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China Economy

From factory to laboratory: can China become ‘leader not follower’ in innovation?

Despite increases in innovation, China’s companies are still playing catch up with international counterparts

PUBLISHED : Sunday, 02 October, 2016, 5:46pm
UPDATED : Monday, 03 October, 2016, 12:41am

Shanghai biotech firm founder Wen Danyi has good reason to be confident about her company’s prospects.

Wen and her five-year-old contract research company Shanghai LIDE Biotech is helping pharmaceutical giants like Merck develop cancer drugs in a country in dire need of better and cheaper medication.

About 12,000 people are diagnosed with cancer and 7,500 others die from the disease each day in China, home to the world’s biggest ageing population.

For Wen, it’s personal. After 17 years of studying and working in the United States, as well as surgery for thyroid cancer, she returned to China to have a bigger impact on a society. “Five years ago, there were few Chinese companies making new drugs, but in recent years demand from local clients has burgeoned,” Wen said.

It’s still early days, though. Wen’s firm reported 70 per cent growth in revenues to 10.2 million yuan (HK$11.85 million) last year, but its losses were more than double that income, according to its published financial statements.

Nevertheless, Shanghai LIDE is an example of the kind of innovation-driven enterprise that the central government hopes can help shift the economy’s focus from cheap exports to sustainable services.

And like Shanghai LIDE, China can claim some progress in its quest. It has made it into the top 25 in the World Intellectual Property Organisation’s Global Innovation Index. China’s State Intellectual Property Office also granted 359,000 patents last year, the highest total of any country.

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But many of those advances are refinements of existing designs rather than breakthroughs, and few translate into practical benefits, researchers say.

The ultimate goal of innovation should be to turn achievements on paper into profit
Xu Chunming, Shanghai University’s Intellectual Property Institute

“The ultimate goal of innovation should be to turn achievements on paper into profit – to create greater value for companies and society and, in this sense, our innovation is incomplete,” Xu Chunming, deputy head of Shanghai University’s Intellectual Property Institute, said.

Xu said most Chinese patent applications were driven by government incentives – universities applied for patents because they could get government funding for certain projects. And businesses did the same to qualify for the tax breaks and subsidies open to ­“hi-tech” firms.

Commercial creativity is also held back by the lack of protection for intellectual property, labyrinthine approval procedures for new products and little funding for private-sector research.

Wen said China may be keen to lure talent back from overseas but in the business of cancer drug research, domestic firms made mainly “me too” or “me better” drugs based upon existing products overseas.

We are moving closer to the leaders, but we still don’t have a strong ability to make our own breakthroughs
Wang Xuegong, Chinese Pharmaceutical Enterprises Association

Wang Xuegong, deputy chairman of the Chinese Pharmaceutical Enterprises Association, said that in the last five to 10 years, more Chinese companies had started to develop their own drugs based on pharmaceutical breakthroughs made by their US or European counterparts.

The flow of talent back to China had accelerated the process, with ventures like Wen’s helping develop many of those new drugs, he said.

“We are moving closer to the leaders, but we still don’t have a strong ability to make our own breakthroughs,” Wang said.

Is China’s innovation boom producing too many useless inventions?

The central government aims to have 2.5 per cent of gross domestic product directed to research and development by 2020, up from 2.1 per cent last year. But the jury is still out on whether a state-led system can bring the desired steps forward.

Chen Jing, research director at Hong Kong-based Asia Vision Technology, said most of the country’s registered scientific innovations were driven by the government, but the real driving force for technological progress “should be businesses”.

“Research and development by business produces real things that matter to daily life” and government-sanctioned research mostly resulted in paperwork, Chen said.

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In the annual Top 100 Global Innovators report published by Thomson Reuters, only one Chinese firm, Huawei, has made it onto the list in the last five years and even then it was only once – in 2014.

For now, there are only a handful of areas where I would say we are leading global competition, like quantum communications
Dr Yuan Lanfeng, University of Science and Technology of China

Dr Yuan Lanfeng, an active online commentator on technology and innovation from the University of Science and Technology of China, said it would take about two generations of scientists for China to narrow its technology gap with the US.

“For now, there are only a handful of areas where I would say we are leading global competition, like quantum communications. We are lagging behind the US, Europe or Japan in most fields,” Yuan said.