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Issue 34, May 2011
Welcome!

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 - Yu Zhou: What is the role of the state in China's technological trajectory?

Nowadays, it has become fashionable to talk about the technological potential of China. But unlike the case of the United States or other western countries, the question of China’s technological progress almost always revolves around the role of the Chinese state. Romo (2004), for example, credited the strategic emphasis of the Chinese state in innovation as the first of three theorems in his famous “Beijing Consensus.” China observers also routinely scrutinize Chinese governmental documents to foretell the changing directions of state industrial policy. Given China’s recent accomplishments on high speed rail and super computers, feats made through a centralized state-sponsored system, such discussion has a reasonable foundation. Within China, many intellectuals also see the role of the state as a decisive factor, although they disagree on the benefits and costs of state intervention. Some have argued that the Chinese state is at fault since it has not devoted sufficient resources to indigenous innovation so that China remains largely dependent on western technology, to the detriment of China’s long-term security. Others blame the Chinese political regime or governmental interference for creating a research culture that stifles creativity, diversity and dissidence (Shi and Rao 2010).

But is the role of the Chinese state really that decisive? After researching and writing my book Inside Story of China’s High-tech Industry: Making Silicon Valley in Beijing, I am convinced more than ever that the answer is no. To be sure, I do not believe that the state should be banished from the arena of business enterprise. Far from it, I feel that in China, as in other developing states, the question is never whether the state should play a role in technological development, but how. As I traced the emergence of China’s high-tech industry since the mid-1980s, examining the historical evolution of relationships among MNCs, domestic companies, research institutes, and the Chinese central and local states in Zhongguancun—China’s Silicon Valley— I concluded that the role of the state is essential, not as a leader, but as a reflective and flexible collaborator with multinational corporations (MNCs), indigenous companies and research institutes in the process of technological change. My findings can be summarized as follows:

The role of China’s state in technological change has been highly varied and experimental, and sometimes diametrically in opposition. There has not been a single unified model.

Since the founding of the PRC, the Chinese state initially tried defense-led technological development strategies, then changed to focus on the civilian sectors. It tried self-sufficiency and import substitution behind closed doors, only then to pursue the transfer of western technology by opening China’s markets. It established a science and technology system within a centrally planned economy, but then embraced the neo-liberal model by introducing market forces and engaging in technology commercialization. It increased the size and competitiveness of the largest state-owned enterprises, then recognized the need to support small innovative firms and encourage the participation of non-state agents in high-tech industries. It managed to lure considerable western investment while attempting to issue technological standards to assist innovation by domestic firms. None of these efforts can be judged an unequivocal success. China continues to rely greatly on external technology to this day, and Chinese enterprises continue to rely on cheap labor rather than technological prowess. While no one can accuse the Chinese state of not trying, it is clear that it has yet to find a workable model for technological development. So China has not had one single approach to state involvement. Whatever strategies it has today will undoubtedly undergo change in the future.

A State-centered approach for Science & Technology has been tried and failed in most civilian areas.

Since 2003, the Chinese government has paid growing attention to Science & Technological (S&T) sectors. China's Eleventh Five-Year Plan and its Plan for Medium and Long-Term Science and Technology Development (2006–2020) call for building an innovative society with heavier investment in domestic R&D. The increased investment is necessary, but given that China's central state has a powerful tradition and bureaucratic interest in favor of a centralized approach, it is worrisome that some officials advocate the revival of a state-directed R&D program. In 2005 the head of the Ministry of Science and Technology cited China's success in producing nuclear bombs and a satellite in the 1960s, products of state-directed research programs, as examples of strategic technological breakthroughs that could be emulated in other technological areas. Unfortunately, this argument shows little understanding of the difference between military and civilian technology, or of the reality of the global marketplace in which Chinese companies must operate. Although defense technology is utilized in the civilian sectors in the United States and China, a nuclear bomb does not have to stand the rigorous test of open global competition. Thus, China's success with bombs proves nothing about the effectiveness of state-directed research programs in commercialized technology. In fact, China's state-directed S&T research prior to the mid-1980s had a very poor record in responding to market needs. So what about high speed rail and super computers? As many have noted, both are built based on existing foreign technology and collaborations with other companies. Given the intensity of globalization today, a state-centered approach to R&D would be counterproductive, if not simply unfeasible. There will be sectors, defense and railroad, among others in which the existence of a natural monopoly may give the centralized approach a better chance of success. But it would be a major mistake to imagine that, in the absence of business competition and wide spread knowledge diffusion, state investment would result in sustained competiveness.

The most important role of the state is to be an honest and responsible collaborating partner with other technological agents.

So what should be the roles of the state? The Zhongguancun experience shows us that these roles are necessarily multi-faceted. Zhongguancun is better characterized as a result of institutional evolution under globalization, in part tolerated and assisted but largely unanticipated by the state. The state’s crucial roles are not just providing specific policies or R&D capital but collaborating effectively with other technological agents and learning to reform regional institutions under changed circumstances. Institutional transformation is necessary for the growth of China’s high-tech industry, but such transformation is a learned process, as entrepreneurs, businesspeople, professionals, bureaucrats, scientists, and consumers learn to work with each other while the new rules of the game are being negotiated, established, and observed.

Simply put, the accomplishments of China's Silicon Valley thus far cannot be attributed primarily to the Chinese government. Domestic companies and MNCs alike have spent considerable energy pushing the state to change its resource allocation, ease its restrictions, and alter its regulations. Over the years, the Chinese state has largely been responsive to and tolerant of the various experiments in the regions, setbacks notwithstanding. But the state has not gone far enough. In the long run, genuine innovation can only come from freedom of thought, experimentation, collective effort, and frequent exchanges with advanced technological parties and marketplaces. All that will require the Chinese government to continue to collaborate with—rather than supervise or direct—other parties. Only then can a fairer and more open institutional structure for fostering innovation can be built.

Top News of Last Month
Apr 01 China issues white paper on national defense to enhance transparency
Apr 05 China ups rates 4th time since October
Apr 08 China to let yuan be traded against more currencies
Apr 14 BRIC summit ends in China with plea for more influence
Apr 16 Boao Forum for Asia 2011 annual meeting concludes
Apr 17 China showcases global muscle at auto show
Apr 19 China to double workers' wages in five years
Apr 21 Premier Wen lays out key areas for deepening economic reforms
Apr 24 China's top university, Tsinghua, celebrates centenary
Apr 28 China census shows population aging rapidly
 
New Books
Environmental Law in China: Mitigating Risk and Ensuring Compliance

By Charles McElwee

“In Environmental Law in China: Managing Risk and Ensuring Compliance, Charles McElwee addresses how China’s environmental regulatory and legal frameworks are structured, how to maintain operational compliance with the environmental laws and regulations, how to ensure products sold in China comply with environmental regulations, and the potential risks and liabilities that attend non-compliance. McElwee offers unique insight into how environmental law is in fact applied, setting forth a realistic account of the way companies encounter Chinese environmental regulations at both the local and national levels.” – from Oxford University Press, Apr 2011
 

Edited by Robert Ross, Øystein Tunsjø and Zhang Tuosheng

“This volume brings together a group of leading international scholars to discuss how US-China-EU relations will shape the future of international politics. Arguing that these three powers will play a key role in establishing and managing a new world order, the contributors examine how a future global order is developed by the interaction of these leading actors in the international system. The authors also address how the US, China and the EU promote cooperation and manage conflict of interests on a wide spectrum of issues including new security challenges. By linking the management of international affairs to specific policy issues, the book shows that the US-China-EU triangular configuration is a pivotal relationship for understanding contemporary international relations.” – from Routledge, Apr 2011
   
Private Enterprises and China’s Economic Development

Edited by Shuanglin Lin and Xiaodong Zhu

“Private enterprises have contributed significantly to China's recent economic growth and will play a key role in achieving China's goal of building a comprehensively well-society. But how can private enterprises help China mitigate its macroeconomic problems such as unemployment, income inequality, financial disintermediation, and an unhealthy economic cycle? And what are the main obstacles to private enterprise development? Private Enterprises and China’s Economic Development answers these questions by identifying the range of cultural, political and financial challenges confronting China's private enterprises, and assessing their performance and potential. Contributors also analyse the experiences and lessons of other countries, and propose strategies and policies to help China promote private enterprise development.” – from Routledge, Apr 2011
 
Upcoming Events
May 11 - May 15 Asian Congress on Biotechnology 2011
May 18 - May 19 Reverse Logistics & Returns Management Asia
May 25 - May 26 IT Showcase China 2011
Jun 01 - Jun 03 Biotech China 2011
Jun 02 - Jun 04 International Conference on Business and Economics 2011
 
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