Over the last four decades, China's per capita GDP has not only grown from USD306 in 1980 to over USD12, 250 in 2017, but most importantly during this period, China has emerged from mostly an agricultural economy to the manufacturing hub of the world. About the next phase of China's transformation, two important questions are highly pertinent. Being burdened with almost 30 trillion dollar debt, ageing work force and rising power of robotics, is China reaching to the end of growth miracle? On the other hand, with over a million patent filling records per year, some pundits are pondering on whether China is finishing writing the last chapter of its development reaching endless frontier of growth? In response to Nobel laureate economist's Edmund S. Phelps's query, "Will China out-innovate the West?", critics are often stating that replication and imitation are not good enough to meet the aspiration to be an innovation superpower.
To take the advantage from globalisation and low cost labour, China followed a set of rather simple policies. China pursued the policy of borrowing to build world-class physical infrastructure starting from roads, bridges, cities, power plants, purpose-built economic zones and telecommunication networks. Such well-developed facilities attracted foreign firms to establish manufacturing facilities in China to take advantage from low cost labour force. To encourage domestic entrepreneurs, China provided concessional loans and other incentives. China also pursued liberal regulatory framework, including condoning air pollution, to ease the expansion of industrial base in the country. As a result, 'made in China' export grew rapidly making China as the factory of the world. But China's such policies of growth are facing multiple barriers. Before China got back the investment poured in infrastructure and other capacities to fuel manufacturing for export, the global demand for goods manufactured in China is reaching saturation level. On one hand, one child policy is rapidly reducing the work force on the factory floors due to aging of the previous generation. On the other hand, labour substituting technology progression and growing wages have eroded the low cost labor advantage. Moreover, educated youths are not interested to pick up factory jobs left by their retiring parents. Such unfolding realities are raising the vital question: Is China's miracle growth model reaching an end?
To open endless frontier of growth, China has expressed the intention to enter into innovation economy. Instead of using labour force to replicate products developed mostly by the Western firms, China intends to convert mental capacity of the growing number of university graduates into product and process features at a massive scale. In such a pursuit, China accelerated the production of scientific outputs. It's being reported that in certain areas, China has already overtaken the global leadership of the USA. For example, in 2016, China published over 426,000 scientific studies indexed by Elsevier's Scopus database -as opposed to USA's 409,000 published papers-placing the USA in second position. China's R&D budget growing at a rate of 18 percent since 2000 has reached $408 billion in 2018, just slightly behind USA's US$496 billion. China has also made remarkable progress in patent filing reaching over 1 million per year, with the 3rd largest holding of patents--just behind the USA and Japan. But unfortunately, there has not been any natural correlation of these indicators with the economic outputs to be derived from innovation in this globally connected competitive economy. Within the given global innovation dynamics, well orchestrated strategy is required to fuse those scientific outputs into products and production processes, so that higher quality products could be delivered at a lower cost.
But what are the windows of opportunities for China in doing so. China has already started to apply re-innovation strategy. The strategy of assimilation of foreign products and processes to produce them to acquire the capability to imitate leading to innovation has already started to show results. China's smartphone makers like Huawei, Oppo, Vivo and Xiomai showed material progress in imitating and re-innovating smartphone innovations.
Often the emergence of new technology core as a substitute to incumbent ones opens innovation opportunities to aspiring new entrants. China is preparing to take the advantage created by technology discontinuity by pursuing innovations around new technology core. For example, Alibaba's success in e-commerce is a well-cited success story. Similarly, China has significantly succeeded to innovate financial services around the proliferation of smartphone and wireless connectivity. China is also taking massive preparation to succeed in electric car innovations. Although China's success in innovation around emerging technology core has become success stories in domestic market, the record of exporting them to the rest of the world, particularly to the Western market, has been insignificant. On the other hand, innovation success of Japanese companies like Sony or Cannon around emerging technology core not only opened new export opportunities for Japanese firms in the Western market, but also those entries caused disruption to iconic success stories of the Western countries like the USA. For example, Sony's success in transistor based consumer electronics caused disruption to American dominance. Sony's success in electronic sensor based imaging innovations even knocked out American innovation icon, Kodak.
In case of process innovation, China has been showing some successes. To overcome the limitation of aging work force, China has been aggressively pursuing robotic-based process innovation. Instead of being a curse to the low cost labour advantage of China, Robots have rather become a blessing for China to replace aging population with machines--to slow down the out-migration of production units from China. Being ranked as number 1, the current net market of robots in China is $30 billion. According to the International Federation of Robots, China will likely claim 40 per cent of total worldwide robotic sales by 2019, an increase from 27 per cent in 2015.To reduce dependence on foreign suppliers, China plans to manufacture at least 100,000 industrial robots per year by 2020. To meet this ambition, in addition to developing indigenous capabilities of robot production, China is also acquiring foreign robot makers, like German robotics company Kuka. The fourth window is about taking the defense as the vehicle for developing technology edge to innovate completely new types of products and build industries around them. The USA has shown the model of undertaking basic research for discovering scientific principles and inventing new technologies sharpening the defense edge. Once those developments are leveraged for defense programmes, those intellectual assets along with trained human capital and complementary assets are released for exploiting commercial innovation opportunities.
There is no doubt that physical infrastructure, logistics and manufacturing capacities developed for becoming the manufacturing hub of the world will play complementary roles in turning scientific outputs into innovations. Although China has opportunities to exploit all four strategic windows of innovations, so far China's success along each of those dimensions is very limited. The West took almost 300 years, particularly with the leadership of the USA, in partnership with NATO and OECD member countries since World War II to institutionalise capacity to lead innovation-led economic growth. In this context, in the best-case scenario, China will likely require well thought out journey to achieve its innovation aspiration in opening endless frontier of growth by turning scientific outputs into wealth.
M Rokonuzzaman Ph.D is academic, researcher and activist on Technology, Innovation and Policy.
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