New Direction of Science, technology and innovation policy in China Second BRICS Project, April'2527

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New Direction of Science, technology and
innovation policy in ChinaSecond BRICS Project,
April.25-27, 2007

• Liu Xielin
• Graduate University of Chinese Academy of
  Science, Beijing, China
• liuxielin_at_hotmail.com

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Outline

• Science policy
• Technology policy
• Innovation policy
• Indigenous innovation Policy

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A. Sciences Policy

• Basic science once was regarded as curiosity
  driven research. Less government intervention.
• Government research institutes (GRI) was the main
  body for the research.
• Reform
• University replaced GRI, company more and more
  marginal.
• 973 to strengthen big science
• Knowledge innovation program for Chinese Academy
  of Science for excellence of centers
• Talent people policy

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curiosity research and NSFC

• The establish of NSFC in 1985 for
  curiosity-driven research
• From 2001-2005, about ten billion for
  curiosity-driven research.
• More money for excellence of centers and senior
  scientists.
• But science is more a national brand rather than
  economic force, so, the budget for it is limited.

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Institutional reform

• Institutional change
• GRI once the main basic institution. Basic
  research could be done by government plan.
• Gradually, government encourage university to
  replace GRI.
• GRIonly CAS is left as the national institution.
• company more and more marginal in basic research.
  

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University in 2003

• National science foundation of China 67.
• National basic research program(973) 47.
• National Labs for basic research 92, about
  56.79 of total.

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Knowledge innovation engineering for excellence
of centers

• to survive the CAS in the rising of university.
• 1999, Knowledge innovation program mainly for
  CAS, it helps CAS greatly in facility and key
  scientists research. About one billion a year.
  This project makes CAS the largest basic science
  center in China.

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Paper publication by institutions (share)
???????????????2000?2003?,????????????
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973 national basic science program to
strengthen the role of government in science

• A national mission-oriented science program.
• For big science and transnational cooperation.
• From 2001 to 2005, they supported 143 key
  projects.
• Health care 29
• IT 18
• Material 18
• Agriculture 17
• Energy 15.
• Others 27
• Total money 4 billion (MOST).

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Talent people policy

• Returnee With special policy to attract overseas
  Chinese back, more and more of them return. This
  quickly narrow the gap in some science fields.
• From 2001-2005, CAS has attracted 422 scientists
  from the world with special money for their
  research and labs.

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overseas via returnee
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Transplant of some research institute from USA

• A institute called Beijing Institute of Biology
  was established and operated by whole returnees.
• They got special and heavy support from
  government.
• They enjoy special governance for their operation
  like a total institute operated in USA.
• But this policy arises new problem local PHDs
  feel more and more pressures

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performance

• Budget for basic research has been a small
  proportion of total RD in China. because the
  company spend little money on basic science, so,
  the share of basic science in China is quite low
  comparing to other countries.
• Limited areas Biology, nanotechnology were given
  the strong weight in those national programs.
• Science is catching up quickly.

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Share of RD for basic research is increasing
gradually.
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More scientists for basic research
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Government targeted limited area for catch-up.
Biology and nanotechnology.1999-2003 growth
rate of papers in different fields
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International SCI is increasing
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1. Growth of Science and Technology Sector
Total Academic Papers
(SCI)
1990
1995
8,131
13,270
Number
Share ()
-
-
Rank
-
15
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B. Technology policy

• Transformation of applied GRI into
  technology-based companies.
• Market for technology In lots of industries, we
  need FDI to upgrade the industry, China asked the
  multinationals to set up RD center and do
  technology transfers as way to get the latest
  technology for them to enter in Chinese market
  before WTO.
• Support RD centers in large companies.
• Special industrial policy
• Target program---863 and breakthrough program

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Transformation of GRI

• To reduce the number of GRI. in1998, the State
  Council decided to transform 242 GRIs at the
  national level into technology-based enterprises
  or technology service agencies.
• Some of them became the leading companies in
  their industry. But some of them worse than
  before.
• After this policy, thousands of regional GRIs
  were transformed into companies.

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Market for technology

• Government use the market to press foreign
  companies to transfer the technology to local
  companies. For example, In IT and automobile
  industry. the specific policy tools is licensing.
  Only the local companies can sell their products
  to customers in China.
• Joint venture became the main way for foreign
  companies to come to China.

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Reason for the policy

• Joint venture is not a good entity for long term
  cooperation.
• Multinationals do not like to transfer the key
  technology to help potential competitors.
• Multinationals can make money just by selling
  parts.
• .

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critics

• A bad policy? Scholars criticize the policy as
  multinationals do not transfer the technology. in
  automobile industry, the industry dominated by
  multinationals such as GM, Volkswagen and
  Japanese companies. But the local companies still
  very weak.
• Market protection sometimes do bad for the
  industry, such as automobile industry. they can
  enjoy high profit with no innovation.

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Encourage multinationals set up RD center in
China

• Both central and local governments try to attract
  multinationals to set up RD centers in China or
  their regions with special policy.
• But the spillover is not easy to see. Need more
  time to see the positive results.

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Number of new establishments of foreign RD labs
in China, (1987-2003 )
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Subsidy to RD lab in big companies

• For large companies, government select about 512
  for special support.
• Now they select more than two hundreds company as
  leading innovative company and give them direct
  support.

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863 national high-tech program

• From 2001-2005, about 15 billion RMB were spend
  on civil technology. it is the most important
  national program in China.
• It mainly focuses high-technology.
• Most of local high technology owned to its
  support.
• It spread the seeds of high-tech industry in
  China and is deeply related with the development
  of high-tech zones in China.

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C. Innovation policy

• Innovation policy has been initiated in 1980s to
  better use of ST for commercial purpose.
• Spill-off China introduced this policy very
  early to push university and GRI to contribute
  more to economic growth.
• IPR given university and inventor the rights to
  commercial use of their invention.
• Subsidy to RD lab in big companies
• Science park and high-tech zones
• Special industrial policy

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Spin-off policy
Table 2 University spin-offs
Sources Statistics of Universitys industry
in 2004 in China, Center for ST for Development,
Ministry of Education, 2005.
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Results of Spin-off policy

• Lenovo, Founder and lots of other companies are
  the results of spin-off policy.
• But the policy gradually met more challenge
• Spin-off companies do not have a good regulation
  for further innovation.
• The conflict between the profit-seeking and
  public goal of the university.
• Put the university and GPI more risky position.
• New policy not clear cut from but separate the
  business with university.

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IPR coping the practice of USA

• Firstly, inspired by the Bay-Dole model form the
  U.S., the first step taken by the Chinese
  government is to allow IPR resulting from
  government-funded RD projects to be
  commercialized.
• Secondly the ownership of IPR resulting from
  government-funded RD projects could be
  transferred to the university or GRI who
  conducted the projects, instead of being
  government-owned intangible assets.
• Thirdly, since 1998 individual inventors involved
  in government-funded RD projects are allowed to
  obtain a royalty of at most 35 of the license
  fee when the research results are transferred.

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High-tech zones

• To establish well-functioning infrastructure so
  that the high-tech zones serve as a platform for
  innovation activities and interactions.
  Zhongguancen is the first and now there are 53
  national high tech zones in China.
• To provide preferential treatments to high-tech
  firms in forms of a broad range of tax
  incentives.
• To create a new governance model, which is
  characterized by small government, but big
  service to reduce transaction costs.
• To establish cluster structure in order to
  promote active interactions and close
  co-operation among the firms.

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High-tech value added/GDP is increasing and
thanks the contribution of multinationals
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Special industry policy

• 2000- policy for integrated circuit and software
  industry in China
• for software industry
• Value added tax for general company, 17, for
  software industry, 3.
• Income tax general firms 35, for software
  firms 10.
• For IC industry
• Value added tax for general company, 17, for
  software industry, 6.
• For company with investment of 8 billion and
  technology in 0.25 , they can enjoy the other tax
  advantage as foreign firms.

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Follow-up of the policy

• Lot of foreign companies criticize the policy for
  too strong support local companies against
  foreign policy.
• It seems that too good protect of local companies
  killed their motivation to innovate.

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SME innovation fund

• For small companies, national SME Innovation
  fund was set up. Each year is about 0.6 billion a
  year.

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D. New innovation policy followed the Long range
ST Programming(2006-2020)

• Demand driven
• Indigenous innovation More independent domestic
  ST supplier to control the overwhelmingly
  relying on foreign sources.
• Innovation has been promoted as national
  strategy.

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Demand driven

• Demand driven for a long time, most of
  government project are technology-driven, that
  is, scientists and government official are the
  main decision makers.
• In this long range ST Programming, politicians
  realized that a new direction is needed for ST
  to solve problems in economic and social
  development.
• Ecology, security and health care are the
  important areas for scientists to do the
  research.
• Public procurement
• Key project large airplane,

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Indigenous innovation

• The National Plan 2006-2020 for the Development
  of Science and Technology in the medium and long
  term is the current long-term ST policy
  framework of China. The most interesting element
  of the new plan is the declared intention to
  strengthen independent or indigenous
  innovation.

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Why indigenous

• Firstly, the economic growth of China has been
  strongly dependent on foreign technology and
  foreign invested firms. Since 2000,
  foreign-invested enterprises accounted for more
  than 85 of all high-tech exports (China
  Statistics Yearbook on high-tech technology
  industry, 2004- 2006). In recent years, there has
  been an increasing frustration among domestic
  actors, caused by the factor that market for
  technology policy has not resulted in the
  immediate and automatic knowledge and technology
  spillovers from foreign to Chinese enterprises
  that policymakers had hoped for.

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• Secondly, a culture of imitation and copying is
  common not only in product development and
  design, but also in the field of scientific
  research. Hence innovations from domestic
  knowledge bases and intellectual property rights
  are acutely needed in China.
• Thirdly, the high growth rate of the Chinese
  economy during the last twenty years will not be
  sustainable without a change in the development
  strategy. China needs, for example, more
  energy-efficient and environment-friendly
  technology, new management skills and new
  organizational practices to ensure sustainable
  growth in the near future.

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Policy tools for indigenous innovation

• Firstly, the government plans to increase RD by
  2020 to 2.5 of GDP (from the current level of
  1.3). Since GDP growth is projected to increase
  at a similar pace as in the past two decades, the
  increase of RD to GDP ratio implies a huge
  increase of RD expenditure in absolute terms.
• Threat of science take-off?

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Tax policy

• The new tax policy will make RD expenditure 150
  tax deductible, thus effectively constituting a
  net subsidy, as well as accelerated depreciation
  for RD equipment worth up to 300 000 RMB

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Public procurement of technology

• the public procurement of technology will be
  adopted to promote indigenous innovation
  activities.
• The purpose of current public procurement
  practice is to cut costs rather than promote
  indigenous innovation. The new public procurement
  policy aims to give priority for indigenous
  innovative products in public procurement in
  terms of price and volume in various forms.
• Learning from best practice in South Korea

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PPT in China

• In 2002, the Law on Government Procurement was
  proved by the Standing Committee of Chinese
  Congress. The volume of government procurement
  has been expanding very quickly from a level of
  3.1 billion RMB in 1998 to 213.6 billion RMB in
  2004.
• This volume of government procurement equals now
  about a level of 2 of GDP, and thus is still far
  lower than the levels in more developed
  countries, for which different estimates exist.
  Shen and Xu report on 10 for the developed
  countries (Shen and Xu, 2006), Wilkinson et al.
  (2005) claim about 16 for the EU countries.

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What is indigenous innovative products

• Article 22 Establish a system of procurement of
  innovative products in the current finance base,
  including a certification of what is innovative
  product put innovative products on priority in
  the procurement list in national key projects
  with governments money, domestic equipments
  purchase should not less than 60 of total value.

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Price deduction for indigenous Innovative products

• Article 23 In the price-based bidding, even if
  the price of indigenous innovative products is
  higher than other ones, they can get some price
  deduction in the real bidding. If the price of
  the indigenous products is not higher than other
  products, they will be selected given the
  quality is appropriate and comparable to the
  foreign products.

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Catalyst

• Article 24 Establish a system of procurement of
  innovation. It means that the government should
  purchase the first vintage of innovation products
  created by domestic enterprises or research
  institutions if the innovative products have
  proven to have potential big markets. This gives
  government the space to purchase RD projects for
  commercial purposes

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Local purchase or foreign purchase

• Article 25 Establish a cognizance system of
  domestic products and an evaluation system of
  purchasing foreign products. In the purchasing
  process, domestic products have priority over
  foreign products. Only those products that are
  not available in China can be purchased from
  abroad. For purchasing products of foreign
  companies, those companies that are willing to
  transfer technology and assimilation to local
  companies, will be listed as priority ones among
  other candidates.

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E.Reflection of new innovation policy

• How to coordinate indigenous innovation and open
  innovation in todays world.
• It may lead to tech-nationalism following open to
  the world for a long time.
• It sends a message of technical determinism to
  solve lots of social as well as economical
  problems.