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The purpose of this paper is to describe the development of Chinas science and technology,
their related institutions and use in the business world since the reforms started in 1978. Special
attention will be given to the re-integration of high-technology into the private sector and the
accompanying new type of organization: the New Technology Enterprises (NTEs) or
technological entrepreneurs in the Development Zones. In an historical analysis we identify
several phases of institutional reforms and international technology transfer. The present state of
Science & Technology is analysed in terms of information infrastructure, educational system and
innovative capability. The analysis shows the still underdeveloped parts of a science and
technology supporting environment. The analysis discusses the basic features of the hightechnology industry and identifies the information and communication technology (ICT) sector as
the most important sector of the industry. This sector is growing fast none the least due to the
attention the reform policy has paid to its development since 1978. Specifically the role of NTEs
who are pre-dominantly ICT oriented in Development Zones is interesting and important. We
argue that the NTEs play a large role in the development of private high-technology. We propose
a system for technological entrepreneurship and identify computer hardware and software as
key sectors for NTEs and high-technology development.
Mission: HF 5001-6182
Programme: HB 615-715
(LCC)
LCC Webpage
Journal of Economic
Literature
Paper:
HD 72 Economic development
Mission: M
Programme : M 13, O 32
(JEL)
Paper:
JEL Webpage
Mission: 85.00
Programme: 83.82, 83.62, 85.00,
Paper:
Keywords GOO
Free keywords
TheevolutionofhightechnologyinChina
after1978:Towardstechnological
entrepreneurship
M.J.Greeven
FacultyofBusinessAdministration
ErasmusUnversiteitRotterdam
October,11,2004
TobepresentedatEURAM,May47,2005,Mnich
Abstract
ThepurposeofthispaperistodescribethedevelopmentofChinasscienceand
technology,theirrelatedinstitutionsanduseinthebusinessworldsincethereforms
startedin1978.Specialattentionwillbegiventothereintegrationofhightechnology
intotheprivatesectorandtheaccompanyingnewtypeoforganization:theNew
TechnologyEnterprises(NTEs)ortechnologicalentrepreneursintheDevelopment
Zones.Inanhistoricalanalysisweidentifyseveralphasesofinstitutionalreformsand
internationaltechnologytransfer.ThepresentstateofScience&Technologyisanalysed
intermsofinformationinfrastructure,educationalsystemandinnovativecapability.
Theanalysisshowsthestillunderdevelopedpartsofascienceandtechnology
supportingenvironment.Theanalysisdiscussesthebasicfeaturesofthehigh
technologyindustryandidentifiestheinformationandcommunicationtechnology(ICT)
sectorasthemostimportantsectoroftheindustry.Thissectorisgrowingfastnonethe
leastduetotheattentionthereformpolicyhaspaidtoitsdevelopmentsince1978.
SpecificallytheroleofNTEswhoarepredominantlyICTorientedinDevelopment
Zonesisinterestingandimportant.WearguethattheNTEsplayalargeroleinthe
developmentofprivatehightechnology.Weproposeasystemfortechnological
entrepreneurshipandidentifycomputerhardwareandsoftwareaskeysectorsforNTEs
andhightechnologydevelopment.
Keywords:technologicalandinstitutionalchange,networks,evolution,high
technology,entrepreneurship,China.
JEL: M10:businessadministration,general
M13:entrepreneurship
O53:economiccountrystudies,Asia
O32:managementoftechnologicalinnovationandR&D
P31:socialistenterprisesandtheirtransitions
L2:firmobjectives,organization,andbehavior
D85:informationanduncertainty,networkformation
L63:microelectronics;computers;communicationsequipment
L52:industrialpolicy;sectoralplanningmethods
1.Introduction:headingfortechnologicalentrepreneurship
Chinastartedimplementingpoliciesofeconomicreformandopeningupin1978.The
governmentandDengXiaopinginparticularbecameawarethatamoreefficientand
productiveeconomywasneededandthattheroleofthegovernmentneededtobe
lessened.Thereformsplayalargeroleinthedevelopmentandadvancementofthe
Chineseeconomy.
Thecapacityofacountrytodevelopitstechnologyisanimportantconditionfor
economicdevelopment(Tidrick,1986;Piek,1998).Therefore,thereformoftheChinese
economyhasbeenaccompaniedbyamajorefforttoraisethelevelofscience&
technology(Xiaojuan,1997).Itwasinsufficienttocompetewithworldclasstechnology
(GarrettJones,Xielin,1997;Piek,1998;Xiaojuan,1997)andscience&technology
activities(e.g.R&D)werecarriedoutinstateR&Dinstitutesandmissedeverylinkto
theeconomy.Theinstitutionalenvironmentdidnotsupporttechnologicaldevelopment
inotherthanstateruninstitutesandforeigninvestmentwasnotallowed.R&Dactivities
werenotcommercialised.Furthermore,theeducationalsystemwasirrationaland
resourceswerewasted.Thenumberofhighlyskilledworkerswaslowandtheaverage
levelofscienceandtechnologywasfarbehindothercountries.Inaneraofhigh
technologydevelopment,suchastheminicomputer,personalcomputer,
semiconductors,biotechnologyandtelecommunications,Chinaneededtocatchup.
Marketbasedincentivemechanismsneededtobeenhancedandinstitutionalconditions
improved,whilereducinggovernmentinterventionsinordertofosterselfsustainable
developmentofthehightech,knowledgebasedindustry(OECD,1999;Bayganand
Freudenberg,2000).So,technologicalchangeandinstitutionalchangegohandinhand.
Thepurposeofthispaperistoshowthedevelopmentoftechnology,relatedinstitutions
andbusinesssincethereformsstartedin1978.Wearespecificallyinterestedinthe
emergenceofhightechnologydevelopmentintheprivatesectorandanewtypeof
organization:theNewTechnologyEnterprises(NTEs)ortechnologicalentrepreneursin
theDevelopmentZones.
Sincethereforms,programsandlegalchangesarecrucialinunderstandingthe
developmentofscienceandtechnologyinChina,wewilldiscussthisinthenextpart.
Wewillshowthesearchfortherightwayofupgradingandimprovingthetechnology
andcommercialisingitthroughahightechindustry.Phaseswillbeidentifiedand
characterisedaccordingtothereformsandtechnologydevelopment.Inthelastphaseof
development,wewillshowtheroleoftechnologicalentrepreneursNTEsandthe
importanceofforeigninvestment.
PartThreewilldiscusstheroleofinternationaltechnologytransferinthedevelopment
oftechnologyingreaterdetail.Thesetwopartstogethergiveahistoricaland
evolutionaryoverviewofthedevelopmentofthescienceandtechnologysystemandthe
connectionbetweentechnology,institutions,andbusiness.
TheFourthPartwillshowthecurrentstatusofthescienceandtechnologysystemin
moredetail.Informationinfrastructure,educationalsystemandinnovativecapability
formthesupportingenvironmentforthehightechnologyindustry(OECD,2000)and
ultimatelythebasisforprivateR&Dandtechnologicalentrepreneurship.
TheFifthPartthendiscussesthemainfeaturesofthehightechindustry.Weidentifythe
informationandcommunicationtechnology(ICT)sectorasthemostimportantsectorof
theindustry.Thissectorisinterestingbecauseitisgrowingfastandgotalotofattention
inthereformsandprogramssince1978.SpecificallytheroleofNTEswhoarepre
dominantlyICTorientedinDevelopmentZonesisinterestingandimportant.Ashort
introductiontothemainpartsoftheICTsectoristhenprovided:telecommunications,
computerhardwareandsoftware.
WewillarguethattheroleofNTEsisimportantinthedevelopmentofprivatehigh
technology(R&D).TheyoperateinanetworkofR&Dinstitutes,highereducation
institutesandCASresearchinstitutesandgetincentivesfromstateplansandmarket
demand.Thecurrentsupporting(institutional)environmentisaresultoftheevolution
oftechnologyandbusinesspolicyandinternationaltechnologytransfer.Inthe
conclusionweproposeasystemfortechnologicalentrepreneurshipandidentify
computerhardwareandsoftwareaskeysectorsforNTEsandhightechnology
development.
2.EvolutionoftechnologyandbusinessinChina:institutionalchange
TheevolutionoftechnologyinChinaisstronglylinkedtothedevelopmentofthe
reformsandprogramsthatthecentralgovernmentinitiated.Wewillarguethatthereare
fourphasesofdevelopmenttobedistinguishedafter1978.However,westartwitha
shorthistoricalnoteoftheperiodbefore1978tounderstandtheChineseinsatiabledrive
toreform.
AfterMaotookpowerin1949,alleconomicactivitieswereguidedbyastateplan.All
research,developmentandengineeringwascontrolledandcoordinatedbytheState
DevelopmentPlanningCommissionandtheStateScienceandTechnologyCommission.
TheCulturalRevolutionstartedin1967afterMaosdisappointmentoftheintelligentsia
inChina.Theconsequencewasahalttoscienceandtechnologydevelopmentfor10
years.MaodiedandDengXiaopingimposedanewregimebymeansofthe
promulgationofZhousFourModernizations.Thereformsstartedin1978.Table2.1
givesadetailedoverviewofallrelevantreforms,programs,andeventsandwewill
discussthephasesintheevolutionoftechnologyinChina.
Table2.1:TheevolutionoftechnologyandbusinessinChina
Year
1949 1977
Initiative
Planned economy
Activities
All research, development and engineering
1967 1976
Cultural Revolution
1978
1978
1980
1982
1982
1984
1984
1985
1986 (adopted
in 1984)
1986
1986
1986
Spark Plan
1987
1987
1988
Torch Plan
1988
Zhongguancun
Initiators (funds)
Control and coordination by State Development Planning
Commission and the State Science and Technology Commission
(SSTC)
Central government
National government
State Council
National government
NPC
MOST
(Government budget)
(Government funded, bank loans and self-raised funds)
State Council
Beijing, MOST
1990
1992
1992
Dissemination Plan
Climb Plan
1993
Decision on Several
Problems Facing the
Enthusiastic Promotion of
Non-Governmental
Technology Enterprises
Golden Projects: Golden
Card, Golden Bridge,
Golden Custom
1993
1994
1995
1995
1997
1997
Decision on Accelerating
Scientific and Technological
Progress
973 Program
1998
1998
Venture capital
1999
2001
2001
Chinese government
NPC
State Council
MOST
(Government budget)
MOST
Basedon:Dahlman&Aubert(2001),Saxenian(2003),Yuan&Gao(1992),Gu(1995),U.S.Embassy(2002),Hendrischke(2003),Feinstein&Howe
(1997)
19781984:Restoration
Thefirstperiodisaperiodofrestoration.Theprocessofeconomicreforminthe
agriculturalsectorwasinitiatedtorestoretheScience&Technologysystem(S&T)to
preCulturalRevolutionstate.Thebelievewasthatthesuccessoftheneweconomic
developmentplanscouldbebuiltuponpreCulturalRevolution(Soviet)model.The
19781985NationalScienceandTechnologyProgrammewasannouncedin1978to
rehabilitateR&Dinstitutions1.Theprogramfocusedonlongtermdevelopmentandset
eightS&Tpriorityareas2.
Intheearly1980s,however,thegovernmentrecognizedthedifficultiesofthe
fulfillmentofeconomicobjectives.Thefocussoonbecametheelaborationofplanning
practices,thedevelopmentofaKeyTechnologiesR&DProgrammebytheMinistryof
ScienceandTechnology(MOST),andstateplansforkeylaboratoriesandindustrial
experiments.TheKeyTechnologiesProgrammewasenactedin1982andputemphasis
onthedevelopmentofagriculture,new/hightechnologyandsocialwellbeing.The
TacklePlanwasalsoinitiatedin1982,tosolvetechnicalproblemsraisedbyenterprises
usingresourcesatresearchinstitutionsanduniversities.
Besidesinitiativesforrestoringthetechnologysystem,therewerealsoreformsin
education.In1980theFirstEducationLawwasenactedtoregulateacademicdegrees.
Theemphasisshiftedfromquantitytoqualitybyintroducingacademicstandards.
Slowlytheneedforuniversaleducationbecameclear.Thegovernmentrecognizedthe
needtoreformthissystemtobeabletofulfilltheireconomicplans.
Whilethereformsintheindustrialsectorstartedinthemid1980s,the
governmentalsostartedtorecognizethedeficienciesinthecurrentsystem.Thecentral
concernwasthelackoflinkagesbetweentheS&Tsystemandtheeconomy.
19851986:Technologymarket
OnMarch1985theDecisiononReformoftheScienceandTechnologyManagement
SystemwastakenbytheStateCouncil.Recognizingthelinkageproblem,theprogram
triedtoforgehorizontallinksbetweenresearchlabsandenterprisestofacilitatetheflow
oftechnologiesfromthestateS&Tsystemintoindustry(Lu,2000).Thiswasaturning
pointinthehistoryoftechnologyinChina,becausefromnowonthereformofthe
systemitselfwasthefocus.Thegoalofthe1985Decisionwastoforgeatechnology
marketwithsupportinginstitutions.Chinatriedtointegratetheresearchsystemwith
theeconomicsysteminthe1980stoovercometheproblemoftheseparateculturesof
productionandresearch.(Turpin,Xielin,GarrettJones,Burns,2002).
In1986the19862000ProgrammeforScientificandTechnicalDevelopment
wasimpolemented.Theprogramconsistedofplansforbasicandappliedresearch,
technicaldevelopmentandcommercializationoftheresults,technological
popularizationandabsorptionofforeigntechnology(Feinstein&Howe,1997).
Furthermore,in1986the863PlanwasimplementedbytheMOST,whichidentified
MostS&TactivitiesareR&DactivitieswhicharecarriedoutinR&Dinstitutes
Agriculture,energyresources,materials,computing,lasers,spacescienceandtechnology,highenergy
1
2
physicsandgeneticengineering.
sevenkeyhightechareas:biotechnology,IT,automation,energy,newmaterialsand
twoothermilitaryareas.Sincethenthedevelopmentofresearchonhightechnologies
hasenteredanewstageinChina.Besidescatchinguptechnologically,thestrategicgoals
were:trainingscientistsandengineers,promotingS&Tinrelatedareas,advancinga
technicalbasisforeconomicandsocialdevelopment,andtransformingresultsinto
productiveforce.ThepromotionofS&Tinrelatedareasisalsosupportedbyfor
instancetheSparkPlan(1986)toupgradeagriculturaltechnology.Furthermore,the
CompulsoryEducationLaw(1986)improvedthequalityofeducationsinceeverychild
wasrequiredtofulfillnineyearsofeducation(sixyearsprimary,threeyearsjunior
secondary,andthreeyearsseniorsecondary).
However,commercializationisacomplicatedprocess,andnoteasilyreachedby
justcreatingtechnologicalmarkets.Attheendof1980sitbecameclearthetechnological
marketwasinsufficientandneededfurtherreform.Gu(1995)identifiedseveralfactors
influencingthefailingofthetechnologymarket:uncertaintiesoftechnological
innovation,inexperienceofusers,andunderdevelopedmarketinstitutions.
19871992:Institutionsandindustry:merginginitiativesandspinoffs
ThesecondturningpointinthehistoryoftechnologyaretheStipulationsoftheState
CouncilforFurtheringtheReformoftheS&TManagementSystemin1987.TheState
CouncilurgedindustrialR&Dinstitutestoenterintoenterprises,becausethereformsof
the1980sfailedtodevelopaconsistenttechnologypolicy.Policycontinuedtofocuson
publicresearchinstitutesinsteadoftheindustryandtheresourcespredominantlywent
tostateownedinstitutesratherthanthepotentiallymoreinnovativenongovernmental
enterprises(Saxenian,2003).Forinstance,eventhoughthe863Programmerewarded
Chinawithworldlevelhightechachievements,theprogramdidnotbringmanynew
productstomarket(Saxenian,2003).Thelinksbetweencommercialenterprisesand
researchwerestillhardtofind.Furthermore,sincetheeducationalsystemwasnotreally
advancedanddevelopedyet,therewasaproblemofgettingenoughhighlyeducated
personnel.Manyofthescarcehighlyskilledstudentswhohadgoneabroadsincethe
reformsdidnotreturn(ChinastatisticalYearbook,2002).
The1987StipulationsencouragedR&Dinstitutestoenterintoenterprisesby
protectingthepreferentialpositiontheyenjoyedandprovideincentivestomerge(Gu,
1995).AmajorsteptopromotethisprocesswastheenactmentoftheTechnology
ContractLaw(1987).ThisLawstatesthatitisformulatedamongotherthingsto()
protectthelegitimaterightsandinterestsofthepartiestotechnologycontracts()
ThemergingofR&Dinstitutionsintoenterprisesprovedtobeharderthanexpected
becauseitwasdifficultfortheinexperiencedenterprisestoincorporateaR&Dinstitute.
In1988theMOSTandStateCouncilinitiatedtheTorchPlan.Thisplanwasintroduced
tofurtherpromotethelinkagebetweenscience&technologyresearchand
commercialization.Themainpurposewastocreateasupportive(institutional)
environmentforthedevelopmentofnewtechnologyenterprises.Therearetwoimportant
aspectsofthisprogram.
First,theProgrammesupportedtheintegrationofR&Dassetswithcommercial
productionwithinnewlycreatedenterprises.Thesenewtechnologyenterprisesor
NTEswerebasicallyspinoffsofR&Dinstitutes(ofe.g.universities)3.TheProgramme
providedsupportinseveralways:incentives,preferentialstipulationsandbasic
intellectualpropertyrights(Gu,1995),whichleadtoaspeciallegalstatusoftheNTEs.
Second,thesupportive(institutional)environmentwascreatedbythedesignationof
DevelopmentZonesforNewTechnologyIndustries.Thesupportwasmainlyfinancial
andNTEscouldtapintonetworksoffinance:R&Dinstitutions(forsomeventure
capital),banks(forexpansionfunds),andZones(forinvestmentininfrastructure).
However,itmustbenotedthatventurecapitalwasrelativelyunderdeveloped,whichis
oftenseenasoneofthemajordrawbacksinthedevelopment.Realventurecapital
investmentstartedwiththelocalgovernmentinitiativesin1998.
Gu(1995)findsthatthemaininitiatorsofNTEsweretheinstitutesoftheChinese
AcademyofSciences,R&Dinstitutesbelongingtocentralministries,R&Dinstitutes
belongingtolocalgovernmentsandR&Dinstitutesofhighereducation.Themajorityof
NTEswereengagedininformationtechnologyrelatedactivities(Gu,1995).Thefirst
hightechzonewascreatedintheZhongguancunareainBeijing.In2004,thisareais
dubbedChinasSiliconValleyandisaworldclassresearchanddevelopmentcenter.
Ithasmorethan500R&Dcenters,over40ofwhichweresetupbymultinational
corporations.Thereareover4000enterprisesemployingmorethan200.000personsand
focusingoninformationandbiotechnology.ManymoreZonesweresetup:Shanghai,
with400enterprises,100.000employeesandShenzheng,with100enterprisesand40.000
employeesareamongthelargest.
Intheearly1990s,thegovernmentintroducedtwootherplans:Dissemination
Plan(1990)andClimbPlan(1992).Thefirstwastofurtherimproveandpromotethe
commercializationofR&Dresultsandthesecondwastopromotebasicresearch
activities.However,theTorchplancanbeseenasthemajorbreakthroughoftechnology
inChina.Itisforthefirsttimethatscience&technologyandcommercialinitiativesare
successfullylinked.Thecontinuedeffortofthegovernmentintermsofsupportingplans
andprojectsisthebasisforthesuccessoftheirinitiatives.However,eventhough
succesful,itwasinsufficienttocatchuptechnologically,asthegovernmentbecame
aware.
1992onwards:Openingupandtechnologicalentrepreneurship
Apolicyshiftregardingforeigninvestmentandincreasedencouragementand
promotionoftechnologicalentrepreneurshiparethecharacteristicsofthisphase.A
majorturningpointinthehistoryoftechnologyinChinaismarkedbyDengXiaopings
SouthernTourin1992.Dengpromotedliberalization,reformandforeigninvestmentin
theSouthernprovinces.Chinesegovernmentpolicytowardforeigninvestmentshifted
dramatically,offeringforthefirsttimesignificantdomesticmarketaccesstofirmsthat
AlthoughtheTorchProgrammewastheformalsupportforspinoffenterprises,theemergenceofthem
wasalreadyauthorizedbythe1985Decision.
3
broughtinadvancedtechnology.Oneofthemajorreasonswasthegrowingawareness
thatonlyindigenous,domestictechnologydevelopmentisnotenoughtocatchupwith
therestoftheworld(Naughton,1999).Thegovernmentprovidedmoreandmore
marketaccesstoforeigninvestors,amongwhichweremanymultinationalcorporations.
ThispolicyshiftledtoamassiveflowofforeigndirectinvestmentintoChina.Part3
dealswithinternationaltechnologytransfersandforeigndirectinvestmentingreater
detail.
Thegovernmentencouragedandpromotedtechnologicalentrepreneurshipwith
severaldecisionandprograms.TheDecisiononSeveralProblemsFacingthe
EnthusiasticPromotionofNonGovernmentalTechnologyEnterprisesin1993
encouragedpolicymakerstoformentrepreneurialspinoffsfromuniversitiesor
governmentresearchinstitutes.Thisdecisionrecognizedthatnonstateenterprises
couldplayarolebuildinganew,moremarketorientedeconomy.The1993Decision
wasfollowedbythe1995DecisiononAcceleratingScientificandTechnological
Progresstopromoteanddevelophightechnology,trainworkersandfurtheropenup.
TheGoldenProjectsin1993encouragedtheadoptionofITinkeysectorssuchasIT
banking,nationaltelecombackbonedevelopment,andcomputernetworkingforforeign
trade.TheProjectshaveplayedamajorroleindevelopinginformationnetworksand
infrastructure.The973Program(1997)wasacontinuationoftheClimbProgramto
promoteS&Tdevelopmentinrelativelymatureresearchenvironments.Thefurther
developmentanddisseminationoftechnologywassupportedbytheestablishmentof
theNationalCenterforScienceandTechnologyEvaluation(1997),whichprovided
objectivepeerreviewofgovernmentfundedS&Tresearchandthecreationofthe
MinistryofInformationIndustry(1998).TheMIIisnowasuperagencyoverseeing
telecommunications,multimedia,broadcasting,satellites,andtheInternet.
TheenactmentoftheCompanyLaw(1994),theEducationLaw(1995)andthe
importantconstitutionalchangein1999toestablishthestatusofprivateandnonstate
sectorenterpriseswerecruciallegalreforms.Theyshowthecommitmentofthe
governmenttouniversaleducationandtheideologicalshiftofthegovernmentinwhich
thelegitimacyandcontributionofprivateenterpriseswasacknowledged.Finally,in
2001ChinaenterstheWTOandthe10thFiveYearPlan(20012005)emphasizesthe
economicimportanceoftheinformationandcommunicationtechnologyindustry.The
hightechindustryisnowfullyacknowledgedandsupportedbythegovernment.
Fromrestorationtotechnologicalentrepreneurship
TheevolutionoftechnologyandbusinessinChinaisaprocessoflearning.The
developmentisguidedbythepolicydecisionsthatsettheinstitutionalenvironment.
Thevariousstagesinhistoryshowtheevolutionofandinteractionbetween
technologicaldevelopmentandinstitutionaldevelopment.Thepoliciesofthefirstphase
(19781984)aimatrestoringthetechnologicalsystemtopreCulturalRevolutionlevel.
However,intheearly1980sitbecameclearthatthereweretoomanydeficienciesinthe
systemandthatstructuralreformwasneeded.Thesecondphase(19851986)is
characterizedbyreformstoforgehorizontallinksbetweenresearchlabsandenterprises
10
tofacilitatetheflowoftechnologiesfromthestateS&Tsystemintoindustry.Themain
goalofthe1985Decisionwastocreateatechnologymarketwithsupportinginstitutions.
The863Programwasoneofthemostinfluentialprogramsanddeterminedfocusforthe
followingyears.Attheendof1980sitbecameclearthatthetechnologicalmarketwas
insufficientandneededfurtherreform.Thethirdphase(19871992)ischaracterizedby
additionalattemptstourgeR&Dinstitutesintoenterprises(1987Stipulations)andthe
TorchPlantocreatenewtechnologyenterprisesinasupportiveenvironment.Hightech
spinoffs(NTEs)wereformallysupportedandDevelopmentZonesforNewTechnology
Industriesweresetup.Eventhoughthelastdecisionissuccessful,itwasinsufficientto
catchuptechnologically.Thefinalphase(1992)ischaracterizedbytheopeningup
approachofDengXiaopingtoattractforeigninvestmentandadvancedtechnology.
Furtherdecisionsandprogramscharacterizedtheencouragementandpromotionof
technologicalentrepreneurshipbythegovernment.Entrepreneurialspinoffsarefurther
promoted,andeducationandtrainingarefurtherdeveloped.Importantdecisionsare
theCompanyLawandtheconstitutionalchangewhichacknowledgedthelegitimacy
andcontributionofprivateenterprises.Theroleofforeign(direct)investmentin
technologydevelopmentisincreasinglylargeinthisphase.
3.InternationalTechnologyTransfer
ThereformprocessstartedwiththecollapseoftheMaoistdoctrinesofselfrelianceand
wasbasicallyastrategytoachievetheFourModernisations4throughtechnology
transfer(Howe,KuehandAsh,2003).Foreigntechnologytransferisalsoawaytobuilt
technologicalcapabilityupon,besidesindigenousknowledgeandexperience.The
transferofforeigntechnologytoChinahelpedtheprocessoftechnologydevelopment.
Foreigndirectinvestmentbecamethemainvehicleoftechnologytransferinthe1990s.
Internationaltechnologyanddomesticpolicyinitiativesshapedandcontinue
toshapethedevelopmentoftechnologyanditsroleintheeconomy.Thissectiondeals
withthegeneralopeningup,thephasesoftechnologytransferandtheutilizationof
foreigndirectinvestment.
3.1Import/export:openingup
Thevalueofimportsandexportsandthebalancebetweenthemshowtheaccelerated
openingupoftheeconomy(Figure3.1).Afterthereformswereinitiatedboththevalue
ofimportsandexportsshowalargeincrease.Thevaluesalmostdoubledinthefirsttwo
yearsandmorethantripledbetween1980and1985.Intheperiodbetween1985and
1995itdoubledagaintwice.ThisindicatestheopeningupoftheChineseeconomyand
ispredominantlyinfluencedbyDengsSouthernTripin1992.Thebalanceofexports
andimportsisevenmoreinteresting.Thevalueofimportsiscomparableorsometimes
TheFourModernizationswerefirstannouncedbyZhou(1973)andpromulgatedbyDeng(1992).They
standfortheupgradeandadvancementofagriculture,industry,nationaldefense,andscienceand
technology.
4
11
evenhigherthanthevalueoftheexportsuntiltheearly1990s.Thisindicatesan
unfavourablebalanceofforeigntrade,butactuallyisastrategyoftheChinese
governmentaswillbeshowninthefollowingsectionstoimportproductsand
knowledge.Lateron,theexportsarelargerthantheimports,whichindicatesabetter
balanceoftrade.
Figure3.1:Valueofimportsandexports
25000,0
4000,0
3500,0
20000,0
3000,0
2500,0
100 million Yuan
100 million Yuan
15000,0
2000,0
1500,0
10000,0
1000,0
500,0
5000,0
0,0
-500,0
0,0
-1000,0
1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
1978
Year
Source:ChinaStatisticalYearbook2002
Total exports
Total imports
Balance Export - Import
Thereformsintheimport/exportpoliciesarethemainpillarsinthedevelopmentofthe
openingupofChina.Piek(1998)identifiedthreemajorreformprograms:
1.
2.
3.
OpenDoorPolicyearly1970s:exchangevisitsbetweenChineseandWesternspecialistsand
academics,andstudentsbeingsentabroad;
SpecialEconomicZones1980s:coastalprovincesweregivenpreferentialtreatmentto
attractforeigninvestors;
Breakingmonopolyofstatetradingorganisationsandforeignexchangecorporations.
Duringtheprocesslocalitiesgotmoreauthority(decentralisation)andenterpriseswere
givenmoreresponsibility.Itcreatedmoreopportunitiesforregions,localitiesand
enterprisestoestablishtheirownlinkswiththeexternalworld.Thereweremanyways
ofimportingnewknowledge:investment,capital,jointventures,andsoon.Thisinturn
ledtoabroadtransferoftechnologyandtheestablishmentofnetworksofrelationsand
institutionstofurtherdeveloptechnology.AsPiek(1998,p.35)observed
decentralisationofinstitutionsandliftingofstatesmonopolyintheforeignsector
stimulatesdomesticenterprisestoentertheworldmarket.Theacquiringofaseatinthe
WorldBankandtheIMFinthemid1980sandmorerecentlyenteringtheWTO
influencedthisdevelopment.Concluding,generalreforminitiativesofthegovernment
increasedthecooperationbetweenChinaandtheworld.
12
Table3.1showsthesharesofhightechimportsandexportsoftotalimports/exports(of
manufactures).Thesharesofhightechimportsincreasedduringthelastdecade.This
indicatesthattheChinesefocusedonhightechnologydevelopmentandusedimportsof
hightechmanufacturesasawayofgatheringknowledge.Theshareofhightech
importstototalimportsalmostdoubledinthelastdecadetoonethirdofthetotal
manufacturesimports.Theexportofhightechmanufacturesdoubledaswelland
becameonequarteroftotalmanufacturesexportsin2001.Theincreaseinexportscanbe
explainedbythefactthatChinahasdevelopedproductsthataregoodenoughfor
export,aftertwodecadesoflearning.
Table3.1:Hightechimportsandexportsasshareoftotalimportsandexports(ofmanufactures)
1992
import 17,31%
exports 12,33%
1993
16,61%
12,97%
1994
18,79%
14,05%
1995
18,15%
15,49%
1996
18,17%
17,20%
1997
20,90%
17,50%
1998
25,31%
19,81%
1999
28,57%
21,53%
2000
30,76%
23,42%
2001
33,05%
25,28%
Source:AdoptedfromSchaaper(2004)
3.2Phasesininternationaltechnologytransfer
Theimportoftechnologycanbeunderstoodinphases5andisdefinedasthetransferof
thescientificknowledgeandproductiontechnologyrelatedtoacertaingood
(Jiangping,1997,pp.8283).Therearedifferenttypesofimport:wholeplant,licenses,
technicalservices,consultancy,coproduction,andforeign(direct)investment.
Since1979,changesinthestatemanagementofimportingtechnologytookplace.The
newlyformedStateCommissionforImportsandExportsintendedtohelpthe
technologyimportbutfailedbecauseitwasntinlinewiththedecentralisationand
reformoftherestofthesystem.Chinastechnologyimportsweremanagedunder
centralauthority.After1982,theStateEconomicCommissiondecentralizedpartofthis
authoritytolocalgovernments
19811987
Jiangping(1997)reportsthattheimportoftechnologygrewthroughoutthewhole
period.Alargepartoftheseimports(invalue)camefromJapan,theUnitedStates,and
formerWestGermany.Mostoftheimportswerefortheenergy,rawmaterials,
machinery,electronics,lightandtextileindustries.Thestilllargestatecontrolled
importsoftechnologyinthisperiodwerefocusedontwomajorprogrammes:the3,000
itemplan,aimedatrenovatingtechnologyinexistingenterprises,andthetwelve
productionlinesplan,aimedatimportingtwelvelinestodevelopproduction.
ThissectiondrawsheavilyonJiangping(1997)
13
19881991
In1988,theStateEconomicCommissionwasabolishedduringtheincreasinglyfast
transformationofstateownedenterprises.TheStatePlanningCommissiontookover.
Moreauthoritywasgiventolocalgovernmentstomanagetheimportstotheirown
plans.However,thediversityofplansoflocalgovernmentmadeitincreasinglydifficult
forthecentralgovernmenttogetafullpicture.Thenumberoftechnologyimports
declinedsignificantlyasaconsequenceofChinascontractionarymacroeconomicpolicy.
However,thevalueofthecontractsincreased.Thestructureofimportschangedtowards
morewholeplantimports,largelybecausethe1986LawonForeignEnterpriseswhichformally
grantedlegalrightstowhollyownedforeignenterprisesinChina.Theimportsfocusedmainly
onenergy,oilandpetrochemicals.Theseimportsweremainlyobtainedfromthe
CommonwealthofIndependentStatesandItaly.
19922001
In1992,themanagementoftechnologyimportswastransferredtotheStateEconomic
andTradeCommissionandtransformedthesystemfromtechnologyimportcontrol
toscaleoffundscontrol.Thechangingroleofthegovernmentwascrucialinthis
periodofinstitutionalreformandfocusedontheestablishmentofthesocialistmarket
system.Whereasthegovernmentwasthemainactorintechnologyimportsinthe1980s,
inthe1990senterprisesbecamemoreindependentandwerethemselvesresponsiblefor
theimportoftechnologyandtheassociatedrisks.Themacrotargetshadtobesetbythe
government,butthemicrocontrolandcontentoftheimportsbecametheresponsibility
oftheenterprises.Inthisperiod,therewasadeclineintechnologyimports.Thefocusof
importschangedinfavourofelectronics,textiles,motorvehicles,machineryadlight
industry.Inthe1990s,manyimportswerecloselyrelatedtoforeigndirectinvestment.
DuetoboldliberalisationofthepoliciesofDengXiaopingafterhis1992SouthernChina
Trip,manyforeigninvestorssetupjointventuresandimportedadvancedtechnology.
Thetechnologicalprogresswaspromotedthroughforeigninvestment,becauseforeign
investmentinChinadidnotonlybringcapitalbutalsomanagementskills,technology
andequipment.
2001onwards
TheaccessiontotheWTOisoneoflastbigcontributorsinthisprocessandmeantanew
phase.ChinasaccessedtheWTOonDecember11,2001,andcommittedtoeliminate
variousregulatorymeasureswhichimposedrestrictiontoforeigntechnologytransfer.
AlongwiththecountrysaccordwiththeUnitedStates(1999)andEuropeanUnion
(2000),Howe,KuehandAsh(2003),expectthatChinaisasopenasmanynewly
industrialisedcountriesby2005.ThemainimplicationsofChinasWTOaccessionJiang,
2002):
withderegulationofFDI,manyexportorientedFIEs(foreigninvestedenterprises)are
likelytotargetoutputtothedomesticmarket;
automobiles,chemicals,andelectronicsarelikelytorestructureduetothedismantlingof
importtariffandnontariffbarriers,sincethesewerehighlyprotected;
14
thenewlyemergingindustriestelecommunications,banking,insurance,and
professionalservicesandcommercialdistributionswillbefloodedwithforeign
investmentandMNCs;
withtheaccession,manyMNCsenteredandwillenterChina
OnJanuary1,2002,anewpostWTOregulatoryframeworkwaspromulgatedbythe
StateCouncil:RegulationsofthePRConImportandExportofTechnology.The
MOFTECandotherrelevantdepartmentsundertheStateCouncilstartedtoprovide
detailedguidancefortechnologyimport,suchascontractregistration,cataloguesof
restrictedtechnologies,etcetera.Thismarksanimportantstepforindividualenterprises
andisconformWTOrequirements.Althoughmanyuncertaintiescontinuetoexistthe
termsofcontractarebecomingincreasinglyclearforbothforeignanddomestic
investorsandtechnologytransferors(Jiang,2002).Forthesereasonsthe2001WTO
accessioncouldberegardedasthestartofafourthphaseofinternationaltechnology
transferandthedevelopmentoftheChineseeconomy.
3.3Utilizationofforeigncapital
Sinceforeign(direct)investmentbecameincreasinglyimportantinthe1990s,wetakea
closerlookattheforeigncapitalfigures(Figure3.2).Theturningpointisintheearly
1990s.Eventhoughapproximately30%oftheforeigncapitalisstillfromloansorother
foreigninvestments,foreigninvestmenthasbecomepredominantlydirectinvestment
(FDI).
Figure3.2:Utilizationofforeigncapital
Figure 3.2: Utilization of foreign capital
100%
80%
FDI
60%
40%
20%
Foreign Loans
0%
19791984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Years
Source:ChinaStatisticalYearbook2002
Foreign Loans
FDI
AccordingtoSunetal.(2002,p.82),FDIisconventionallydefinedasaformof
internationalinterfirmcooperationthatinvolvesasignificantequitystakeinoreffective
managementcontrolofhostcountryenterprises.BasedonSunetal.(2002)andYietal.
15
(2004)6wesuggesttwophasesofFDIflows,basedonindustrycategories.Thefirstphase
isbetween1979and1991.InthefirsthalfofthisphaseFDIconcentratedonlyon
nationalindustriesandcoastalzones;lateralsoonmanufacturingindustriesandmore
centralzones.Duringthisphase,theOpenDoorpolicywaspredominantlyrestrictedto
thecoastalregion,foreignershadlimitedaccesstotheChinesedomesticmarket,andthe
rangeofindustriesinwhichforeignerscouldinvestwasrestricted.Thesecondphase
startedin1992,whenthescopewasbroadenedtolargeinfrastructureand
manufacturing.Thislastperiodtheopeningupwasextendedtoallregions,thepace
wasaccelerated,thedomesticmarkethasbeenfurtheropened,thedirectionshifted
fromaregionaltoanindustrybasedorientation.Ingeneral,mostofFDIflowsfrom
Asiancountries,incontrasttomostofthetechnologyimportsduringthefirststagesof
technologyimports(Jiangping,1997).
Yietal.(2004)identifiedfourwaysinwhichFDIentersChina:jointventureenterprises
(JVEs),cooperativeoperationenterprises(COEs),foreigninvestmententerprises(FIEs)
andcooperationdevelopment(CD).TheamountsofactuallyusedFDIbyentrymode
showsstructuralchanges(Yietal.,2004)(Figure3.3).
Figure 3.3: Actually used amount of FDI by entry mode
Figure3.3:ActuallyusedamountofFDIbyentrymode
Figure3.3:ActuallyusedamountofFDIbyentrymode
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
CD
FIEs
COEs
JVEs
0%
1979- 1983
1982
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Years
Source:ChinaStatisticalYearbook2002
JVEs
COEs
FIEs
CD
Until1992,thetotalamountofFDIwassmallandtheonlyentrymodesusedwereCOE
andCD.Theturningpointisintheearly1990s.Fromthispointonwardstheamountof
foreigninvestmententerprisesincreasestoashareofalmost50%oftotalFDI.Theshare
ofCOEandCDdeclinedwhenmorestructuralinvestmentswereallowedandforeign
investorsmadestrongercommitments.ThedevelopmentofFDIandtypesofFDIentry
modesisstronglylinkedtotheregulatoryreformsregardingforeignfirms(Table3.2).
Eventhoughtheysuggestthreephases,webelievethattheonlyrealturningpointcanbeinthe
early1990s,basedonthefiguresandpolicyshifts.
6
16
Table3.2:Phasesinregulationsforforeignfirms
Phase
Regulatoryreform
19791985
LawofthePRConJointVenturesUsing
ChineseandForeignInvestment
19861991
PRCLawonForeignEnterprises
1992
1990AmendmentstotheJointVentureLaw
1991IncomeTaxLawforEnterpriseswith
ForeignCapitalandForeignEnterprises
1992DengXiaopingsSouthChinatour
Endofphase
Highinflation
TianmanSquareIncident
Whatisinteresting,however,isthattheturningpointintheearly1990swasactuallynot
causedbyaspecificregulationalthoughsupportedbybutbyDengXiaopings
liberalisationquest.WhatisalsostrikingisthelearningpaththattheChinese
governmenttook.Thereformsfollowedpoliticaleconomicincidentsandtheyarethe
motorbehindthestepbystepestablishmentofaforeignenterprisefriendly
environment.Theforeigninvestmentsmeantanefficientwayofimportingtechnology
andrelatedexperienceandskills.
Tosumup:Inthe1990sthetechnologyimportsdeclined,buttheforeigndirect
investmentsincreased.Theforeigninvestmententerprisebecomesthemainvehiclefor
MNEstouseFDItoenterChina.FDIbecameanewchannelfortechnologyimport
besidecapitalaccumulationandimportingmanagementskills
3.5Systemoftechnologydevelopment,institutionsandbusiness
WeinvestigatedtheevolutionoftechnologyandbusinessinChina(part2)andthe
internationaltransferoftechnology(thispart).Oneoftheobserveddevelopmentswas
thatliberalization,openingupandvariousreformsfavouring(private)
entrepreneurshipleadtoamoremarketorientedtechnologysystem.Theroleofprivate
initiativesisincreasinglyvalued,asistheroleofforeigninvestment.Figure3.4shows
thecurrentsystemoforganizationalformsfortechnologicaldevelopment.Itisthis
systeminwhichtechnologicalentrepreneurshipispossible.
Figure3.4:Organizationalformsfortechnologydevelopment
Figure 3-4: Organizational forms
for technology development
Technological entrepreneurship
State-owned
enterprises
State-collective
joint operation enterprises
Government funded
State planning
Hybrid: government &
domestic funded
Collective, private,
Domestic funded
shareholding cooperative,
(non-government)
etc. enterprises
Foreign funded
enterprises
Technology
programs
Market
Technology
demand
Foreign
investment
17
4.Infrastructure,educationandinnovativeness:thebasisforprivateR&D
Alongwithyearsofdomesticreformsandinternationaltechnologytransfer,the
supportingenvironmentdeveloped.Havingadynamicandefficientinformation
infrastructureiskey.Educationisanotherkeyelementforaknowledgeintensive
industry.Furthermore,thenumberofskilledworkersandS&Tactivitiesundertakenare
indicatorsfortheinnovativecapability.Thispartpresentskeyfiguresoninformation
infrastructure,theeducationalsystemandgivesanddiscussesindicatorsforthe
innovativecapabilityofChina.
4.1Informationinfrastructure
Theinformationinfrastructurearethephysicalconditionsforthedevelopmentof
technology.Infrastructurecomprisesoffixedtelephones,mobiletelephones,networks,
computers,Internetconnections,etc.Agoodinformationinfrastructurecontributesto
trade,investmentandgrowth.Ithelpsfirms,institutions,andentrepreneurstoreduce
costs,increasemarketcoverageandachieveeconomiesofscale(Dahlman,Aubert;2001).
TheinformationinfrastructureinChinahasgrownmorethanthreetimesasfastasthe
totaleconomy(Dahlman,Aubert;2001).Table4.1showskeyfiguresofthedevelopment
oftheinformationinfrastructure.
Table4.1:Developmentofinformationinfrastructure
1990
1995
2000
2001
2002
ICT expenditure (%
2,90
5,40
5,70
5,85
of GDP)
PCs (per 1,000
0,43
2,27
15,90
19,04
27,64
people)
Local telephone
685,0 4070,6
14482,9
18036,8
subscribers (10.000)
Mobile telephone
1,8
362,9
8453,3
14522,2
20700
subscribers (10.000)
Source:ChinaStatisticalYearbook2002,WorldDevelopmentIndicators,WorldBank,EVD
ThetotalICTexpendituresasapercentageofGDProsefrom1,91%(1992)to5,85%
(2002);anincreaseofalmost300%in10years.TheChineseexpendituresareonly
slightlylowerthanUKandUS(6,12%and6,49%,WDI)andevenhigherthanFranceor
Germany(5,19%and5,18%).So,withrespecttoinvestmentinICT,Chinaisdoingvery
well.
Theavailabilityofpersonalcomputersrosefrom0,43per1000peoplein1990to
27per1000peoplein2002.Althoughthisgrowthseemsimpressive,itmustbenoted
thatthereisalongwaytogo.ComparedtoEUandUS,with340650per1000persons
onaverage,itisfarbehind.Oneofthemajorreasonsisthefactthatalargegroupofthe
populationisstilllivinginpovertyintheruralareas.
18
Chinasfixedlineandmobilephonenetworksaretheworldssecondlargestand
thepagingnetworkistheworldslargest.Therearefourfixedlinecarries:China
Telecom,ChinaUnicom,ChinaRailcom,andChinaNetcom.Thefirsttwoareessentially
controlledbytheMinistryofInformationIndustry.ChinaNetcomisalsoownedbythe
stateforalargepart(MinistryofRailwayandStateAdministratorforRadio,Filmand
Television).In1999ChinaTelecomwasbrokenintofourcompaniesfocusingonfixed
line,mobile,paging,andsatelliteservices.ChinaMobileandChinaUnicomprovide
mobiletelephoneservices.InternetaccessisprovidedbyChinaTelecom,ChinaUnicom,
ChinaNetcom,ChinaMobile,ChinaRailcomandChinaSatellite(satellitetelephone).
ThefirstconnectionfromMainlandChinatotheInternetwasestablishedin1993.
TheWorldBankreported33,7millionChineseonlinein2001andInternetuseis
heaviestintheBeijing,ShanghaiandGuangdongareas.Chinahasnineinterconnected
Internetbackbonenetworksandthesenetworksaretheonlyonesauthorizedtoconnect
totheglobalInternet.Internetconnectivityisgrowingreallyfastfrom2000usersin1993
to33,7millionin2001(asreportedbytheWorldBank).Again,itmustbenotedthatthis
figureisstilllowwith(approx.)2.8%ofthetotalpopulationisanInternetuser.InChina
thereare46Internetusersper1000personsin2002.ThisisnotmuchcomparedtoUS
andEU,whereratesvaryfrom330550usersper1000(WDI).However,thegrowth
ratesareremarkableandboomthedemandforfiberopticcables,switches,routerset
ceteras.TheInternetbackbonedevelopmentbusinessistheprimetargetofnew
investmentin2001accordingtoDahlman&Aubert(2001).
Dahlman&Aubert(2001)comparedthegrowthoftheinformationinfrastructurewith
othercountriesintheEastAsiaandPacificRegion.Theyreport(p.8384)thatChinahas
thehighestgrowthrateoffixedmaintelephonelinesandPCsper100inhabitants.
Furthermore,thegrowthinmobilephonespercapitawasamongthefastestgrowing
countriesintheregion.Summingup,theICTexpendituresarecomparabletoadvanced
countriesandthegrowthratesarephenomenal,butChinaisstillbehindinmost
respects.
4.2Education
DuringtheCulturalRevolution,theeducationalsystemofChinawasnonexistent.After
1978,therewasalackoftrainedtalent,anirrationalhighereducationsystem,uneven
andunequaldevelopmentratestosatisfytheneedsofaneconomicandtechnological
boom.Themaingoalwastorevitalizetheeducationalsystemandmanyreformswere
initiated.DengXiaopingrecognizedthattheFourModernizationscouldhelptodevelop
science,technology,andintellectualresourcesandtoraisethepopulationseducation
level.In1980theFirsteducationlawwasenactedtoregulateacademicdegreesandset
achievementasthebasisforadmissionandpromotionineducation.Thecommitment
tomodernizationwasreinforcedbythe1986Compulsoryeducationlaw,whichmeant9
yearcompulsoryeducationandgoodqualityhighereducation.In1995theEducation
Lawwasenacted,whichmeantacommitmenttoauniversaleducationaswellastoone
thatwillproducebothscientists/academicsandskilledlabour.
19
Chinaseducationsystemiscomposedof4components:1)basiceducation,2)
occupational/polytechniceducation,3)commonhighereducationand4)adult
education.Basiceducationcomprisesofpreschooleducation,primary(6years)and
junior(3years)andsenior(3years)middleschooling.Adulteducationcomprisesof
schoolingeducation,antiilliteracyeducationandotherprogramsorientedtoadult
groups.Commonhighereducationcomprisesofjuniorcollege,bachelor,masterand
doctoraldegreeprograms.
Upto1999,therewere1,071commoncollegesanduniversitiescountrywide
offering2,754,500seatstothoseapplyingforjuniorcollegeandbachelorprograms,
19,900seatstothoseapplyingfordoctoralprogramsand72,300seatstomasterprogram
applicants,andaccommodating54,000doctoralcandidatesand179,500master
candidates(CERNET).AlthoughChinahasmadesubstantialachievementsinthe
scienceeducation,itstillcannotmeettheneedsofsciencedevelopmentandconstruction
ofthecountry.Programslike211Projectforeducationdevelopment,the21stCentury
EducationRevitalizationPlan,TechnologyInnovationProjectandKnowledge
InnovationProgramcontinuetoreformtheeducationalsystem.
Table4.2showsthebasicfeaturesoftheeducationalsystem.Thenumberofschools
decreasedonalllevels.Probablymanyschoolswereclosedbecausetheywereinefficient
orobsolete.Thenumberofteachersincreasedonalllevels.Morenewstudentsenrolled
inhighereducationandsecondaryschoolsandmorestudentsgraduatedonalllevels.
Table4.2:Featuresofeducationalsystem
Schools:
Teachers:
(full-time, 10.000 persons)
New student enrollment:
(10.000 persons)
Graduates
(10.000 persons)
Higher education
Secondary schools
1985
1016
104848
1990
1075
100777
1995
1054
95216
2000
1041
93629
Primary schools
832309
766072
668685
553622
Higher education
Secondary schools
34,4
296,7
39,5
349,2
40,1
388,3
46,3
472,3
Primary schools
537,7
558,2
566,4
586,0
Higher education
Secondary schools
61,9
1789,8
60,9
1815,8
92,6
2354,1
220,6
3103,2
Primary schools
2298,2
2064,0
2531,8
1946,5
Higher education
Secondary schools
31,6
1279,1
61,4
1497,5
80,5
1636,9
95,0
2302,3
Primary schools
1999,9
1863,1
1961,5
2419,2
4888
2950
20381
38989
1424
1593
5750
9121
7315028
18779501
38490806
(84%)
(75%)
(67%)
1990 = 1991
Source:ChinaStatisticalYearbook2002
Itisinterestingtolookatstudentsstudyingabroadandthenumberofreturns.Thisis
relatedtothesocalledbraindrain.Thetrendsince1995isthatmorestudentsgoabroad
20
thanthatreturn.Thisisadisturbingsituation,becausetheideaofthegovernmentisthat
thestudentsreturnwithsuperiorknowledge.Inturningthistrend,thegovernment
enactedaprogramtoreward100returningstudents.
Withrespecttothemanagementoftheeducationalsystem,alothasbeenchanged.The
previousirrationalandsegmentededucationstructure,overlappeddisciplinesand
wasteofresourceshasbeenchanged.Universitiesarenolongerfundedexclusivelyby
thegovernment.Thegovernmentalsoallowedprivatelyfundededucational
institutions.Furthermore,privateschoolingontheotherlevelsisalsoallowed.AsTable
4.2shows,theshareineducationalfundsofthestateisdeclining.However,thisdoes
notmeanthatthegovernmentinvestslessineducationbutthatthereismore
investmentfromothersources(thetotalfundsmorethandoubleevery5yearthelast
decades).ChinaalsoreceivededucationalaidfromUNESCO,UNICEF,UNFPA,UNDP,
WorldBankandmanyotherinternationalorganizations.Anotherlargechangeisthe
newtwolevelmanagementsystemconsistingofcentralandlocalgovernmentswiththe
latterasthemainmanagementbody.Thelocalgovernmentisplayingakeyrolein
compulsoryeducation,whilecentralandprovincialgovernmentaredominantinhigher
education.Inoccupationalandadulteducation,socialpartnersincludingindustrial
organizations,businessesandpublicinstitutionsareplayingamoreandmoreimportant
role.However,thelocalgovernmentsareincreasinglystimulatedtodevelophigher
educationandenhancetherelationshipbetweeneducationandregionaleconomicand
socialdevelopment.
4.3Innovativecapability
TheinnovativecapabilityoftheChineseeconomyisadeterminantofthepotentialofthe
Chineseeconomytodevelopandmarketinnovativenewproductsandservices.To
determinethispotentialwelookattwothings.Ontheonehandyouhavethelabour
market:howmanyhighlyskilledworkersarethere?Ontheotherhandyouhavethe
scientificandtechnologicalactivitiescarriedoutbyskilledworkers.Scienceand
Technologyactivitiesrefertoorganizedactivitieswhicharecloselyrelatedwiththe
creation,development,disseminationandapplicationofthescientificandtechnical
knowledge(ChinaStatisticalYearbookindicators,2002).ScienceandTechnology
activitiesareclassifiedinto:R&Dactivities,applicationofR&Dresults,andrelatedS&T
services.R&Dactivitiesarethoseactivitiesthataimatincreasingtheknowledgeand
usingtheknowledgefornewapplicationofscienceandtechnologybysystematicand
creativeactivities:basicresearch,appliedresearchandexperimentsanddevelopment.
Theresultsoftheseresearchactivitiesarepublishedinjournalarticles,resultinpatents
ornewproducts/services.
Table4.3showsbasicstatisticsonhighlyskilledworkers.Overall,thereisasteady
increaseinresearchersandS&Tpersonnel.Withrespecttothenumberofresearchers
perthousandpersonsemployed,Chinaisfarbehindothercountries.IntheEUwere4,7
researchersperthousandonaveragein1991and5,9in2001.Singaporehas8,2
21
researchersperthousandin2001andJapanevenmore:10,2perthousand(Schaaper,
2004).IfyoucomparethenumberofresearchersinR&D,Chinaisfarbehindaswell.For
instance,Germanyhasover3.000researcherinR&DandJapanevenmorethan5.000
researcherspermillionpeople(WorldDevelopmentIndicators).
Table4.3:Basicstatisticsonhighlyskilledworkers
1994
1995
1996
1997
1998
0,8
0,8
0,8
0,9
0,7
265,5
270,1
273,2
288,6
353,0
350,8
453,6
1999
2000
2001
0,7
281,4
290,6
322,3
314,1
473,2
387,2
419,9
545,1
32,6
34,5
34,2
35,2
36,6
Source:ChinaStatisticalYearbook1998,2002;WorldDevelopmentIndicators,World
Bank;Schaaper(2004)OECDdatabase
Table4.4showsthebasicstatisticsonscientificandtechnologicalactivities.Thefunding
forS&Tactivitieswasincreased:between1997and2001thetotalfundsmorethan
doubled.S&Tfundsconsistoflabourexpenses,purchaseoffixedassets,R&Dexpenses,
fundamentalresearch,appliedresearchandexperimentaldevelopment.Thestateis
responsibleforonequartertoonethirdofthefunds.Furthermore,theproportionof
R&DexpendituretoGDPisincreasing:italmostdoubledbetween1997and2001.What
isalsointerestingtoseeitthelargeincreaseintransactionvalueofS&Tactivitiesinthe
technicalmarket.Thetotalvaluemorethandoubledin5years(19972001).Altogether,
onaveragethefunding,expendituresandvaluedoubledin5years,indicatingalarge
growthofS&Tactivities.
Table4.4:Basicstatisticsonscientificandtechnologicalactivities
Funding for S&T activities (100
million yuan; in brackets: state
share)
Proportion of R&D expenditure to
GDP (%)
Transaction value in technical
market (100 million yuan)
Funding for S&T (100 million yuan;
in brackets: state share) In higher
education
Proportion to total S&T funding
Total patents certified
1997
1181,9
(26%)
1998
1289,8
(27%)
1999
1460,6
(32%)
2000
2346,7
(32%)
2001
2589,4
(25%)
0,64%
0,69%
0,83%
1,00%
1,09%
351
436
523
651
783
102,946
(48%)
166,778
(58%)
200,000
(55%)
73,076
(50%)
84,957
(48%)
6.18%
6.59%
7.05%
7.11%
7.72%
50992
67889
100156
105345
114251
Source:ChinaStatisticalYearbook2002
Withinhighereducationthemostimportantsourceforhighlyskilledworkersthe
S&Tfundingisstructureddifferently.Morethanhalfofthetotalvalueisobtainedfrom
thestate,sincemostuniversitiesrelyongovernmentfunding.Italsoimplicates,
22
however,thatapproximately45%ofthefundingisfromnongovernmentsources,e.g.
businessenterprises,foreigninvestment,internationalinstitutions,etc.Thisisinline
withthepreviousobservationthathighereducationisbecominglessdependentonstate
funds.TheproportionofS&TfundinginhighereducationtototalS&Tfundingshows
thatS&TfundsthatgotohighereducationS&Tresearchactivitiesisincreasing.
Theresultsoftheseactivitiesareforapartcapturedinthenumberofpatents.Inthelast
5years(19972001)thenumberofpatentscertifiedmorethandoubled,withthelargest
increasebetween1998and1999.Besidespatents,journalarticlesarealsoresultsof
scienceandtechnologyactivitiesandthusanindicatorforinnovativecapability.Table
4.5showsthebasicstatisticsonpublishedjournalarticlesinChina,EUandUS.
Table4.5:Basicstatisticsonpublishedjournalarticles
China
France
Germany
United Kingdom
United States
1990
4999
21584
27317
36671
179978
1995
6995
26265
34442
39980
179051
1999
11675
27374
37308
39711
163526
Source:WorldDevelopmentIndicators,WorldBank
Whatisstrikingisthesteadyincreaseofthenumberofjournalarticlespublishedin
Chinaandtheconstant(EU)orevendecreasing(US)streamofarticles.AlthoughChina
isstillfarbehindwithrespecttothenumberofarticlespublishedperyear,thegrowth
trendimpliesthatChinaisabletocatchup.
Summingup,thefundingsideoftheinnovativecapabilityofChinaissufficient.
However,therearestilltoofewskilledworkersandChinaisbehindintermsof
publishing/commercialisingresults.Thegovernmentisawareofthisandfocuseson
highereducationandtherelatedfundingofS&Tactivities.
5.TheHighTechindustry
Inthepastsectionswedescribedtheevolutionoftechnology,institutionsandbusiness
inChina,theroleofforeigninvestments,thesupportinginfrastructureand
technologicalentrepreneurship.Thehightechindustrybecameincreasinglymarket
orientedandiscrucialinthedevelopment,disseminationandapplicationoftechnology
intheChina.Beingoneofthefastestgrowingindustriesandrecentlyearmarkedasa
pillarindustry,thehightechindustryinChinaisinteresting.Wewillidentifythemost
interestingsectorsandarguethelargeroleofNTEs.
23
5.1Technologyorganizations:players,initiatorsandregulators
Severalinstitutionsareactiveinpromotingandregulatingthehightechnologyindustry
andscience&technologydevelopment.TheMinisteryofScienceandTechnology
(MOST)isresponsibleformanypromotionprograms.TheKeyTechnologiesR&D
Program,the863Program,andtheTorchProgramareallinitiativesoftheMOST.
TheprogramsfundedS&Tprojectsininstitutesofhighereducation,R&Dinstitutes,
enterprisesandcompanies.
TheChineseAcademyofSciences(CAS)isChinasfamousnaturalscienceand
technologyresearchorganization.Ithas123researchinstitutes,employingover60,000
scientificandtechnicalpersonnel.Researchfocusesonmathematicsandphysics,
chemistry,earthsciences,biologyandtechnology.In2000,theCASincreaseditsmarket
orientationbytransformingmoreandmoreofitsinstitutionsoftechnologydevelopmentinto
businessenterprises.Attheendof2001,13CASinstitutionshadbeentransformed(CAS,
2004):12becamelimitedliabilityfirmsandonemergedintoastateruncompany.The
firmsperformedwellandreachedatotalturnoverof81billionYuan(USD9.7billion)
from2000to2001.TheCAS(2004)websitealsoreportstohaveprovidedjob
opportunitiesforabout40,000peopleoutsidetheAcademy.
ThefollowingsixcompaniesaredirectlyunderCAS(CAS,2004):ChinaSciences
Group;ChinaInvestmentCorporationForSciences&TechnologyCICSTD;Oriental
ScientificInstrumentImport&ExportGroup;HuajianGroupLtd.Co.;KejianGroup;
LegendGroup(in2003renamedLenovoGroupLtd.).Asthenamessuggestmostof
thesecompaniesconsistofmanyothercompanies.WetaketheChinaSciencesGroup
andHuajianGroupLtd.Coasexamples.
ChinaSciencesGroup(CSG):CSGhas30whollyorpartiallyownedmemberenterprises.China
DaHengCorporation,theBeijingHopeComputerCorporationandtheBeijingSanHuanNew
MaterialsHightechCorporationarethemostimportantones.CSGemploys2700persons(70%
professionalsand12%managers).Thewebsitereportsthatin2000turnoverreachednearlyRMB
2.31billion,includingRMB170millionprofitincome.Theirbusinessfocusesonresearching,
developing,producingandmarketingelectronicdatadevices,computeranditssoftware,
medicalinstrument,newmaterials,newenergy,andbiomedicine(CSGwebsite,2004)7.
HuajianGroupLtd.Co.:Thiscompanyfocusesoncomputerlanguageinformationprocessing,
tradeorientedsystems,onlineinformationintegratedprocessingsystemsandembedded
applicationsoftware.DirectlyundersupervisionoftheGrouparethreecompanies:Huajian
MachineTranslationCo.Ltd.,HuajianHuizhiScience&TechnologyCo.Ltd.,HuajianDigital
TechnologyCo.Ltd.,andseveralothercompanies.Thesecompaniestogetherhavenineother
companiestosupervise.
BesidesthecompaniesdirectlyundertheCAStherearemanyothercompanieslinkedto
theCAS:BeijingZhongKeSanHuanHighTechCo.;DahengNewEpochTechnology;
etc.TheChineseAcademyofEngineering(CAE)andtheStateNaturalScience
Althoughrealestate,technicalconsultingandservice,andpatentagentservicesforclientsinandoutside
Chinaarealsowithinbusinessscope.
7
24
FoundationCommittee(NSFC)aretwootherimportantinstitutionsinthetechnology
sector.TheCAEwasestablishedin1994andisakeyadvisoryinstitutionforthe
engineeringcommunity.TheNSFCwasestablishedin1986topromoteandfinanceS&T
research.
5.2FeaturesoftheHighTechindustry:ICTaskeysector
Theindustrygrewatanaverageannualrateof21.2percentinthe19962000period
(CERNET,2004).Thetotalindustrialsectorgrew11%less.Thesamestoryholdsforthe
exportsofhightechproducts:Thetotalexportsgrewby10.4%,whereasthetotalhigh
techexportsgrewby38.4%.Theproportionofhightechmanufacturesexportsrosefrom
17.2%to25.28%oftotalmanufacturesexportsandamongtotalexportsfrom8.4%to
14.9%.Thereare24.293enterprisesinhightechdevelopmentareas,employing2.761.433
personsgeneratingUSD22,7billioninexportvalue(ChinaStatisticalYearbook,2002).
Theregionaldistributionofhightechactivitiesisunequal.Thebestperformingand
largesthightechareasare:theYangtzeRiverDelta,thePearlRiverDelta,theBohaiSea
Rim,andareasalongtheShenyangDalianexpressway.Beijing,Shanghai,Shenzhenand
Xianthecountrysfourbestknownhightechcities.Beijinghasbyfarthelargest
hightechareawith7911enterprises,282.720employeesgenerating17%ofallHighTech
enterprisesgrossoutputvalueand13%ofallhightechexports.
ButwhatexactlycompriseshightechnologyintheChinesecontext?Accordingto
Article4oftheConditionsandMeasuresontheDesignationofHighandNew
TechnologyEnterprisesinNationalHighandNewTechnologyIndustryDevelopment
Zones(CERNET),highandnewtechnologyisdividedinto:
(1)microelectronicsandelectronicinformationtechnology;
(2)spacescienceandaerospaceandaeronauticaltechnology;
(3)optoelectronicsandoptical,mechanicalandelectronicintegra
tiontechnology;
(4)lifescienceandbiologicalengineeringtechnology;
(5)materialscienceandnewmaterialstechnology;
(6)energyscienceandnewenergy,highefficientenergy
conservationtechnology;
(7)ecologyandenvironmentalscience;
(8)earachescienceandoceanengineering;
(9)basicmatterscienceandradiationscience;
(10)medicalscienceandbiomedical
engineering;
(11)othernewprocessornewtechnology
applicableinthetraditionalindustries.
Source:CERNET(MinistryofEducation,China)
Furthermore,the10thFiveYearPlan(20012005)identifiedsoftware,computer
manufacturing,telecommunications,lasersandaerospaceaspillarindustries.Taking
bothtogether,wehaveagoodideaofwhathightechnologymeansintheChinese
context.Weidentifythemicroelectronicsandinformationtechnologysectoraskey
sectors.Besidesthecentralgovernmentsfocus,wealsobelieveitisoneofthemost
dynamicandvibrantsectorsofthelasttwodecades.TheChinaStatisticalYearbook
providesdataonlargeandmediumsizedindustrialenterprisesintheHighTech
industry,whichcorroboratesourchoice.Table5.1providesbasicstatisticsonS&T
activitiesin2001.
25
Table5.1:LargeandmediumsizedindustrialenterprisesintheHighTechindustry(2001)
invention
Export
Total revenue
(10.000 yuan)
Expenditure
technological
activities
(10.000 yuan)
Scientists and
engineers
Technological
activities
personnel
1) Electronics and
Communication
113217
39606
1599800
52220694 4240727 902
Equipment
% of total
41%
48%
62%
59%
60% 74%
2) Electronic
Computers and Office
18249
5992
261554
15540968 2457322
78
Equipment
% of total
7%
7%
10%
18%
35%
6%
enterprises
1) and 2) together of
48%
56%
72%
77%
95%
80%
total
Source:ChinaStatisticalYearbook,2002
ThefiguresshowthatthesecategoriesareresponsibleforalargepartoftheHighTech
industrysactivitiesandoutput.Togethertheyemploy48%ofthetechnicalpersonnel,
56%ofthescientistsandengineers.Furthermore,theygenerate77%ofthetotalrevenue
andareresponsibleforalmostallexports(95%).Theyarealsothemostinnovative
sectorsastheyhave80%oftheinventions.Althoughthefirstcategoryisresponsiblefor
mostofthesefigures,thesecondcategoryhaslargerevenuesandexportfigures.This
indicatesthatthemicroelectronicsandinformationtechnologysectorsarethemost
importantsectorswithinthehightechindustry.ThisresultisinlinewithMeng&Li
(2002)reviewofthegrowingimportanceoftheICTindustryintheChineseeconomy.
ThenextsectionshowthefeaturesoftheICTsectors.
5.3Telecommunications
Thetelecommunicationsmarketwitnessedanincrediblegrowthandtheprospectsare
good.AccordingtotheEVDreport(2004)onChinasICTsector,thetelecommarkethad
atotalsalesofUSD60,5billionin2002;agrowthof32,2%comparedto2001.The
markethastheattentionofthegovernmentspolicies.
Thegrowthofthemobiletelephonemarketisremarkableandsurpassingthefixedline
market.Thetotalnumberofmobiletelephonesubscribersincreasedto207millionin
2002.Inthesameyeartheproductionofmobiletelephonewasincreasedto120million
peryear.MarketleadersinproductionareNokia,MotorolaandSiemens8butin2002
morethan30%wasproducedbydomesticmanufacturers(comingfromonly2%in
1999).Themajordomesticproducersare:TCL,Bird,Keijan,Haier,Amoisonic,Konca,
BesidesNokia,MotorolaandSiemens,AlcatelandEricssonareforeigninvestorsintelecommunications.
26
Shouxin,NanfangshouxinandDongfangtongxin(EVD,2004).Withrespecttothe
servicesandnetworkproviders,theChineseenterprisesareincontrol.Sixcompanies
providethebasicservicesand4400companiesdelivervalueaddedservices.In2002
ChinaMobilehadthelargestmarketsharewith37,4%,followedbyChinaTelecom
(32,5%),ChinaNetcom(16,6%),ChinaUnicom(12,2%)andothers(1,4%).
AlthoughthereisforeigninvestmentinChinastelecommunicationsmarket,itismostly
inmanufacturingequipmenttosupplytheoperatingcompanies.Foreigninvestmentin
theseoperatingcompaniesisprohibited.Thereare,however,longtermplansfor
openingupthetelecommunicationsmarket.Asof2003therewerenolimitationsfor
serviceswithaddedvalueandbasicservicesaspaging.Forthemobileservices,the
openingupisplannedin2006andforthefixednetin2007.Forbothmobileandfixed
servicesthereareseveralcitiesthatdoallowforeigninvestment;slowlyChinaraisesthe
numberofopencities(EVD,2004).
Themajorprobleminthissectoristhatisrelativelyclosedtomarketcompetition.
Althoughattemptsaremadetoopenupspecificsectorswithinthetelecommunication
market,manycrucialservicesandoperationsremainunderstatesupervision.
Furthermore,foreigninvestmentisdifficult,especiallyintheoperationssideofthe
telecommunicationsmarket.WorldBankanalysis(reportedinDahlman&Aubert,2001)
showsthatthereareseveralsectorthatneedtobeliberalisedandderegulated.The
marketstructureisshowninTable5.2.
Table5.2:Marketstructure
Segment
Localcalls
Longdistancecalls
Internationalcalls
Mobile(GSM)
Datacommunications
Radiopaging
Satelliteservices
Structure
Duopoly:ChinaTelecom,ChinaUnicom
Limitedcompetition:ChinaTelecom,ChinaUnicom,ChinaMobile
Monopoly:ChinaTelecom
Duopoly:ChinaMobile,ChinaUnicom
Limitedcompetition:ChinaTelecom,ChinaUnicom,Jitong,Netcom
Competition:>2000operators
Competition
(adoptedfromDahlman&Aubert,2001;source:WorldBankanalysis)
5.4Computerhardware
ThecomputerhardwareindustryinChinahasitsrootsinthelate1950s.Thefirst
Chinesemadecomputerwascompletedin1958.However,subsequentdevelopment
wasslowandhindered.Inthe1980sitwascrucialforChinasindependentlydeveloped
computerindustrytocatchupwiththeworld.Chinaincreaseditsimportsoflargeand
midrangecomputersfromtheUSandJapan(IBM,DEC,Unisys,Fujitsu,Hitachiand
NEC).Itsmainactivitywastheassemblyofimportedkits.Withtheopeningup,
startingin1992,Chinascomputerindustryenteredaperiodofrapidgrowthand
intensifiedcompetition.Thegovernmentsdesiretocatchuptechnologicallyisalsothe
leadingelementinthecomputerindustrystrategy.
27
Thelate1990sarecharacterizedbyachangeincompositionofthecomputermarket,
indicatingthesuccessofthegovernmentspolicy.WhereastheforeignPCmakershad
60%ofthemarketintheearly1990s(Chung,1999inK&D,2001),domesticcompanies
have80%ofthemarketin1998(Kreamer&Dedrick,2001).Inthelastyears,thelargest
sharesbelongpredominantlytoChinesefirmsandnewplayersareChinese(Table5.3).
Table5.3:MarketsharesoflargestPCmakersinChina(in%)
Legend
IBM
HP
Compaq
Founder
Great Wall
Dell
Tongfang
1997
10,7
7,5
6,5
6,7
3
1,6
1998
14,4
6,5
5,7
4,3
3,7
1,9
1999
21,5
6,2
5,6
2,9
5,9
3,5
2000
26,4
4,8
3,7
2001
27,5
4,2
2002
27,3
4,6
2003
27
4,7
8,4
4,6
2,9
1,5
8,9
9,1
10,7
3,9
3,8
5
4,9
6,9
7,1
Source:AnnualreportsLenovo(formerlyLegend)
AttheforefrontoftheChinesefirmsisLegend,anScience&TechnologyEnterprise.As
aresultsofreformsandprogramsinthe1980s,theScience&TechnologyEnterprises
cameontothescene.LegendisoneofthefourleadingScience&TechnologyEnterprises
(Lu,2000).Theywerethefocusinthegovernmentsframeworktopromotehightech
industrydevelopment.ThesetupoftheorganizationswasclosetoWesternhightech
ventures.Themainpurposewastocommercializethetechnologicalknowledgeofthe
stateS&Tsector.
LegendwasaspinoffoftheInstituteofComputingTechnologyunderCAS.Ithas
becomethelargestPCmakerinChina.Theotherleadingenterpriseswere:Stone,the
firsttocommercializeaChinesewordprocessor;Founder,becametheleaderin
pictographiclanguageelectronicpublishingsystemsafterittookoveragovernment
project(Project748);andChinaGreatWallComputer,aspinoffoftheComputer
IndustryAdministrationBureauunderMEI.Itisoneofthetop,domesticallydeveloped
PCmakersandlargestsupplierofOEMcomponentsandperipheralsinChina.Allhave
incommonthattheyarenongovernmental(exceptGreatWall,whoacceptsstate
budget),young,competitive,andamongthefirstjointstockcompanieslisted.However,
itmustbenotedthatallenterprisesarestillcontrolledbyholdingcompaniesofthe
government9.
Taiwanesefirmsplayaleadingroleintheindustry(Kreamer&Dedrick,2001).Inthe
early1990s,TaiwanesePCmakersenteredChinawithlowendoperations.Themain
pruposewastheuseoflowcostproduction.Since1995,thecompetitionfromUSfirms
grewandTaiwanincreaseditsinvestments.MostinvestmentisdirectedtoJiangsu
Stoneisofficiallyacollectivelyownedenterpriseandtheotherthreearestillstateowned
enterprises.
9
28
Province,Shanghaiandnearbycities.Between1999and2001Acer,Twinhead,Inventec,
Compal,Quanta,FICandArimainvestedinChina.Theleveloftechnologyis
increasing,withnotebooks,LCDmonitors,scannersandmotherboardproduction.
BesidesproducingforforeignmultinationalsinChina,theTaiwanesefirmsalso
manufactureforChinasdomesticcompanies(Kreamer&Dedrick,2001).
IntheprocessChinahasbecomealargeplayerintheglobalPCproductionnetwork.
Almostnocomputerswereproducedin1990,butin2001Chinaproducedalmost9
millionmicrocomputers.(ChinaStatisticalYearbook,2002)Thegrowthis(partly10)
drivenbydomesticdemand.Thenumberofcomputersgrewrapidlyfrom500.000in
1990toover7millionpruchasesin2000.Thedomesticvendorshavetwothirdsofthe
PCmarket,sincethehightarriffsonimportedPCsandperipheralsdriveforeign
competitorstobuildproductionfacilitiesinChina(asforinstanceIBM,Dell,HPand
Acerdid).Mostofthehardwareproductionisdoneinthesoutherncoastalregions.The
Shanghaiarea,SuzhouIndustrialParkandBeijingsZhongguancunhightech
developmentzonearetheothermajorproductionsites.Manyhightechenterprisesin
thesezonesarespinoffsandoperateinaninnovationnetworkofinstitutes,foreign
enterprisesandotherspinoffs.
Software11
Theindustryemergedlaterthanthehardwareindustry,asinmanyothercountries
(Zhang&Wang,1995).Inthe1980smostsoftwareproductsweresoldtogetherwiththe
computerhardwareandwereveryspecific.Thereweresomesoftwareprojectsscattered
aroundvariousinstitutionsbuthardlyanycommercialR&Dexisted.Furthermore,the
legalinfrastructurewas(andis)tooweaktoprotectintellectualproperty.Inthelate
1980ssomefirmswereauthorizedtocommercializesoftwareproductsandinthe1990s
thesoftwaremarketstartedtoemergeanddevelop.TheInternethypebroughtmoneyto
thesoftwareindustryandtheindustrystartedtoexpand.From1992to2000therewas
anaverageannualgrowthrateofover30%.In2000thegovernmentpublishedoneofthe
mostimportantpoliciesforthesoftwareindustry:Noticeofcertainpoliciestopromote
thesoftwareandintegratedcircuitindustrydevelopment.Thisdocumentmeant:
reducedeffectiveVAT(17%=>3%);noenterpriseincometaxforthefirsttwoyears;a
taxrateofonly10%forkeysoftwareenterprises;shortenedapprovalperiodsfor
foreignstockmarkets;notariffsandVATforallimportsoftechnology;directexport
rightsforallfirmswithoverUSD1millioninrevenues;andtherighttosetsalarylevels
andgrantbonusestoinventors(Saxenian,2003).Theresultwasamoreopenand
competitivesoftwaremarket.
AccordingtoDedrick&Kreamer(2001)Chinaalsohasbecomeamajorexportplatformfor
componentsandperipherals.
11WerefertoSaxenian(2003)foradetailedoverviewofthesoftwareindustryinChina.Inthissectionwe
focusonthemostimportantfeatures.
10
29
Thedomesticmarketisdominatedbysoftwareservices(54%in2000,Saxenian2003),
followedbyproducts(40%in2000,idem)andexports(only6%in2000,idem).Tschang
&Xue(2003)reportthattheindustryshowshighgrowthratesinallsectors(>30%).At
theendof2002,EVDreports(2004)thatChinahasover4700softwareproducers,644of
whicharefinancedwithforeigncapital.ThisisclosetotheIDC(2000)estimationof2000
registeredcompaniesand3000softwarerelatedcompanies.Table5.4listsexamplesof
ChinesesoftwarefirmsandforeignsoftwarefirmsinChina.Themarketisextremely
fragmentedwiththousandsofsmallenterprises.Furthermore,manyofthelargest
softwaredevelopersarediversifiedfirms,sinceitisdifficulttobeaspecializedsoftware
producerinChina(Saxenian,2003).ThereasonforthisisthatmorethanhalfofChinas
totalsoftwareoutputisinsoftwareservices(primarilysystemsintegration).Duetothe
weakpropertyrightsregime,manycompanieschoosefortheintegratedservices,since
theydonotfacetheriskofpiracy.
Table5.4:examplesofChinesesoftwarefirmsandforeignsoftwarefirmsinChina
Chinesesoftwarefirms
BeijingLegendSoftwareCo.Ltd.
PekingUniversityFounderGroupCo.
BeijingUFSoftGroupCorporationLtd.
KingsoftCompanyLtd.
KingdeeInternationalSoftwareGroup
ShanghaiHuatengSoftwareSystemsCo.
ShenzenZhongxingTelecomCo.Ltd.
ForeignsoftwarefirmsinChina
IBM
Microsoft
Orcale
Sybase
ComputerAssociation
Novell
Lotus
Source:adoptedfromSaxenian(2003)andIDC (2001)
ThesoftwareparkshousemanysoftwarespinoffsofuniversitiesorCASinstitutes.The
TorchPlan(1988)oftheMOSTresultedintheestablishmentofatleasteightSoftware
IndustrialParksattheendofthe1990s:
ShengyangEastYuan(1995)
ChengduWestPark(1997)
ChengshaPark(1997)
JinanPark(1997)
BeijingPark(1998)
TianjingPark(1998)
WuhanPark(1998)
HangzhouPark(1998)
Furthermore,thesoftwareindustryhastiestotheolderhardwaresector.Many
hardwareproducers,suchastheLegendGroup,developedsoftwarearms.TheLegend
GroupseparateditssoftwarearmandrenameditasDigitalChina.Thesoftwareclusters
arehighlyinnovativeandoperateinanetworkofinstitutes,otherenterprise,
universitiesand(foreign)cooperators.Thesocalledguanxinetworksthrive(Saxenian,
2003)inthisdynamicandinnovativeenvironment.Furthermore,theweakintellectual
propertyrightsforceentrepreneurstorelyonmoreinformal,socialnetworks.
However,despitethefastpaceofdevelopmentthereareshortcomings.Theliterature
(e.g.Tschang&Xue,2003;Saxenian,2003;Zhang&Wang,1995)identifiedthe
following:1)insufficientventurecapital;2)insufficientintellectualpropertyrights
30
protection;3)weakEnglishlanguageabilities;4)shortageofskillsasaresultoftheslow
growthofthenumberofsoftwareprofessionals.Theseshortcomingsaskforfurther
industrialrestructuringandinstitutionalchange.Thedevelopmentofhumanresources
hasthefullattentionofthegovernmentsinceitfocuseson(higher)educationpolicy
reform.
6.Conclusion:innovationsystemfortechnologicalentrepreneurship
TheevolutionofhightechnologyandbusinessinChinaisaprocessoflearning,guided
bythepolicydecisionsofthegovernment,domestictechnologydevelopmentand
internationaltechnologytransferthroughforeigninvestment.Theinteractionbetween
theinstitutionalandeconomicenvironmentshapedthedevelopmentofhigh
technology.
Reforminitiativesandmanyprogramsandplansfosteredthedomestic
developmentoftechnologyandforgedlinkagesbetweenresearchandbusiness.
Technologyimportsinthe1980shelpedChinatocatchup.Inthelate1980s,the
governmentbecameawarethatfurtheropeningupoftheeconomywouldhelpto
upgradeandimprovetechnology.Severalreformsfavoringentrepreneurshipand
foreigninvestmentmadethemarketmoreopen.Foreigndirectinvestmentbecamethe
mainvehiclefortechnologyimport,capitalaccumulationandimportingmanagement
skills.Institutionalreformsmademoreorganizationalformspossibleandnetworksof
relationsemergedwhiletransferringtechnology.Inlittlemorethantwodecadesthelink
betweenR&Dandbusinessbecamestrongerandthegovernmentnolongercontrolsall
scientificandtechnologicaldevelopment.ThereformsinScience&Technology,
education,foreignpolicyandenterpriselawshaveledtoasysteminwhichtechnological
entrepreneurshipismadepossible.
AkeyexampleoftechnologicalentrepreneurshipistheNewTechnology
Enterprise(NTE).TheTorchProgram(1988)supportedNTEsinDevelopmentZonesfor
NewTechnologyIndustries.TheseNTEsaremainlyspinoffenterprisesfromR&D
institutesoruniversitiesandtheyaimatcommercializingtechnologicalknowledge.The
strongrelationsandinteractionwithresearchinstitutes,universities,foreignenterprises
andotherNTEsintheDevelopmentZonesmaketheseenterprisesinnovativeand
enablecommercialization.ThemajorityoftheseNTEsisoperatingwithintheICTsector.
Figure6.1showstheresultinginnovationsystemfortechnologicalentrepreneurship.
Thecentralgovernmentsetsageneralframeworkandinitiatestechnologyprograms,
whereasthelocalgovernmentimplementsthepolicies,interactswiththeenterprises
andprovidesbudgets.AgoodexampleofaninnovationsystemisaDevelopmentZone
forNewTechnologyIndustries.TheR&Dinstitutessomearepartofagovernment
programbutothersarefreestandinginteractwiththeenterprisesandotherpartsof
thesystem.TogetherwiththeinstitutesofhighereducationandtheChineseAcademy
ofSciences,theyprovidetheknowledgebaseofthesystem.ManyNTEsarespinoffsof
theseinstitutionsandthecomputerhardwareandsoftwaresectorsprovidegood
31
examples.Theprogramsandpoliciesprovideincentivesforprivatetechnology
developmentintheNTEs.Furthermore,theNTEsexperiencecompetitionfromthe
market,cooperatewithotherenterprisesandreceivedemandincentivesfrom
consumer.Thetransferoftechnologywithinthissystem(bothdomesticandforeign)
leadstoanetworkofrelationsandinstitutionstofurtherdevelophightechnology.
Institutes of
Chinese Academy
Government
R&D institutes
higher education
of Sciences
Local
Central
Policies
Programs
Technological
Technological
entrepreneurs (NTEs)
entrepreneurs (NTEs)
Competition /
Demand
Co-operation
Market
Consumer
- Sdescribedin
tate-owned -pFart4
oreign-owned
-Domestic
Features
- Mixed-owned - Private-owned
-Foreign (export)
hightechdescribedpa(rt5.
domestic)
Figure6.1:innovationsystemfortechnologicalentrepreneurship
However,eventhoughmarketcompetitionisenhanced,entrepreneurshipisfostered
andSMEsarepromoted,Chinaisstillfarbehindinthedevelopmentand
commercialisationoftechnology.Therearestilltoofewhighlyskilledworkers,the
informationinfrastructureistooweakandthecapabilitytoinnovateisstilltolow.
Furthermore,thestatestillhasmanysharesinmanysectorsandthuskeepscontrolling
partsoftheeconomy.
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