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Recycling ideas


The recently opened high-speed rail route between Beijing and Shanghai, said to be the longest and the fastest in the world, has drawn attention to innovation in China. The popular myth is that Chinese companies largely remain in the bottom pit of the global supply chain that affords them scant resources for groundbreaking research and development. The often-cited example is the US$6 value of an Apple's US$300 iPhone that can be attributed to Chinese parts manufacturers.

Yet China appeared recently to have soared to the upper echelons of technological innovation with a slew of eye-catching achievements. Besides the world's fastest train, China has produced the fastest super-computer. Most of the world's alternative-energy technology and manufacturing capabilities, including wind and solar power, and lithium batteries, are the products of Chinese companies. China's J-20 stealth fighter, the only military combat jet of similar calibre to America's F-22 fighter, took to the air recently.

Is China shedding its image as a third-world nation in terms of innovation? The experiences of three industry sectors - cars, telecoms and high-speed rail - may offer some answers.

A recent book about Chinese innovation by Yinglan Tan identified a Chinese model called 'recombinative innovation'. As explained by Haier chief executive Zhang Ruimin , this means 'the combining of ideas and technologies in novel ways rather than developing products from scratch'.

My study of the telecoms industry confirms this. Huawei, for example, leverages on existing technology, even from its rivals. Huawei founder Ren Zhengfei once said that a technological development that contained more than 30 per cent of new elements was not innovation but 'waste'. His R&D strategy stresses an evolutionary, rather than revolutionary, approach.

Do Chinese companies invest in forward-looking, groundbreaking research? Private companies, meaning those not controlled by the state, are certainly not enamoured with the large-scale Bell Labs industrial research model.

But state-owned enterprises have different thoughts. Chery Auto, for example, does engage in forward-looking research, especially in alternative-energy car technology, as well as mass-scale product development. This type of basic research is boosted with the central government's generous support. State-sponsored research is conducted through many avenues, among them the Ministry of Science and Technology's enormous research programmes. Chery, as the poster child of China's indigenous-car-industry policy, is a direct beneficiary of such funding.

China seems to be very successful in mobilising state resources for grandiose innovation projects. Today, the Ministry of Railways may be viewed as a huge state-owned enterprise, and it commands absolute monopoly power in the railway business. When it is backed by the state's financial muscle and bent on developing the world's best, largest and most advanced railway network, the system is incredibly efficient in moving ahead technologically.

However, this state-steered innovation model seems to lack the checks and balances usually accompanied by market forces. The history of innovation in IT and telecommunications also shows that the government has a terrible record of picking technology trends. And, although there is no indication so far that the Ministry of Railways has banked on the wrong technology, its execution is riddled with corruption and other controversies. (Liu Zhijun was sacked as railways minister in February on suspicion of corruption.)

The recent debut of the Beijing-Shanghai high-speed railway turned out to be a flop, having seen several major malfunctions and glitches in its first days.

Yet another characteristic of the Chinese innovation model is its use of acquisitions. The examples of Shanghai Automobile Inc, which acquired MG's assets in Britain, and Geely, which acquired Volvo, illustrate vividly how good bargains at an opportune time can significantly improve one's technological capabilities.

Chinese companies tend to go for bargains. The motor industry worldwide shows that mergers and acquisitions rarely yield benefits to the acquirer, especially when it comes to premium auto brands. Examples include Ford's acquisition of Jaguar and Volvo. General Motors got burned when it bought Saab. Chrysler 's history also shows bad luck with every one of its acquirers, from Daimler Benz to Cerberus and later Fiat. Chinese carmakers seem to have learned the lesson.

Overall, Chinese companies seem to be more successful at short-term innovation goals, for things related to product development and making marginal improvements. The legendary management scholar Peter Drucker once said innovation was partly inspiration but mostly hard work. Chinese companies seem to be hard-working, but provide little in the way of inspiration.

My guess is the Chinese education system is incredibly efficient in cranking out hard-working engineers, but totally impotent in generating inspiration.

John Gong is an associate professor at the Beijing-based University of International Business and Economics. johngong@