The Impact of Science and Technology Policies on Rapid Economic Development in China

CHAPTER 6 105

DONGMIN CHEN, SHILIN ZHENG, and LEI GUO, Peking University

Thirty years of ongoing economic Asia and Oceania regions. China Initial policy reform, therefore, reforms in China has led to an unin- also leads substantially in innovation focused on spin-offs and partial terrupted annual economic growth among the BRICS nations (Brazil, privatization of selected parts of rate of more than 9% on average, Russian Federation, India, China, public research institutions that were an astonishing accomplishment. In and South Africa). China’s most commercially viable. This separa- 2010 China surpassed Japan in terms notable achievement in the GII is in tion initially alleviated some of the of GDP and became the second larg- the Knowledge and technology out- financial burden of the holding est economy in the world. In 2014 puts pillar, in which it ranked 2nd in institutions; later these privatized China’s GDP reached US$10 tril- 2014; this led to its 2nd place in the entities became substantial assets. The Impact of Science and Technology Policies on Rapid Economic Development in China in Development Rapidon Economic Policies Technology Impact and Science of The

lion dollars: it is now one of only Innovation Efficiency Ratio in that Although they were few in number, 6: two countries in the world to have year. This chapter provides an over- some of the most successful technol- attained this scale—the other is the view and analysis of the evolution of ogy companies in China today were United States of America (USA). China’s key S&T policies and their formed during this period. They Policy reform and innovation have impact over the past three decades. include the computer products and been important drivers of China’s It also outlines a new phase of key services company Lenovo (formerly remarkable achievement. Since policy change taking place today Legend computer), a spin-off from 1978 China has implemented a that could have major effects in the the Computing Institute of the series of large-scale science and coming decade. Academy of Sciences; and the con- technology (S&T) reforms that have glomerate Founder Group, a spin- accelerated progress in higher edu- off from Peking University based cation and research and development Four phases of China’s S&T policy on a digital Asian font typesetting (R&D). The 2008 global financial evolution technology. The initial phase of crisis disrupted the high growth In the late 1970s China implemented reform took a bottom-up approach rate of China’s manufacturing-based a series of S&T policies to boost the because at that time national S&T economy, which adapts or imitates country’s economy in relation to the funding was still very limited. At traditional technologies from devel- rest of the world. Since then, its S&T the national level, important ini- oped economies. As a result of this policies have evolved to become vital tiatives such as the Key National crisis, China was pressed to make drivers of progress for both research Research Projects (1984), the Key structural economic reforms that and the economy. National Laboratories, and others focused on building up domestic were launched to focus the limited innovation infrastructure and the The experimental phase (1978–85) available funding on research groups competitiveness of domestic research In early 1980s, China’s economic that exhibited better performance. institutions. These policies have foundation was weak and its level become key factors in influencing of S&T research was far behind that The systemic reform phase (1985–95) the country’s continuing economic of developed nations. It became Top-down nationwide system development. In 2014 the Global clear that the Soviet model for S&T reforms did not take place until 1985, Innovation Index (GII) ranked research, which it had adopted in when the central government issued China at 29th place worldwide, the 1960s, had serious drawbacks the Science and Technology System 1st among upper-middle-income and had led to a severe disconnect Reform Act. The primary objective nations and 7th in the South East between research and industry. of this Act was to bridge the gap THE GLOBAL INNOVATION INDEX 2015 106 THE GLOBAL INNOVATION INDEX 2015 6: The Impact of Science and Technology Policies on Rapid Economic Development in China resolutions officially kicked off off kicked officially resolutions of aseries and Target, National 2010 the of Outline the Plan, Budget Five-Year 9th The National The deepeningreform phase(1996–2006) positions. research and teaching key up take and China to return to scholars Chinese overseas encourage to period this during introduced also degree—was doctoral national inter an with applicants qualified to positions offers which Sciences, of Academy Chinese the of Program Talents Hundred programme—the talent important 1995. in An mented imple fully was and Plan, Budget Five-Year 9th National country’s the in enacted was budget This Beijing. as such cities major from and ince prov each from selected versities uni leading of agroup to dedicated was budget Aspecial development. social and economic national for strategies long-term its of part as 211 the Project instated government 1993 the in development, social and education higher between link the enhance and system education commercialization. of prospects the improve to sought (1990), all which enterprises medium-sized and small for Exchange Stock Shenzhen the (1986), Torch the (1988), Plan and Plan (1986), Spark the Program 863 the as such research translation and applied supporting initiatives new research, applied and basic finance and mote pro to intended is which China, of Foundation Science Natural National the of establishment the included significant most The effect. took reforms of anumber Act, this of aresult As funding. S&T of impact economic the strengthen gradually to aimed Act the market, the to tions connec other and competitiveness By emphasizing industries. relevant and institutions research between To improve the country’s higher higher To country’s the improve along with a number of anumber with along ------ pendent innovation, fostering the fostering innovation, pendent inde nurturing development: S&T for guidelines outlines Plan National 2006 The 2006. in issued was Plan) National (the 2006 2006–2020 for Plan Development S&T National Long-Term and A Medium- (2006–14) optimizationLong-term planandpolicy professors to Chinese Universities. and researchers talented attract to wages professors’ increases cantly signifi which Program, Scholars River Yangzi the of introduction the and 973 Program; the as such initiatives with research basic for funding R&D large-scale of ment establish the institutions; public of levels research the raise to Sciences of Academy Chinese the in initiative Innovation Knowledge the of tation implemen the universities; Chinese world-class of development the ter fos to away as fund development education advanced national the for universities engineering and nology tech key 211 include to the Project expand to intended Initiative, 985 the of launch the were measures These measures. key four encompassed ture infrastruc innovation national the outputs. academic of commercialization the of efficiency the improving and sectors; industrial of capacity tion innova and R&D the improving sectors; industrial to organizations research public from innovation of drivers the shifting areas: on three focused policies new Together these Inventions. and Discoveries S&T of Commercialization Promoting of Act the passed 1996 China In education.’ and science with omy nation’s econ the ‘rejuvenating of aim the with established officially was strategy national fundamental A development. S&T in reform system of deepening of a period During this period, changes in in changes period, this During ------term sustainable development. sustainable term long- its ensure and innovation in competitiveness global China’s pel pro should changes Together, these sectors. industrial the to academics from transfer technology orative collab facilitate to mechanisms market-oriented establishing and innovation, behind driver main the industry making entrepreneurship, improving targets, clear setting for It called strategy. development a national as strategy’ growth driven ‘innovation- 2012 established of end the at held Congress National Party 18th Communist The 2020. by nation’ innovative a ‘top being China. to back innovators industrial leading and scholars Chinese overseas 2,000 than more drawn has programme 2011. this in far So government tral cen the by launched was Program Recruitment Talents Thousand tive effec avery fields, S&T critical in particularly talent, innovative of effective. be to goals specific more address to lored tai be to had policies one-fits-all Those ecosystem. innovation an building to R&D promoting from shifted objectives Policy policies. ent coher of sets into consolidated be to needed coordination lacked had that regulations and policies issued Previously implementation. its of management the and policy the of effectiveness the of optimization the was focus government’s the period this During capacity. innovation independent enhancing and egies, strat growth innovation-driven ing seek growth, economic sustainable achieving emphasizes plan The ship. leader global future developing and infrastructure, major building areas, technology key in leapfrog to ability In 2012 China set the goal of goal the set 2012 China In mobility the push To further ------107

Figure 1: Total R&D investment, 2002–12 Outcomes and analysis of S&T reform The wide range of S&T policies implemented and adjusted in the past three decades in China has had Total R&D expenditure, RMB 100 million 12,000 2.250 a direct impact on the outcomes that R&D expenditure (% of national GDP) apply to innovation. From 2002 to Percent of R&D expenditure in national GDP (%) 1.875 2012, China’s GDP more than qua- 10,000 drupled, leaping from US$2 trillion to US$8.7 trillion. The data reveal 8,000 1.500 that these policies have effectively advanced the development of an 6,000 1.125 innovation ecosystem; they have also brought about an educated 4,000 0.750 workforce of significant size, lay- ing a solid foundation for the future

Total R&D expenditure, RMB, 100 millions 100 RMB, expenditure, R&D Total 2,000 0.375 development of innovation capacity in the country. The next sections present basic 0 0.000 data illustrating China’s S&T devel- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

opment in this decade in four areas: China in Development Rapidon Economic Policies Technology Impact and Science of The R&D investment; the results of 6: innovation—that is, patents, prod- Source: National Bureau of Statistics of China, 2013a. ucts, and research publications; science education; and the cultivation of R&D talent.

S&T and R&D investment Figure 2: Distribution of S&T investment, 2002–12 As shown in Figure 1, total R&D investment in China increased from about 1% of GDP in 2002 to 2% of GDP in 2012. The share of local 100 government fiscal expenditure on S&T relative to the central govern- Industrial R&D 80 Applied research ment fiscal expenditure on S&T Basic research jumped from approximately 40% of total government fiscal expenditure 60 on S&T before 2007 to approximately

50% since 2007. This increase is Percent strongly correlated with the issuance 40 of the 2006 National Plan. Figure 2 shows that the percentage of R&D 20 investment increased from 2002 to 2012, although investment in basic and applied research has not kept 0 pace. R&D investment by the indus- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 trial sector increased steadily from 70% of total investment in 2002 to 80% in 2012. Source: National Bureau of Statistics of China, 2013b. THE GLOBAL INNOVATION INDEX 2015 108 THE GLOBAL INNOVATION INDEX 2015 6: The Impact of Science and Technology Policies on Rapid Economic Development in China aimed to boost higher education education higher boost to aimed which 1998, of Initiative 985 the 211 1993 of the and both Project that respectively. demonstrates This place, 2nd and 1st, 2nd, to up gone have rankings worldwide these 2007, Since respectively. CPCI-S, the and EI, the SCI, the in wide world 8th and 3rd, 8th, only ranked China 2000, In respectively. 21.8%, and 16.6%, 22.9%, are rates growth annual average corresponding The (CPCI-S). Index-Science Citations Proceedings Conference the and (EI), Index Engineering the (SCI), Index Citation Science indexes—the tional interna key three the to according 2011 to 2000 from increases huge made have publications research innovation. of terms in successful more be to prises enter helping and R&D in invest to organizations attracting in successful were policies innovation ernment’s gov Chinese the that demonstrates increase This 2006. after especially rapidly, increased Figure 4), see ucts; prod new from revenue by (proxied output product 2012 technology and 2002 Figure 3). Between (see patents designs and patents models utility issued than slowly more grew patents invention issued the applications, domestic the Within applications. patent domestic of growth rapid very the to comparison in slowing be to appears applications patent national inter of growth the data, national 2014. on However, based through 2011 from years all for applications model utility resident domestic for indicator GII the 1st in been also has it applications; patent domestic total of number the for indicator GII the 1st in become has 2012 China Since 17.5% years. recent in approximately of rate average an with rapidly, grown have applications patent Domestic research publications Innovation results: Patents, products, and Figure 5 shows that Chinese Chinese that 5shows Figure ------Figure 4:R&Dinvestment andrevenue from new 2002–12 products, 2013b. China, of Statistics of Bureau National Source: Figure 3:Patents issued, 2002–12 Source: National Bureau of Statistics of China, 2013b. China, of Statistics of Bureau National Source:

RMB, 100 millions Number of patents 100,000 120,000 20,000 40,000 60,000 80,000 100,000 200,000 300,000 400,000 500,000 600,000 0 2000 0 2002 2001

Invention patents patentsDesign patentsUtility Revenue R&D investment 2003 2002 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 109 and establish the Chinese Natural Figure 5: Number of Chinese science and technology publications taken by three key Science Foundation and other international indexes, 2002–12 research establishments, have made a great impact on China’s research publications. 180,000 Science Citation Index Science education Engineering Index The successful development of 150,000 Conference Proceedings Citation Index-Science science and technology in China cannot be separated from the 120,000 development of education and the cultivation of a highly skilled work- 90,000 force. The reform puts an intense emphasis on education and is mak- 60,000 ing a huge attempt to develop top- publications of Number quality education and to increase the ratio of high school graduates 30,000 who are enrolled in colleges and universities. The number of col- 0 lege and university graduates in the 2000 2005 2006 2007 2008 2009 2010 2011 The Impact of Science and Technology Policies on Rapid Economic Development in China in Development Rapidon Economic Policies Technology Impact and Science of The

sciences increased from 1,337,300 6: students in 2002 to 6,081,600 in

2012 (Figure 6)—an average annual Source: National Bureau of Statistics of China, 2013b. increase rate of 16.4%. The number of Master and PhD graduates increased from 80,800 in 2002 to 486,500 in 2012, an average annual increase rate of 19.7%. The vast tal- Figure 6: Graduates in science, 2002–12 ent cultivated by the strong scientific education system continuously offers a highly skilled, educated workforce for the marketplace to support the 700 rapid build-up of China’s innovation Undergraduates Master and PhD graduates system. 600

Cultivation of an R&D workforce 500 China’s S&T policies place great value on S&T talent mobility. The 400 Thousand Talents Program and a 300 series of other talent programmes have greatly added to China’s high- 200 end talent pool, especially in the 10,000s graduates, of Number most competitive fields. A number 100 of important breakthroughs can be attributed to those who have 0 returned to China from abroad. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 China’s focus on education has led to a rapid increase in the number of R&D personnel (the GII indicator for researchers in headcounts per Source: National Bureau of Statistics of China, 2013b. million population increased from THE GLOBAL INNOVATION INDEX 2015 110 THE GLOBAL INNOVATION INDEX 2015 6: The Impact of Science and Technology Policies on Rapid Economic Development in China economy with science and education’ education’ and science with economy nation’s the ‘rejuvenating of strategy concern. serious warranting pace, this with up kept not has research applied and basic in 2014. However, investment 2011 73.9% in 74.6% to from in grew which business, by financed GERD variable GII in improvement the by seen as investment, R&D increase steadily to sector industrial the aged encour response market positive the Moreover, government. central the by made investment of rate the passed sur R&D in investment government local of rate the and up stepped clearly investment R&D Chinese Plan, National 2006 the of launch the ing 2014.19th follow in notably, Most to finally 2013, 21st and 2012 to in in place 25th from progressed which onR&D, expenditure ongross cator indi GII the in improvement China’s by GDP, in evidenced as increase large a with hand in hand went investment resources. national limited with began that economy a developing for well worked has approach top-down a to abottom-up from shift the First, drawn: be can observations positive following the GII, the by available made analysis quantitative the ing By consider 2012. to 2002 from especially country, the in innovation of outcome onthe effect profound a had have reforms economic its and policies S&T evolving China’s 1980s, the in beginning their Since China from learn can countries other What people. million 3.3 of atotal reached already it had 2012 by and 10% of higher, or rate a at grew personnel equivalent time full- R&D China’s 2004 Since skill. and quality their as well 2012),in as 1.5 to million 2009 in 1.1 million The third observation is that the the that is observation third The R&D in increase the Second, - - - - - value inventions, and high-impact high-impact and inventions, value high- research, basic in investments of terms in nations developed and China between exists still gap large a quite outputs, S&T and ment invest R&D in achievements able remark made has China Although countries other from learn can China What 2014).16th in ranked Hindex, documents citable 2014; in and 56th to 2011 dropped in 40th ranked articles, technical and scientific through GII the in (seen low remains papers top-quality of age percent the although indices, tional interna other and EI, the SCI, the by worldwide intake enjoyed ahigh have researchers Chinese by cations publi technology and science tion, addi 2013. In in 2010 885,000 to in applications 407,000 from rose which applications, model utility resident tic domes 2013; and in patents 704,000 2010 to in patents 293,000 from rose which applications, patent resident tic domes indicators its through GII the by demonstrated is growth This rapid. been has patents utility of and China in applications patent of increase the research: R&D of outputs the areas. other in researchers of increase of rate the than higher tively compara been has increased has sciences basic in researchers which at rate the and increased, greatly has researchers of quantity and quality the 2012). in 26.7% Both to 2009 in enrolment 21.8% gross of from grew which enrolment, on tertiary variable GII the by (seen increased clearly has graduates Master’s and The quantity of undergraduates 2014). 2011 in in 10th to 36th from improved which ranking, university QS variable GII the by (evidenced system education top China’s of development the accelerated has The fourth observation concerns concerns observation fourth The ------mentioned areas. mentioned above- the improve to need the acknowledged clearly government Chinese the 2012, in held Conference Innovation National the During The latest reforms stakeholders. all among tion competi foster and forces, market encourage systems, regulatory and legal in issues address to development of level same the at countries other by undertaken reforms towards look can China activities, mercialization com and research in investment boosting besides goal, To this meet enterprises. foreign and owned, state- private, among competition fair and open foster to and sectors; all by entrepreneurship and innovation in investment encourages that tem sys regulatory and alegal nurture to ecosystem; innovation hensive compre amore establish to forces; market and government the between relationship a balanced improve ther fur to reform policy on continuing depends target this Achieving 2020. by country innovative aleading ing becom of target anational set has China countries. top-ranking with when GII compared competiveness overall China’s down dragged have that pillars 114th 2014) three in are ranked system, legal and regulatory the with (concerned Institutions and 2014), in 54th ranked openness, and system credit with (concerned tion 2014), sophistica in 59th Market (ranked outputs Creative However, nations. high-income some ing overtak even or to close pillar, outputs technology and Knowledge the in 2nd China 2014 placed GII the Indeed, nations. of category high-income the entering for essential all are which research, China has begun yet another round round yet another begun has China Congress, Party 18th Communist the during government present the of tion Since the transi the Since ------

111 of policy reforms, five of which are multilevel capital markets, including 9 The Reform and Opening Up of Chinese S&T in the Past 30 Years, a book by the former noted here. First, an amendment crowdfunding. minister of the S&T department, Wan Gang, to the National Act for Promoting The new set of policies being gives a detailed description of these policies Technology Transfer has been put implemented today should help to and their influence. forward; this may become China’s address many of the country’s chal- 10 These data are from CNKI (China National Knowledge Infrastructure), the largest own Bayh-Dole Act (also known as lenging issues in the coming decade Chinese database, which contains abundant the US Patent and Trademark Law and have a positive impact on China’s data for almost every field in science and social science. CNKI is available at http:// Amendments Act), giving universi- ranking in future GIIs. www.cnki.net/ (in Chinese). ties and public institution’s the auton- 11 Chinese R&D investment includes two parts: omous right to license the patents industrial sector funding and government generated from central government Notes funding. Government funding can be further divided into central government funding and 1 World Bank statistics show that since 1978, R&D funding. It further ensures local government funding. that inventors will share in a greater China’s GDP growth rate is 9.83% on average (see the World Bank’s World Development 12 National Bureau of Statistics of China, 2013b. percentage of the proceeds. A pilot Indicators database, http://databank.shihang. 13 More details are discussed in People’s programme to test this new law has org/data//reports.aspx?source=2&country=C HN&series=&period=). Publishing House, 2012. already begun in 11 universities, and 2 China’s GDP of China reached RMB 63.64 14 See speeches by General Secretary Hu it is predicted that it will not be long trillion (US$10.36 trillion) in 2014. The data Jingtao, Prime Minister Wen Jiabao, and before it is enacted by the next session can be found from the central government’s Deputy Prime Minister Liu Yandong in the work report of 2015, available at http://www. 2012 National Innovation Conference. The full of the Chinese People’s Congress. guancha.cn/politics/2015_03_17_312511. content of these is not available online, but Second, in January 2015 the Chinese shtml (in Chinese). a summary can be found at http://www.gov.

cn/ldhd/2012-07/07/content_2178574.htm China in Development Rapidon Economic Policies Technology Impact and Science of The government issued the 2014–2020 3 Chinese officials have long been aware (in Chinese). 6: Action Plan on the Implementation of the importance of S&T. Deng Xiaoping stated in 1988, when meeting with President 15 The Chinese government attaches great of National Intellectual Property Gustav Husak of Czechoslovakia, ‘In my importance to entrepreneurship now. Prime Strategy. The plan aims to ease opinion, science and technology is the most Minister Li Keqiang has frequently granted important productive force.’ Details of the interviews to representatives of successful market processes for transactions speech can be found at http://news.xilu. entrepreneurs seeking to improve conditions pertaining to intellectual proper- com/2009/0903/news_112_13463.html for entrepreneurship in the country. ties, including declassifying classified (in Chinese). patents for civilian use and providing 4 For more information on Chinese State Key Laboratories, see https://en.wikipedia.org/ funding support to seed companies wiki/State_Key_Laboratories. References that specialize in intellectual prop- Cao, Y. 2006. The Exploration and Practice of 5 Details about the National Natural Science erty transaction services. Third, to Spark Plan for Past 20 Years. Beijing: China’s Foundation of China are available at http:// Agricultural Science and Technology Press. address efficiency in S&T funding, www.nsfc.gov.cn/publish/portal1/. Lin, Y. 2014. The Miracle of China. Shanghai: Due the Chinese government has over- 6 Details of the Spark Plan can be found at Press. hauled the entire S&T funding pro- Cao, 2006, and at http://in.china-embassy. org/eng/szyss/jm/zhongguonongye/ National Bureau of Statistics of China. 2013a. China cess, which will be replaced by a new agricultureplanning/t143140.htm, (at Statistical Yearbook 2013. Beijing: China process with a greater accountability http://baike.baidu.com/view/57377.htm Statistics Press. Available at http://www.stats. in Chinese); details of the 863 Program at gov.cn/tjsj/ndsj/2013/indexeh.htm. to the stakeholders. Fourth, China https://en.wikipedia.org/wiki/863_Program has launched a special stock mar- (http://baike.baidu.com/view/4785616.htm ———. 2013b. China Statistical Yearbook on Science in Chinese); of the Torch Plan at http://www. and Technology. Beijing: China Statistics Press. ket (the National Equity Exchange chinatorch.gov.cn/english/index.shtml; and People’s Publishing House. 2012. Speed Up and Quotations) to allow technol- of the Shenzhen Stock Exchange for small the Construction of National Innovation and medium-sized enterprises at http://baike. ogy start-up companies, which are System by Deepening the Reform of Science baidu.com/link?url=PpsCaaGhLeRFCF0JtxxJy3 and Technology System. Beijing: People’s not yet profitable, to have more Xw1jqUugdN5Pv9vlQ1mwvJuGHe7Fr1QlCF Publishing House. avenues to raise development capital. oxeI12x2qWi1LKqFsfHTQgEwktKF9_ (in Chinese). The People’s Republic of China. 2015. A Guideline for Furthermore, rules and regulations the Development of Public Incubation Space to 7 For information on the Hundred Talents are simplified to encourage mergers Promote Grassroots Entrepreneurship. Official Program, see http://english.ucas.ac.cn/ report. and acquisitions. And fifth, in March JoinUs/Pages/TheHundredTalentsProgram. aspx. The People’s Republic of China, State Council. 2015 the Chinese government pub- 2006. National Outline for Medium and Long lished A Guideline for the Development 8 These plans succeed in helping Chinese Term Science and Technology Development colleges and universities attract many (2006–2020). Official report. of Public Incubation Space to Promote overseas talents, promoting the progress Grassroots Entrepreneurship. This of Chinese higher education and levels of Wan, G. 2008. The Reform and Opening Up of Chinese scientific research. S&T in the Past 30 Years. Official report. guide encourages the participation of THE GLOBAL INNOVATION INDEX 2015