A leap to nowhere

China dreams of becoming a high-technology superpower. In that dream, it surpasses the developed world to become the preeminent cutting-edge manufacturer. Renewable energy, new materials, transgenic products, nanotechnology – whatever the current high-tech buzzword, the Chinese want a piece of it.

Moreover, these innovative products will be designed and patented in China. No more reliance on foreign technology. And forget the intermediate steps: China will leap directly into its self-styled high-tech paradise.

The current reality is far removed from that dream. Chinese manufacturing is still dominated by low-end, low-tech and high-labor-content products – clothing, shoes, furniture and toys. Much manufacturing that appears high-tech is not because it involves the simple assembly of components manufactured and designed outside of China. Even in those few areas where companies are producing modern, high-tech goods, the underlying technology comes from overseas.

 

There are four key barriers – not generally recognized by Chinese planners – preventing the country’s high-tech evolution.

First is the failure of the education system. China does a very good job of preparing an elite group of students for performance on standardized tests. However, the talents of these students are ultimately wasted because the university system is underfunded. Some progress has been made. In 1999, China devoted 1.9% of its GDP to education, placing it 172nd out of 186 countries assessed by UNESCO. Spending has since grown, reaching about 3.5% of GDP in 2008, according to government statistics. But this still leaves China in 140th place. And of that 3.5%, only 1.4% is spent on college and graduate-level education.

The result is readily seen. Outside of a few elite universities, this chronic underfunding means that both basic and applied science programs are inadequate. China appears to be content to ship its brightest students to graduate schools overseas where they flourish and seldom return.

Second, government and industry research and development doesn’t fill the innovation gap left by education. The core problem is that investment in this area is of substandard quality and not even directed at innovation. According to a recent survey by the National Bureau of Statistics, fewer than 50% of Chinese R&D staff have a post-secondary education, while a tiny number have PhDs. Furthermore, only 5% of R&D funds go to basic research. The remainder is devoted to application and testing, which is limited to quality control of existing products or reverse engineering competitors’ products. R&D investment is not directed at innovation and therefore no innovation occurs.

The third and fourth obstacles are institutional. China has a planned, top-down approach to management of science and technology. This approach works very well for large-scale engineering projects like the Three Gorges Dam, but the requisite skills do not transfer to promotion of creativity and innovation.

Even if the country brought about organizational reform, its efforts would be fruitless without a strong intellectual property protection system. China still does very little to protect the intellectual property rights of its own domestic companies, scientists and entrepreneurs. Piracy is ubiquitous, reverse engineering is standard business practice and ownership of true innovation is not guaranteed. As a result, it makes no economic sense for a company to make a substantial investment in innovation; the best strategy is to hang behind and copy the innovations of others.

 

These are substantial barriers. Technological innovation requires a serious commitment to mastery of the scientific and technical fundamentals, substantial investment in education and R&D, a planning environment that allows for open and creative thinking, and a strong legal framework that protects property rights in innovation. China is deficient in all of these areas.

Correcting these deficiencies requires money, hard work and institutional change. Rather than confront these unpleasant truths, Beijing continues to rhapsodize about a great leap forward into a domestic-technology-driven era. The mechanism they propose is magic, not science, so the result is depressingly inevitable. China’s last great leap did not succeed; this one will not succeed either.