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November 13, 2009

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China's future lies in innovative past

CHINA, which gave the world its first paper, printing, gunpowder and compass, is seeking to resume its historic glory as a nation of innovation.

As countries around the world pull back from the brink of financial collapse and seek new catalysts to revive business activity, innovation has returned as a buzz word in economic stimulus.

"Encouraging and subsidizing research and innovation is a favorite way for governments in developed countries to fight crisis," said Joe Hogan, chief executive officer of ABB, a power and automation technology company based in Switzerland.

Hogan, addressing the 21st International Business Leaders' Advisory Council earlier this month, advised Shanghai's mayor to reinforce efforts to encourage innovation.

"Governments aiming to produce long-term and structural advantages should stimulate the economy with measures such as tax benefits and subsidies for research and development, rather than more traditional channels, such as building roads and bridges," Hogan said.

Government funding

Many countries are already moving down that path.

The United States has unveiled a budget of US$147.6 billion for research and development next year, a record high for the world's biggest economy.

Japan, a pioneer in technological innovation, said its investment in new energy sources will rise to 115.6 billion yen (US$1.27 billion) in 2010 from 82 billion yen this year, and South Korea said it's planning to allocate 6 trillion won (US$5.12 billion) in the coming three years to develop alternative energies.

China, the world's largest emerging economy, isn't sitting idly by.

The nation is looking beyond its economic reliance on cheap labor to develop a blueprint for growth based on science and technology.

Wan Gang, China's minister of science and technology, told a recent forum that technological innovation is fundamental to advance the nation's development.

"Competition in innovation for industries such as new energy, biotechnology, information technology, new materials and advanced manufacturing has become increasingly fierce," Wan said at the Pujiang Innovation Forum in Shanghai last month.

"China, like many other countries, will continue to support the expansion of these industries and enhance efforts to encourage domestically developed technology that lies at the core of China's future competitiveness," he said.

The central government has allocated 146.1 billion yuan (US$21.4 billion) for technological development this year, an increase of 26 percent from a year earlier. The level of funds to encourage innovation in strategic industries will grow more in the future, Wan said.

However, government funding has its limitations because of its non-entrepreneurial nature. Hogan suggested more efforts should be made in developing venture capital or private equity.

He said the goal of venture capital is not only to fund research and development but also to establish a framework where new ideas compete, allowing the best and brightest to triumph.

"The selection process is brutal: While the winners earn tens, if not hundreds of times their original investment, the losers will often go bankrupt," Hogan said. "The brutality of this system is matched by its success, as society reaps benefits from only the best innovations."

Government-funded incubators cannot copy the success of the private venture capital because the decision makers don't face the same incentives or risks, he said.

The size of China's venture capital market - about US$4.2 billion last year, or the equivalent of about 0.1 percent of China's gross domestic product - is far from enough, compared with about 1 percent in developed countries, Hogan said.

Capital investment is essential but may not enough to guarantee real and sustainable innovation.

Dan Mote, president of the University of Maryland, said it is important for people to disabuse themselves of the idea that innovation is solely confined to technological breakthroughs.

"Innovation is the use of a new idea to introduce a better way of doing something,'' Mote said at the Pujiang Innovation Forum "It refers to an incremental, or a radical or a revolutionary change in thinking."

Innovation need not be technological nor does it have to involve big leaps in quality or performance.

Education is key

For example, installing a television set in an elevator to broadcast commercials is innovative. It's a simple idea that doesn't involve any new technology, but it creates a unique platform for advertisers to reach potential consumers. China's Focus Media, which embraced the idea, is now listed on New York's Nasdaq market.

What's important is creating an environment for innovative thinking.

"Too much attention is paid to innovators and their creations," Mote said. "But only an established culture can make innovation sustainable."

Such a culture should have strong leadership committed to innovation, minimal bureaucracy in decision-making, strong backing for implementation and encouragement for unconventional ideas.

Education is a key element, Mote said.

In China, people are taught to be afraid of failure, and education places too much emphasis on rote learning.

"It probably explains why Chinese engineers are less inclined to show initiative than their counterparts in many other countries," Mote said.

Another important link is to connect innovations with life.

"China is not short of scientists or innovative people," Mote said. "Too many innovations just can't get out of laboratories because there are no channels for them to be commercialized."

For its part, China has decided to accelerate talent training and channel 100,000 scientists to work in businesses this year and next to encourage the application of technology. Shanghai is also a pilot center in establishing systems that integrate universities and businesses.


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