1. 1 A Preliminary Evaluation of Indigenous Innovation Policy of China Xielin LIU, PHD Professor in Graduate University of Chinese Academy of Sciences liuxielin@gucas.ac.cn

2. 2 Outline Achievement of innovation and challenge New strategy for 2020: indigenous innovation Evaluation of indigenous innovation policy Implication of standard setting Conclusion

3. 3 Share of High-tech exporting of the world Source: NSF: Science and Engineering indicator, 2006.

4. 4 Accelerated catch-up in R&D intensity GERD as a percentage of GDP,1990-2006,% Source: ECD MSTI database 2006/2.

5. 5 R&D Intensity in 2004 and Annual Average Growth Rate of R&D Intensity*,1999-2004 Source: Euro stat, “R&D expenditure in Europe”, Statistics in Focus, European Communities,June,2006. * R&D intensity is R&D expenditure as a percentage of GDP

6. 6 Surge in applications for Chinese patents 1995-2006 Source: Chinese S&T Yellow Book 2004, and MOST website most.org.cnmost.org.cn

7. 7 The number of invention patents granted to Chinese actors has risen rapidly Source: Chinese S&T Yellow Book 2004, and MOST website most.org.cnmost.org.cn

8. 8 Summing up: a simplistic input-output account,1995-2004/05 Source: China S&T Statistical Yearbook 2005, China Yellow Book on S&T 2004, China Foreign Investment Report 2005, and MOST website most.org.cnmost.org.cn

9. 9 Challenge Cost driven strategy, limit profit margin, trapped by IPR, standards and high royalty for licensing technology. Poor innovation capability in industrial level. No internationally competitive company. High reliance of foreign technology supply in key industry, such as chips, software, machine tool, engine etc. Technological dominance of multinationals in domestic industry No leading edge scientists and research in China

10. 10 Strategic goal of indigenous innovation policy for 2020 Solid improvement of capability of S&T to promote economic and social development. To master the leading edge industrial technology and decrease the reliance to foreign technology To promote the enterprise from cost-driven to innovation driven. Achievement of S&T results with global impact. Make China of innovative countries in the world

11. 11 1999 — 2004 R&D/GDP Year19992000200120022003200420052006200720082020 R&D/GDP （ % ） 0.760.900.951.071.131.231.341.421.491.522.5 Source: China S&T Database of MOST sts.org.cnsts.org.cn

12. 12 16 Target technologies for 2020 General CPU New broad wireless mobile telecommunication High end digital machine tools Nuclear station New drugs Large Airplane Moon flight Trans-genetics products Anti-HIV and other dieses … Those project intend to start in a time before 2020 one by one. But financial crises kicked off those mega projects earlier.

13. 13 Procurement to promote indigenous innovation Priority for indigenous innovative products in public procurement More than 30% of technology and equipments buying should go to domestic equipment if using public money Giving indigenous products some price advantage in procurement Identification needed before implementation of the policy.

14. 14 Improvement of Special tax policy 150% underwriting for R&D expenditure before tax but with conditions 10% of R&D increase, a company in profit, cannot use the tax benefit to other year. Now all the conditions are cancelled. No profit required No 10% increase is necessary Can write off the benefits in next three years. One income tax policy for domestic and foreign companies in China High-tech company can enjoy free income tax for the first two years and half for next three years after its profit year.

15. 15 Tax for high tech industry Free income, operating, real estate and land tax in a given period for incubators and university science parks to encourage start-up firms. For VC company, there will be tax reducing for investment revenue and income, but not specific this time, intending to promote VC in China. Policy bank can invest in high-tech companies by using equity share. Second board for SME, started from 2009.

16. 16 More support to IPR and standard setting Strongly Support TD-SCDMA: push China Mobile to launch out TD-SCDMA. The effect is not yet sure. Take standard and IPR as important indicator of achievement of government R&D project. Direct support to enterprises for next generation technology and standards.

17. 17 Evaluation of indigenous policy

18. 18 Accelerating of R&D investments: yes National R&D expenditure 20012002200320042005200620072008 National R&D expenditure 12.615.5618.623.7430.3638.550.8266.23 One billion of US dollar Source: Data Bank of MOST. most.gov.cn, NBS, MOST and MOB (2009). Bulletin of national S&T expendituremost.gov.cn

19. 19 More money for applied research and product development Source: MOST, China Science and Technology Development Report, 2006.China S&T Literature Press. 20012002200320042005200620072008 973 Basic Research71.282.896.6108.3121.8173.6225.5275.4 Key Technologies R&D program 127.2161.6162.5195.0201.3384.6745.4734.8 High-tech program (863)301.9305.91147.81122.31409.6 National Key Experimental Lab Program 15.7 16.627.721.923.3 Innovation fund for SME94.665.280.299.9122.5108.1172.1211.6 National S&T programs One million of US dollar

20. 20 More money for experimental development, Less money for basic research Basic Research(%) Applied Research(%) Experimental Development(%) of GDP 19955.1826.3968.430.57 20005.2216.9677.820.90 20055.3617.7076.951.34 20065.1916.2878.531.42 20074.7013.2982.011.49 20084.40* Source: 2008 Statistical Yearbook of China's science and technology. *NBS, MOST and MOB (2009)

21. 21 Industry has taken a role in innovation system as counterparts in developed country Some countries ’ R&D expenditure structure in 2006 ItemChinaUSAJapanTurkeyAustriaCzechKoreaRussian Financed by Industry(%) 69. 164. 977. 146. 146. 756. 975. 528. 8 Financed by Government(%) 24. 729. 316. 248. 637. 439. 023. 161. 1 Financed by Other Sources(%) 6. 25. 86. 85. 315. 94. 21. 510. 1 Source:2008 Statistical Yearbook of China's science and technology.

22. 22 All enterprises began to speed up their R&D investment, but the R&D investment gap between SOE and non-state enterprises is widening fast, why? Source: China S&T Statistical Yearbook 2003-2008.

23. 23 Business R&D in China 1995-2005 Source: China S&T Statistical Yearbook 2003-2008.

24. 24 Chinese scientific publications are growing exponentially. Chinese-authored publications included in Science Citation Index and Engineering Index, 1997-2005 Source: MOST online database, and China S&T Statistical Yearbook 2005.

25. 25 China ’ s emerging presence in nanoscience: papers. Source: A comparative bibliometric study of several nanoscience ‘giants’ [J]. Research Policy,2007

26. 26 Patents granted in USA of China, Japan Korea and Taiwan YearChinaJapanKoreaTaiwan 1996782435516032477 19971032449820272678 19981333254334273911 19991723292837414664 20002743338735605976 20014723541738496685 20026263686041006883 20037243774442466846 20049513756847697435 20059633224346966172 200616213995466348241 200718273645274657759 200826533725089248126 Source: Online database of United States patent and trademark office.www.patft.uspto.govwww.patft.uspto.gov

27. 27 ChinaIndia USPTO Patenting by year for Various Nations,1963-2004 Source: Online database of United States patent and trademark office.www.patft.uspto.govwww.patft.uspto.gov

28. 28 Conclusion and discussion: The government spends more on applied science, experimental development and mega projects as ways of promoting innovation, in the same time, the share of expenditure for basic science has been decreased. But this will not lead more radical innovation and standard setting in long run. Foreign related enterprises remain in key innovation performance indicators, even much faster to spend R&D in China from 2003 on. It means that after indigenous innovation policy, foreign company are not intended to leave, vice versa, they are determined to be more localized. So, we can forecast that in near future, foreign company will continuously be the main actor in industrial standard setting.

29. 29 Conclusion and discussion 2 The gap of needs and the power in standard setting SOEs have been accumulating their innovation capability, but lots of indicator show that State-owned enterprises have lost their dominant position of innovation. Though the current innovation policy favors SOEs, but the regulation of SOEs and their monopoly position restrained them to be innovation driven. They have the power to implement standards, but do not have the incentive to get it. Private enterprises are the fast runner to build innovation capability, though they enjoy less direct support from government. They need standards to win out in the market competition, but they are relatively weak to do so. So, Chinese companies are the weak stakeholders in standard setting.

30. 30 Conclusion and discussion 3:market size Market size is the key for standard setting? Lots of scholars argue that the size of Chinese market can nurture lots of standards if China is willing to in software, telecommunication, etc. But the touch situation of TD-SCDMA shows that just market size is not enough to lead to standard setting and control.