Technology innovation needs practical strategy

Source: China Daily | 03-02-2007 16:42

BEIJING, Feb. 28 -- Technological innovation is vitally important to a nation's competitiveness.

In general, the developed countries rely on themselves for technological breakthroughs.

In contrast, the developing countries largely buy patents or import advanced technology from developed countries to achieve technical innovation.

Of course, they can also create innovations themselves, but only in some areas.

This is because technological innovation involves huge risks and claims enormous amounts of capital, which is not where the advantages of the developing countries lie.

It therefore pays for the developing countries to buy patents or import advanced technology, though this is expensive.

The developing countries generally have abundant labor but lack capital. So, it follows that they should engage in labor-intensive industries so their products can be competitive on the world market for maximum profits.

But does this mean that the developing world should trail behind the developed countries forever in terms of technical innovation and, in turn, overall competitiveness?

The answer is no. The profits reaped from labor-intensive products are bound to increase the financial strength of a developing nation and, in turn, facilitate the upgrading of the country's industrial structure and raise its technological level.

In this scenario, China's technological level will get closer to that of the developed countries with a new platform for raising its technological innovation capabilities.

It looks attractive for a developing country, from the very beginning, to go in for advanced technology or engage in developing high-end industries in which the developed countries enjoy the advantage. This model is particularly appealing to a large developing country such as China, where the government can mobilize huge amounts of resources for sophisticated science projects.

For example, China has been doing very well in the aerospace field.

However, the efforts to raise a country's capabilities in technological innovation are not confined to merely a few fields. They should unfold nationwide and across all industrial and technological areas.

Pushing the development of high-end industries largely through government command needs enormous capital input. Moreover, research and development projects demand huge ongoing investment. All this is beyond the ability of a developing country such as China.

In addition, the enterprises set up for this purpose are sometimes slow to respond to market signals and, therefore, lack competitiveness.

If government protection and subsidies are withdrawn, the mere survival of these enterprises would be at issue.

Worse still, the command-based drive for catching up with the world's advanced technologies is often at the expense of the development of the industries where China has relative superiority cheap labor.

Importing sophisticated technology and buying patents, however, do not necessarily mean that we have no need for our own research and development.

For example, we need our own talented workers to absorb the imported sophisticated technology. We need them all the more to launch technically innovative programs based on assimilating the imported technology.

Taking into account China's current development phase, technological innovation should be conducted in the following four categories.

First, innovation should be made in the production flow process. Labor should substitute for capital-intensive machines in some production links on condition that quality is not affected. This is because China abounds in workers and lacks funds.

Second, innovation should be conducted in industries which lead those in other countries, developed countries included. This is because Chinese doing research and development in these areas can only rely on themselves.

Third, innovation should be undertaken in industries or enterprises which trail slightly behind their peers in developed countries. For these enterprises, it does not pay to spend a lot of hard currency in buying patents or importing technology.

Fourth, innovation must be undertaken in the sectors that are closely connected to national security. This is particularly true since it is often hard for the enterprises in these fields to import sophisticated technology or equipment.

Innovation conducted in the first three categories is naturally market-orientated. The technological development is often an extension of existing expertise. As a result, the new technology will cater to market needs and see good returns.

Innovations made in the fourth category greatly need government financial support.

If we want to catch up with the developed countries in fields which are distant from China's relative advantages, which call for massive investment and involve high risks, innovation can be carried out only on the precondition that the government provides colossal subsidies as well as protection.

If government protection and subsidies have to be stretched to cover a wide spectrum of industries and enterprises, the government would be forced to distort the pricing mechanism and resort to command measures in distributing scarce resources.

This would no doubt pose a stumbling block to improving market mechanisms and to transforming the out-of-date growth model.

The author is director of the Research Center for Chinese Economy affiliated with Peking University.

Editor:Du Xiaodan