China and the Innovation Economy

"China must export $100 million in assembled products or 800 million shoes in exchange for the value of one Boeing aircraft"

by / June 14, 2006
John Eger -- who was telecom advisor to the Nixon White House and visited China in that capacity following Nixon's ground-breaking meeting with Zhou Enlai and Mao Zedong in 1972 -- just returned from a 17-day, nine-city tour of China. Eger, a frequent contributor to Government Technology and Public CIO, is president of The World Foundation for Smart Communities and holds the Endowed Van Deerlin Chair in Communications and Public Policy at San Diego State University.

President Hu Jintao of China has made it clear over the last few weeks that China was not going to be simply a manufacturing center or sub assembly and processing factory for other multi-national corporations for too much longer.

While "Made in China" is a source of pride for many Chinese, a Chinese factory worker assembling DVD players makes only $1.00 for each machine assembled. The product sells in the U.S. for anywhere from $30 to $45.00 however, and the profit goes to the global corporation according to Minister of Commerce Bo Xilai . "China must export $100 million in assembled products or 800 million shoes" he said recently, "in exchange for the value of one Boeing aircraft." This situation "must be changed," he said echoing President Hu's mandate that "enhancing the country's innovation capability" is a top priority.

To accomplish its goals, the Chinese government will authorize over 70 billion Yuan or $8.5 billion for investment in science and technology next year, and every year thereafter. This itself represents an increase of nearly 20 percent year on year. The Chinese plan to do more than increase R&D spending however. A huge propaganda campaign is planned to educate the Chinese masses, including online discussions on the topic, and the formation of an "innovation demonstration team" to tour the country and promote the idea. The government is also talking of the need to reform the financial and tax systems to provide incentives for the growth of cutting-edge industries.

China is targeting a broad range of sectors including some controversial areas such as stem cells, gene therapy and genetically modified crops, and some areas where the U.S. has long dominated -- including software, semi conductors and space exploration. China, moreover, intends to become a leader in emerging technologies such as renewable energy with sources ranging from solar to wind power to fuel cells. In addition to the increases in R&D, China also plans to relax regulations and controls and to provide other incentives for growth in these sectors.

The Biggest Challenges
The three biggest challenges to China's ambitious goals however, will be first to change their attitude on human rights and insure basic freedoms, which are the source of creativity and innovation. They also need to loosen their grip on citizen use of the Internet. Over 30,000 employees of China's Ministry of Propaganda routinely police Internet use, and Web companies like Google, Yahoo and Microsoft block access to selected sites. And finally, although they plan to dramatically increase the education budget -- massive changes need to be made in their system of education.

Most experts agree with the opinion of Xu Zhihong, President of Peking University, who said during the March sessions of the National People's Congress and the Chinese People's Political Consultative Conference, that Chinese students are "trained to achieve high marks in examinations."

While the higher political authorities have been calling for "quality education," he said, " that cultivates students' balanced development in academics, sports, personality development and social work because the score in the national college entrance examination is still the predominant criterion adopted by the universities -- a high mark remains the only target pursued in elementary and middle schools."

During the Cultural Revolution, creativity and innovation in people was widely criticized, indeed academics and students of higher learning were those targeted for "retraining" in the countryside. Today, even though the universities are once again revered and respected, the system does not encourage dissent or even inquiry -- which as Einstein once observed, is the root of all learning. How China deals with this dilemma is critical to its future.