New Direction of Science, technology and innovation policy in China Second BRICS Project, April.25-27,2007 Liu Xielin Graduate University of Chinese Academy of Science, Beijing, China liuxielin@hotmail.com

Indigenous innovation Policy Outline Science policy Technology policy Innovation policy Indigenous innovation Policy

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

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.

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. GRI:only CAS is left as the national institution. company more and more marginal in basic research.

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.

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.

Paper publication by institutions (share) university GRI company others SCI EI domestic 2002 73 82.5 63.7 25.5 16.2 13.3 0.3 1.1 8.3 1.3 0.2 14.6 2003 74.7 81.8 66.2 24.0 16.6 11 0.9 5.6 1.2 0.8 17.1 资料来源：《中国科技论文统计与分析2000年—2003年》，中国科学技术信息研究所。

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).

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.

overseas via returnee

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

performance Budget for basic research has been a small proportion of total R&D 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.

Share of R&D for basic research is increasing gradually. R&D expenditure Type of research Basic (%) applied Experimental development 2000 895.7 46.7(5.2) 151.9 697.0 2001 1042.5 55.6 184.9 802.0 2002 1287.6 73.8(5.7) 246.7 967.2 2003 1539.6 87.7 311.4 1140.5 2004 1966.3 117.2(5.9) 400.5 1448.7

More scientists for basic research 2000 2001 2002 2003 2004 R&D people（10,000/year） 92.21 95.65 103.51 109.48 115.26 Basic research 7.96（8.6%） 7.88 8.40 8.97 11.07（9.6%） Applied research 21.96 22.60 24.73 26.03 27.86 Experimental development 62.28 65.17 70.39 74.49 76.33

Government targeted limited area for catch-up Government targeted limited area for catch-up. Biology and nanotechnology. 1999-2003 growth rate of papers in different fields

International SCI is increasing

1. Growth of Science and Technology Sector Total Academic Papers (SCI) 1990 1995 17,370 1997 - 12 30,499 35,685 40,800 49,800 2000 2001 2002 2003 2004 3.15 9 3.57 8 4.18 6 4.48 5.43 5 57,377 Number 8,131 13,270 Share (%) - - Rank - 15

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 R&D center and do technology transfers as way to get the latest technology for them to enter in Chinese market before WTO. Support R&D centers in large companies. Special industrial policy Target program---863 and breakthrough program

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.

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.

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. .

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.

Encourage multinationals set up R&D center in China Both central and local governments try to attract multinationals to set up R&D 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.

Number of new establishments of foreign R&D labs in China, (1987-2003 )

Subsidy to R&D 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.

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.

The budget of six national programs （in 0.1 billion RMB） 1996 1997 1998 1999 2000 2001 2002 2003 2004 Basic research 3 4 5 6 7 8 9 863 4.5 5.054 25 35 45 55 breakthrough 5.2 5.372 10.37 11.66 10.32 10.63 10.634 12.464 16.144 torch 0.51 0.5 0．5 spark 0.39 0.4 1 Diffusion 0.19 0.2

C. Innovation policy Innovation policy has been initiated in 1980s to better use of S&T 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 R&D lab in big companies Science park and high-tech zones Special industrial policy

Table 2 University spin-offs Spin-off policy Table 2 University spin-offs Number of spin-offs Revenue （Billion RMB） Profit (Billion RMB） 1999 2137 26.7 2.2 2000 2097 36.8 3.5 2001 1993 44.8 3.1 2002 2216 53.9 2.5 2003 2447 66.8 2.8 2004 2355 80.7 4.1 Sources: Statistics of University’s industry in 2004 in China, Center for S&T for Development, Ministry of Education, 2005.

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.

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 R&D projects to be commercialized. Secondly the ownership of IPR resulting from government-funded R&D 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 R&D projects are allowed to obtain a royalty of at most 35% of the license fee when the research results are transferred.

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.

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

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.

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.

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

D. New innovation policy followed the Long range S&T Programming(2006-2020) Demand driven Indigenous innovation: More independent domestic S&T supplier to control the overwhelmingly relying on foreign sources. Innovation has been promoted as national strategy.

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 S&T Programming, politicians realized that a new direction is needed for S&T 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,

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 S&T policy framework of China. The most interesting element of the new plan is the declared intention to strengthen “independent” or “indigenous” innovation.

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.

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.

Policy tools for indigenous innovation Firstly, the government plans to increase R&D 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 R&D to GDP ratio implies a huge increase of R&D expenditure in absolute terms. Threat of science take-off?

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

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

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.

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 government’s money, domestic equipments purchase should not less than 60% of total value.

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.

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 R&D projects for commercial purposes

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.

E.Reflection of new innovation policy How to coordinate indigenous innovation and open innovation in today’s 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.