on technology and foreign policy, makes the compelling case for the crucial role of the “software” of innovation. By strengthening its politics, social relations, and institutions that move ideas from the lab to the marketplace, the United States can play to its greatest economic strengths and preserve its position as a global power. With up-to-the-minute economic and political data, this is a resounding call to tie innovation to larger social goals in an age of global science and technology.”- from W. W. Norton & Company, Jan 2011

By Lucy Montgomery

“‘Lucy Montgomery brings together thought-provoking insights into China’s cultural and creative sectors, notably the shift from official culture to entrepreneurial consumers, the relative unimportance of copyright compared to Western economies, and the need for us to understand evolutionary economics. The result is a new model of China’s online networks as a public source of cultural products. Her book should be required reading everywhere that wants to understand what is happening in China.’– John Howkins, City University, London, Howkins & Associates, Shanghai and author of Creative Ecologies”- from Edward Elgar Pub, Jan 2011
China's Water Warriors: Citizen Action and Policy Change

By Andrew C. Mertha

“In China’s Water Warriors, Andrew C. Mertha argues that as China has become increasingly market driven, decentralized, and politically heterogeneous, the control and management of water has transformed from an unquestioned economic imperative to a lightning rod of bureaucratic infighting, societal opposition, and open protest. Although bargaining has always been present in Chinese politics, more recently the media, nongovernmental organizations, and other activists—actors hitherto denied a seat at the table—have emerged as serious players in the policy-making process.”- from Cornell University Press, Jan 2011
Upcoming Events
Feb 11 - Feb 11 US-China Economic Law Conference
Feb 19 - Feb 19 CFO China Summit 2011
Mar 02 - Mar 03 The 3rd Annual Equity Trading Conference in China
Mar 11 - Mar 13 International Conference on Economics, Business and Marketing Management
Mar 31 - Apr 01 Manufacturing Supply Chain Officer 2011

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