China: The 29th Most Innovative Economy on Earth

The below is a guest post by Roberto De Vido.

The 2015 edition of the Global Innovation Index (GII), puts China in 29th place as an innovative economy, leading the pack of middle-income nations that trail the “usual suspects” perennially found at the top of the index. Switzerland leads this year’s rankings (again), followed by the U.K., Sweden, the Netherlands and the United States, and in Asia, Singapore ranks number seven, and Hong Kong 11th. But in some areas, China and Malaysia (32nd) perform comparably to the more developed nations, notably in human capital development (that’s education to you and me) and research and development funding.

The GII is calculated as the average of two sub-indices, the Innovation Input Sub-Index and the Innovation Output Sub-Index, considering 79 indicators to gauge both innovative capabilities (institutions, human capital and research, infrastructure, market sophistication and business sophistication) and measurable results (knowledge and technology outputs and creative outputs).

Unsurprisingly, China is strong in the area of patents. Last year 928,000 patent applications were filed in China, versus 578,800 in the United States, and the country’s National Patent Development Strategy aims to double that number by 2020.

Also unsurprisingly, China is strong in education, especially university-led research and development. Patent applications from universities comprised 16 percent of the national total in 2010, up from 6 percent in 2000, and university R&D spending increased 22 percent annually in the same period.

China obviously lags in areas such as government effectiveness, regulatory quality and rule of law, but benefits (as has the U.K., up to second place from 11th in 2011) from central government commitment to developing an “innovation economy”.

The GII report highlights China’s science and technology development policies as a crucial driver of economic growth, and notes that China’s road to its 29th place ranking began in the late 1970s and early 1980s. Then, in 2012, the Communist Party’s 18th National Congress established ‘innovation-driven growth’ as a national development strategy, calling for setting clear targets, improving entrepreneurship, making industry the main driver behind innovation, and establishing market-oriented mechanisms to facilitate collaborative technology transfer from academics to the industrial sectors.

Interestingly, the writers of the GII report say most developing nations’ efforts to develop ‘innovation economies’ focus on competing globally, while they should concentrate on developing solutions to local challenges. Old China Hands will know this is not an issue for China. Most Chinese patent applicants don’t bother filing outside China, and government policies/subsidies driven in large part by domestic self-interest (e.g. in solving the pollution problem) have allowed Chinese firms to achieve global success in areas such as alternative energy products and services.

This, of course, is the key to China’s success in moving up the global innovation rankings: Big Government is backing the play. It provides subsidies for IPR registration, subsidies for the hiring of science and technology ‘talent’, tax deductions for R&D costs, seed capital, risk compensation funding, and of course it has invested billions in critical infrastructure (e.g. telecoms, Internet, hardware and software platforms, transportation, satellite networks, etc.).

In the same way it has achieved most things over the past 25 years, China has been successful in achieving its ‘innovation-driven growth strategy’ by throwing the not inconsiderable resources of the state behind the initiative. Decades ago, it decided innovation was critical to economic growth, and it put in place policies and targets that fostered innovation.

The Chinese policy toolbox is not sophisticated, but it contains a very big hammer. It’s difficult to imagine China – playing a long game it initiated nearly 40 years ago – topping out in 29th place on the Global Innovation Index rankings. The hammer will keep pounding.

For the past 25 years Roberto De Vido has served as a communications consultant to corporations, NGOs and governments in Greater China and throughout Asia-Pacific. He has eaten many more meals with chopsticks than with a knife and fork.