Chinese Innovation China’S Technology Future and What It Means for Silicon Valley
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Chinese Innovation China’s Technology Future and What It Means for Silicon Valley November 2017 Acknowledgments This report was prepared by Sean Randolph, Senior Director at the Bay Area Council Economic Institute. Alice Bishop, Research Analyst at the Economic Institute, and Sebastian Hamirani, an intern from California Polytechnic State University–San Luis Obispo, contributed to the research. The Economic Institute wishes to thank the sponsors of this project, whose support enabled its development; its advisers, who provided early guidance and reviewed its working draft; and the many contributors who provided information and insight. About the Institute Since 1990, the Bay Area Council Economic Institute has been the leading think tank focused on the economic and policy issues facing the San Francisco/Silicon Valley Bay Area, one of the most dynamic regions in the United States and the world’s leading center for technology and innovation. A valued forum for stakeholder engagement and a respected source of information and fact-based analysis, the Institute is a trusted partner and adviser to both business leaders and government officials. Through its economic and policy research and its many partnerships, the Institute addresses major factors impacting the competitiveness, economic development and quality of life of the region and the state, including infrastructure, globalization, science and technology, and health policy. It is guided by a Board of Trustees drawn from influential leaders in the corporate, academic, non-profit, and government sectors. The Institute is housed at and supported by the Bay Area Council, a public policy organization that includes hundreds of the region’s largest employers and is committed to keeping the Bay Area the world’s most competitive economy and best place to live. The Institute also supports and manages the Bay Area Science and Innovation Consortium (BASIC), a partnership of Northern California’s leading scientific research laboratories and thinkers. Contents Foreword ...................................................................1 Innovation Dynamics................................................ 12 Executive Summary ...................................................2 Mobile Commerce ............................................... 12 Introduction ...............................................................5 Other Industries ................................................... 16 Defining “Innovation” ............................................ 5 Semiconductors .............................................. 16 Understanding Chinese Innovation ...........................6 Automobiles .................................................... 16 Innovation Inputs: Commercial Aircraft ........................................ 16 Science and Engineering .......................................... 6 Software .......................................................... 16 Government Funding for Scientific Research ........ 6 Biopharma ....................................................... 16 Chinese Share of Articles Published in International Scientific Publications ....................... 6 Leading Regions Concentrate Innovation Assets .... 17 Scientific and Engineering Talent .......................... 8 Shenzhen and the Pearl River Delta .................... 17 Patents ................................................................... 9 Shanghai and the Yangtze River Delta ................ 19 Technology Parks ................................................. 10 Beijing .................................................................. 20 National Science and Innovation Capacity: Innovative Chinese Companies Indicative Sectors .................................................... 10 Are Achieving Global Scale ..................................... 20 Supercomputing .................................................. 10 Huawei ................................................................. 21 Quantum Communications ................................. 10 Tencent ................................................................ 21 Space ................................................................... 10 Alibaba ................................................................ 22 Robotics ................................................................11 DJI ........................................................................ 22 Electric Vehicles ....................................................11 Broad Group ........................................................ 23 Artificial Intelligence .............................................11 Geely ................................................................... 24 Mobike ................................................................. 24 First Generation Entrepreneurs ........................... 24 Beyond China: What’s Next? ................................... 25 Startups and Venture Capital .................................. 26 Government Policies................................................29 Bridging Opportunity: Innovation and Investment ......................................36 Core Plans ................................................................ 29 China and the Bay Area ........................................... 36 The 13th Five Year Plan ....................................... 29 Direct Investment ................................................ 36 Made in China 2025 ............................................ 29 Accelerators ......................................................... 37 National Medium- and Long-Term Program for the Development of Science Corporate Innovation Centers ............................. 39 and Technology (2006–2020) .............................. 30 Startup Events ..................................................... 40 National Innovation-Driven Development Strategy Outline .................................................. 30 Venture Funds and Private Equity ....................... 40 Supporting Policies and Standards ......................... 30 University Research Partnerships ........................ 42 National Security Law .......................................... 30 Looking to the Future..............................................43 National Cybersecurity Strategy ......................... 30 Appendix: Interviews and Informational Support ....................45 Social Credit System ............................................ 31 Notes .......................................................................46 Standards ............................................................. 31 Other Issues ............................................................. 32 Competition and Expansion ....................................33 Not Everything Works .............................................. 33 A Complicated Landscape ...................................... 34 This report was developed to shed light on a topic that will increasingly impact the US and world economies in the years to come: Is China innovative? Many continue to believe that China is adept at copying foreign technologies, but is not yet a technology and innovation leader. We found that this is an outdated perspective and that the course taken by China’s technological capacity in the coming years will profoundly impact not only competition and market opportunities in China, but global competition as well. Understanding that trajectory—and its sources—is therefore critical not only to the United States and other trade and investment partners, but particularly to Silicon Valley, the leading US and global center for technology, innovation, and entrepreneurial activity. This report assesses the public and private contributors to China’s technology innovation and deployment and how they work together to accelerate China’s capacity in strategic areas. It also maps China’s current activity in the Bay Area in technology research, investment, and startups. The Institute’s study parallels another report, Chinese Direct Investment in California: 2017 Update, produced by the Rhodium Group for the Asia Society of Northern California, on China’s growing investment in California. That report covers all forms of investment, including mergers and acquisitions and greenfield investment in technology companies. The two studies have been developed together to shed new light on China’s technology future and the role that California and Silicon Valley play. How that relationship develops will have profound implications not only for US-China trade and investment, but for the future relationship of the world’s two largest economies. 1 Chinese Innovation Executive Summary The shift in China’s economy from low-end Advances are clear at the national level, in fields such manufacturing to the production of increasingly as supercomputing, quantum communications, space, sophisticated goods and services raises a far-reaching and robotics. In the private sector, advances can best question: Is China innovative? Since innovation is be seen in mobile commerce, where China currently widely viewed as being critical to technological leads the world. While the innovations driving China’s competitiveness, the answer has important implications commercial success are mostly incremental, they for Silicon Valley and other US technology companies. are increasingly enabled by investment in artificial Its significance extends not just to trade but to intelligence (AI). Outside of mobile commerce—in fields investment as well, as US companies continue to such as semiconductors,