INNOVATION IN CHINA: HOW DOES INNOVATION HAPPEN IN CHINA? STATE-PRIVATE PLAYERS IN NEW-OLD INDUSTRIES
On 12 February, Dr. Majid Ghorbani, Deputy Director, International, of the Yunus Centre for Social Business and Microfinance at Remin University of China, spoke at SFU’s Jack Austin Centre about innovation processes in China. He provided an anecdotal view of a few Chinese firms, with various levels of state connections, as a means of exploring the state of innovation in contemporary China.
Host: Jack Austin Centre for Asia Pacific Business Studies, Beedie School of Business, Simon Fraser University
After 30 years as the “world’s factory,” China is entering a new phase of qualitative development. Moreover, China is projected to overtake the United States, Canada’s largest trading and most important security partner, as the world’s largest economy within a decade. Even though China is Canada’s second most important trade partner, most Canadians have been slow to appreciate China’s rapid transformation, including its capacity for creative innovation, and the strategic implications this presents for Canada’s domestic and foreign policy.
VSIR Thinking Points:
- As a late developing country, China capitalized on its ability to access foreign technology, capital, and managerial expertise to grow the economy. The rapid pace of China’s modernization can be traced back to the mid-1990s, when it started prioritizing science and technology-based policies in the five-year economic planning cycle. The maturing of China’s innovation system was also accelerated by the creative innovation supported by a proliferation of business incubators, reverse engineering, joint ventures with European and American multinational corporations, and the proactive recruitment of global talent. Likewise, annual investments in research and development (R&D) has climbed to about $279 billion, or 2.1% of China’s GDP. The return on these long-term investments is profound. China’s state-managed capitalism has achieved major scientific breakthroughs with the construction of a 500-meter spherical telescope, a hacker-proof quantum satellite, and the fastest computer in the world. Another key driver of China’s growth trajectory is ecommerce. With 40% of the world’s digital market that is projected to grow to US$1.6-trillion within a couple of years, China has “leap-frogged” many of its peer competitors.
- While China aspires to global economic prominence, it faces considerable geopolitical, infrastructure, demographic, regulatory, and environmental hurdles. As an example, China’s model of urbanization is unable to sustain the unprecedented rate of development that has fueled the global economy for the last few decades. As well, the competitive advantage that China has enjoyed (ie., cheap labour, incremental business reforms, and a devalued currency) is diminishing under the current model of state capitalism. Furthermore, these policy measures have attracted foreign direct investments (FDI) and incentivized technology transfers from foreign multinational corporations, but they have also resulted in structural inefficiencies, spatial inequalities, and unsustainable public debt. Finally, the overriding objective to “leap-frog” development in secondary and satellite cities is negatively contributing to China’s unsustainable growth pattern.
- Achieving relatively high rates of economic development, within environmentally sustainable levels, has become a strategic priority of China’s central government. Invariably, this strategic policy shift should accelerate the demand for new urban economic innovations such as ecologically-enhancing technologies and eco-city development models. It may also increase the return on investment in strategic economic sectors life sciences, food security, construction, urban sustainability, and education diplomacy. For Canada, enterprising organizations that learn to synthesize local knowledge, experience, and technological know-how will be best placed to engage with China’s next-generation of political and business leaders.
- The limits of China’s state-managed capitalism are becoming all too apparent. As the current coronavirus outbreak illustrates, entrenched institutional and cultural attitudes that restrict interdisciplinary knowledge sharing in China will not be easily surmounted. Nonetheless, if Canada commits to designing a long-term economic engagement strategy that includes a pragmatic risk-reward framework, it can scale its soft-power advantage (ie., Global Entrepreneurship Index) in the coming decades.
Canada-China diplomatic relations have reached a historic low-point and now require a fundamental re-set. As a trading nation that is heavily dependent on the competitiveness of global exports for its economic prosperity and security, it is imperative that Canada does not shy away from China despite mounting geopolitical and geo-economic tensions. Rather, this complex “new normal” necessitates that Canada develop adopt a comprehensive engagement approach that works adroitly at multiple scales. Because cities are key drivers of the global economy and creative innovation, Canada’s strategy on China should prioritize scalable solutions to urban governance challenges.