Xiaolan FuOxford University

DFID-ESRC Growth Research Programme Meeting

Overseas Development Institute, London, July 17th, 2015

Innovation & long term growthPer capita income relative to the US, 1960-2008

•Singapore•Japan•S Korea•Taiwan•Hong Kong

•Eq. Guinea (resource)•Puerto Rico (resource)

China’s Path to innovation (‘How’ )

The evolution of China’s path to innovation: foreign vs indigenous innovation

System building: Open national innovation system

Achieving: Capabilities, incentives, institutions

Conclusions: ONIS & Innovation diagnosis

Policy implications for other countries

The Evolution of

China’s Path to Innovation

Number of triad patents

Source: Fu (2015)OECD(2014)

Innovation performance: international comparison

Source: Innovation score estimated by EU (2013)

From S&T to innovation policyLessons from China

1978: S&T are productive forces

1985: S&T system reforms

-Marketisation of the S&T system (planning--market)

-Focus on serving economic development (defence –eco)

-Acquisition of foreign technology

(Imports: aid, debt; FDI: market for tech. strategy)

1995: Acceleration of S&T development

-Priority of resource allocation to high-tech industries

2006: Strengthen indigenous innovation

China’s imports of technology

China’s Inward & Outward FDI

Source: NBS

Number of Chinese students going abroad and returning to China, 1990 to 2014

Source: NBS

Fast growth in innovation in China

Source: Fu (2015)OECD (2014)

Source: Fu and Zhang (2011)

Solar PV industries in China and India

Foreign vs indigenous innovationEvidence from large firm level data

Different roles of foreign vs indigenous innovation in different industries

The dual role of Chinese universities: knowledge creation and assist diffusion and absorption

The role of foreign universities & international collaboration for radical innovation

Open Innovation a response to risks and constraints (differ by firms of different ownership)

System Building

The open national innovation system (ONIS)

in the age of globalisation:

Openness at both national and firm level

National innovation system framework

An Open National Innovation System(ONIS)

Source: Fu (2015)

NIS

China’s experiences suggest catch-up through:

ONISEmbedding NIS into the global innovation

systemCreating linkages: - Trade - FDI - Human mobility - University – industry linkage - Public-private partnership & the role of the state

Firms can map out their innovation ecosystem by focusing on industry and including vertical and horizontal linkages

Open National Innovation SystemFoster indigenous innovation while opening up to

external knowledge, resources and markets.

Dual knowledge sources and uses a dynamic combination that evolves over time.

Multiple driving forces: the state, the private sector and the MNEs. Uses a combination of market and state for different functions and at different stages of innovation.

Multiple knowledge diffusion channels. Uses a combination of knowledge sourcing channels, which is again dynamic.

The relevance of ONIS for the rise of NIEs

Japan (MNEs)

South Korea (Foreign technical assistance and returnees)

Taiwan (Foreign technical assistance and returnees)

Achieving high performance:

Capabilities, incentives and institutions

National Innovation Performance

NIPs

Source: Fu (2015) extension based on OECD (1987) & Lall (1992)

National Innovation Performances

NIPs

Openness

(global resources

& knowledg

e)

Source: Fu (2015) modification & extension based on Lall (1992)

Problems in achievingCapabilities: quality, creativeness

Incentives: macro, micro

Institutions

Interplay and coordination

Higher degree of openness

Impact: environment & inclusiveness

International collaboration on innovation

Conclusions

Conclusions & implications

China’s experiences suggest upgrading using an ONIS

Uses indigenous innovation and foreign technology transfer at all stages of development, though with different emphasis

For middle income countries’, more targeted, proactive international knowledge sourcing : OFDI, highly skilled migrants, international collaboration, foreign universities

Different roles of the state and market at different parts of the innovation chain

The path to an innovative nation

China’s experiences also suggest that in addition to investment & openness, incentives & Institutions are also very

important.

Hence suggesting

Innovation diagnosis as a policy tool

Innovation Diagnosis as a policy tool

Innovation Performanc

e

Building ONIS(Private- pubic-state &

linkages)

Wider political, economic & management policies

China: Current status & Way forward

Moving towards the right direction; but details are the monsters

Future: actions in 3 dimensions

System and capabilities building - resources, skills, linkages - Solutions: invest, talents, open innovation, M&A, policySet incentives right - Financial and non-financial incentives, monitoringInstitutions development -IPR, incubators/sci parks, regulations, SMEs /high tech

IPOs

Lessons for other countries

South-South technology transfer

How to participate global value chains & role of EPZs

Orientations to sustainability in technology and upgrading strategy

Consequences on inequality and inclusive innovation

Thank you!

Source: Fu (2015)

Share of processing exports in China’s total exports, by technology level (%)

Source: Ma and Van Assche (2010)

Composition of major export products from China in the Triad markets

14.88

56.4

11.98

16.74

Resource-based Low-tech Medium-tech High-tech

Structural change & industry upgrading

Processing trade: 50%+ total trade : 90%+ high-tech exp

R&D composition by funding sources: 2003-2011

China’s acquisition of foreign technology in comparison Brazil China India

Trade as % of GDP 1980 22 21 15 2007 27 76 46 Merchandise imports % of GDP 1980 9.8 … 7.5 2007 9.6 29.8 18.4 Manufactured Imports % of merchandise imports

1980 41 … 39 2007 64 68 46 Average Tariffs ( in %) 1990-1992 Average simple tariff Average weighted tariff

25.1 26.7

42.9 40.6

81.8 83.0

2006 Average simple tariffs Average weighted tariffs

12.3

6.8

8.9 5.1

17.0 13.8

Average Gross FDI/GDP 2000-2005

3.4 3.2 0.9

Royalty and license fee payments ($ million) 1990 54 0 72 2007 2,259 8,192 949 As % of GDP 1.72 2.56 0.80 Tertiary Students Studying Abroad 2007* 21,556 421,128 153,312 As percentage of students studying abroad 0.77 15.03 5.47 As percentage of tertiary students in country 0.4 1.9 1.1

Acquiring foreign knowledge:Imports,FDILicensingForeign edu.Diaspora

Policies: local content req. Training req.Attract HSR

Source: Dahlman, 2010