Chinese innovation is catching up
Benjamin Bai and Jae Zhou credit the government's determined push
The West tends to hold a dim view of China's abilities to innovate, often emphasising its reliance on low-skill manufacturing and duplication of imported creations. However, China has been on a course to transform its economy, beginning with a model of incremental innovation but increasingly focusing on the development of independent and self-reliant intellectual property.
China already has world-class innovative products and services. Weibo, QQ, Alibaba.com and high-speed trains are just a few examples. It is far too easy for many in the West to dismiss them as derivative rather than innovative, conflating them into an outdated picture of China as a copycat.
But it would be better to view these creations within a larger context of other such innovations: Google, Apple and Facebook - none of these companies invented their respective platforms or products; yet all have, like QQ and Weibo, made innovative modifications to existing products to yield results that are exponentially better than the original incarnations and generate commercial value for their innovation.
Despite the evidence, the West has yet to consider this new China paradigm to lead the innovation wave.
In the meantime, China has taken yet another step towards leading the global wave of innovation. Last month, the State Council, without much fanfare, released a circular on the 12th five-year plan for the development of strategic emerging industries. It is essentially a business plan to realise the innovation goals set forth in the five-year plan, and outlines priorities and tasks for the development of industries identified as strategically important.
These industries encompass environmental protection, new information technology, biotechnology, high-end equipment manufacturing, new energy, new materials and new-energy vehicles. Although the circular's stated objective is to merely match the international innovation environment, the quantifiable goals it sets out are ambitious. The emerging industries are expected to achieve an average annual growth rate of more than 20per cent through to 2015, and their total value-added output would account for around 8per cent of gross domestic product by 2015, with the figure going up to 15per cent by 2020.
With such lofty goals, one cannot help but wonder whether China has set its sights far beyond catching up with the West on innovation.
As the West is still indulging in rhetoric about China's innovation barriers, like inferior technology and a weak intellectual property environment, China has charted a clear course to move forward and even surpass the West. The question is: will the West wake up in time to face the reality?
China's path to innovation presents challenges to foreign firms and demands a response; but it is not necessarily a zero-sum game. The circular makes it clear that there are opportunities for foreign firms to invest in the emerging industries. It behooves multinational companies to reformulate their China strategy to participate.
China has yet to experience a true innovation revolution in its recent history; however, the perfect storm for such a revolution is brewing. It will take some time to transfer from incremental innovation based on technology transfers to breakthrough innovation. But it may take less time than most Westerners believe.
As evidenced by the circular, the Chinese government will play a decisive role in that process, promoting domestic champions. Some multinational companies will benefit from the revolution, while others will be left out. China will march on, with or without multinational companies.
For those multinational companies that would like to march forward, there is no time to lose. One day soon, they might have to run to catch up.
Benjamin Bai is a partner and the head of China intellectual property practice at the international law firm of Allen & Overy in Shanghai. Jae Zhou is a law student at Fordham University School of Law