1 Innovation system of China Second BRICS in Brazil, April 25-27,2007. LIU Xielin Professor of Graduate University of Chinese Academy of Science Nannan LUNDIN Örebro University & Research Institute of Industrial Economics, Sweden

2 The structure of Chinese Innovation System The roles of main actors in the system: from a Government research institutes and university centered system to a company- centered system. The linkages of the system---Industry- science linkages Company system The country-specific factors in the system

3 A.Traditional NIS of China Government research institutes and university had a very important role in innovation. they are the main actor of Science and Technology for a long time. Company was a product base with little R&D. Shortage of the economy, no competition and IPR made the system lack of innovation motivation. Government plan was the key for the system. Lot of technology import to meets the demand of the production

4 Table 1 The relative importance of key actors in terms of R&D expenditure, % Research institutes Universities Enterprises Source: China Statistical Yearbook on Science and Technology, 2004, 2006.

5 B.Reform from 1980s on Introduce the competition to the S&T system. 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. Setting up national science parks to commercialize the results of GRI and university.

6 C.Science-industry linkage From 1980s on, GRIs and universities were allowed and encouraged to set up their own spin-offs so that they could commercialize their technology directly. Outsourcing of S&T to GRIs and/or universities has become an integral part of development strategy of industrial enterprises.

7 Table 2 University spin-offs Number of spin-offs Revenue （ Billion RMB ） Profit (Billion RMB ） Sources: Statistics of University ’ s industry in 2004 in China, Center for S&T for Development, Ministry of Education, 2005.

8 Table 3 S&T outsourcing of Industrial enterprises to Universities Total S&T funds (billion RMB) From industrial enterprises S&T funds (billion RMB) Share (%) From government S&T funds (billion RMB) Share (%) Source: Statistics of Science and Technology in Higher Education,

9 D.Company system More making than buying of the technology. R&D spending is expanding quickly. SME is rising. Multinational play more and more important role. Outsourcing and alliance become the new strategy for innovation in company level.

10 Their innovation capability is poor Table 9 Chinese and Korean patent registrations in the U.S ChinaNumber of Patent Rank KoreaNumber of Patent Rank88754 Youngrak Choi, Rise of New Asian R&D Forces ， paper for New Asian Dynamics in Science, Technology, and Innovation, Copenhagen, Denmark, September 27-29, 2006.

11 More making than buying of the technology now R&D expenditure and technology importation (unit: 100 million RMB) Expenditure on R&D Expenditure on technology import

12 Table 7 Ratio of R&D/sales in large and medium sized companies, % Year R&D/sales

13 The SME is rising Table 10 A simplified comparison between small and large S&T-based firms,%, (2004) Small S&T based enterprises Large S&T based enterprise R&D/ Sales Export of new products /sales Tech import /sales Patent/ 100 persons R&D/ Sales Export of new products/s ales Tech import /sales Patent/ 100 persons SOE Joint venture: HTM Joint venture: Foreign Foreign Private Source: Lundin et.al, 2006a.

14 Table 12 The importance of FDI firms in the manufacturing sector, (Share in the manufacturing sector, %) Year Number of FDI firms Share of number of LMEs Value -added R&D Expendit ure Tech importExportEmployment Source: Lundin et. al, 2006b.

15 Outsourcing and alliance strategy is very popular Lenovo, Huawei, Haier, all those companies used widely the strategy of alliance with foreign companies in the world. From automobile industry to IT industry, some already got return (Lenovo). Some fell in trouble (BOE).

16 Table 18 Selected M&A deals by Chinese firms ( ) Source: Wu (2005), The Boston Consulting Group (2005) and various press reports. Chinese bidder Target foreign firm / UnitIndustry Holly groupPhilips Semiconductors, CDM hand-set reference design (US), 2001 Telecommunication TCL InternationalSchneider Electronics AG (Germany), 2002Electronics TCL internationalThomson SA, Television manufacturing unit (France), 2003 Electronics BOE Technology GroupHyundai display technology,(South Korea), 2003 Electronics Shanghai Auto Industry Corporation (SAIC) Ssangyong Motor (South Korea), 2004Automotive Lenovo groupIBM, PC Division (US), 2004IT Nanjing AutomotiveMG Rover Group (UK), 2005Automotive Source: Wu (2005), The Boston Consulting Group (2005) and various press reports.

17 E.Country specific factors Government play a very important role in in industrial innovation. Deferent layers of the government always try to interfere innovation process. Regional gap is widening.

18 Figure 3 R&D expenditure and R&D/GDP by region (2003)

19 Country-specific factors Lack of IPR Too strong merit-based evaluation make the system little capability to encourage risk activity in science and innovation

20 F. Conclusion The system has been in big transition. Company is still weak but in getting more and more power. The system is very open and make innovation here more global sense. Government still matters in lots of area, from technology standards to large project. The ecology here is still poor for radical innovation.

21