China’s Innovation Agenda: A Middle Power Finds Its Way

IN LATE 2017, a headline in the South China Morning Post declared that “China’s chance to lead global innovation may lie with 5G mobile technology development.” The accompanying story began as follows: “China is on the cusp of recasting itself as a leading technology innovator from a mere follower in the telecommunications industry” — a statement that conveys its growing ambitions to create new technologies rather than adopt existing ones.

Since 2006, China has been in fast-forward mode as government ministries have rolled out successive ambitious plans to make the country an innovative society, with a growing emphasis on science and technology and the declared aim to become a world leader in advanced manufacturing and, more recently, artificial intelligence (AI).

Can China meet its lofty goals? In this article, I will summarize some of the advantages it enjoys over other countries — as well as the challenges it faces in making its vision a reality.

Aspirations Run High

Innovation includes activities that range from discovery and invention to the adaptation and incremental upgrading of existing products and processes. To date, much Chinese innovation has been characterized as the latter. But over the past 40 years, China has been catching up to more advanced economies through industrial upgrading, encouraged and facilitated by policy and regulatory actions.

A turning point occurred in 2013, when Xi Jinping stated his focus on facilitating China’s emergence as a global technology leader moving towards the technological frontier. China 2030, a joint research report published by the State Council’s Development Research Centre and the World Bank, proposed a market-based strategy to promote increased competition in all sectors, and even the withdrawal of government from direct involvement in production, distribution and resource allocation.

In such a large market, incremental innovation frequently produces more-than-incremental returns.

Xi changed direction in 2015 by expanding state-led intervention with the introduction of the Made in China 2025 (MIC 2025) industrial innovation strategy. The focus shifted from market-based reform to a mixed approach relying on market forces in some areas and, in others, a concerted push by the state for Chinese economic dominance. Substantial public funding poured into R&D in emerging sectors and AI, where experts now describe China