China’s growing innovation capabilities

Western countries need to have a clearer and better-informed vision of how to relate to and cooperate with China – in research, innovation, and higher education, Sylvia Schwaag Serger and Tommy Shih write.

China is increasingly becoming an innovation force to be reckoned with. In sectors such as clean tech, AI, smart manufacturing, fintech, and ICT – amongst others – China has been driving global innovation.

Strong entrepreneurship and market size, combined with government support and guidance, explain China’s advance in innovation across a broad range of areas.

The relationship between the public and the private domain is both complementary and antagonistic at the same time, as it is anywhere else in the world. But what makes China different in the realm of innovation?

Firstly, during the past three decades, China has grown and developed through massive capital and infrastructure investments, an export-based economy, and growth in its labor market.

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Economic prosperity has lifted a large part of the population out of poverty but at the cost of environmental degradation, rising inequality, and increasing demographic challenges.

As a result, China needs innovation in order to address a number of its national challenges, which, if not resolved, also have major global implications.

Secondly, the Chinese government wants China’s innovative capacity to be knowledge-based. China has had impressive success in research investments, R&D manpower, STEM graduates, number of publications, patents – and so forth. This has translated into higher productivity, and an increased technology-driven innovation capability.

Thirdly, China has an enormous internal market, and a domestic industry that has enjoyed a certain level of protection from external competitors. This has allowed nationally competitive industries to emerge.

Partly, development has been enabled through technology transfer from global actors sharing intellectual property in order to gain access to the Chinese market.

While supportive policy and legal environments, public funding, and investments in R&D can create conducive conditions for innovation, there is a limit to the potency of government policies to drive innovation.

Intense domestic competition in several fields and a plethora of heterogeneous actors have been instrumental in promoting innovation. Paradoxically, the factors that have enabled Chinese innovation also hamper it.

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The Chinese Communist Party has been in power since 1949, and to maintain its political legitimacy, it has to ensure stability and prosperity for the Chinese people. Under authoritarian rule, many innovation scholars think that China’s political structure could negatively impact creativity and free-thinking – pillars of innovation.

China’s growing importance in science, technology, and innovation, combined with its political system and increasing global aspirations, are also seen as a threat to Western democracies, many of whom are leaders in innovation.

Lately, the United States and some European countries have sought to contain the expansion of some Chinese multinational companies. Efforts to prevent technology transfer to China have intensified and stronger reactions appear to be on the horizon. This is particularly evident now that China is on the verge of overtaking leadership in many areas of innovation.

The background factors affecting the relationship between China and the Western world in innovation are multi-faceted. Primarily, the feeling from Western countries is that China has generally benefitted more from collaborative relationships than them, and that it is now time to renegotiate distribution of outcomes.

China has disproportionately benefited from an open rules-based international trade order: it has been a vital determinant of China’s strong economic growth and its rising innovative capacity while China has not reciprocated the ‘openness’.

Rather, Beijing has used the ‘developing country’ argument as justification for discriminating against foreign companies. At the same time, the Chinese state heavily subsidises domestic companies as they seek to acquire global market shares, and require foreign companies to share their know-how as a prerequisite for granting them access to China’s market.

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Moreover, differences in political ideology complicate collaboration. There are concerns that authoritarian ideas will gain legitimacy in the West. The recent example of gene-edited babies also illustrates concerns regarding the ethical, legal, and regulatory ramifications of China’s development in science, technology, and innovation, and, more generally, regarding its impact on individuals and society.

The rationale to work with China, however, is convincing. China’s recent rise as a knowledge producer also suggests that there is expertise and infrastructure that can enhance science, technology, and innovation in the West.

There are challenges, nonetheless, that must be addressed to fruitfully collaborate with Chinese innovation actors. We discuss these issues in a recently published report commissioned by the Swedish government on how to strengthen collaboration with China in research, innovation, and higher education.

Vision, strategy, and operational work should be better integrated and aligned at national, regional, and/or organisational levels. Western actors need to have a clearer and better-informed vision of how to relate to and cooperate with China – in research, innovation, and higher education especially.

Channels and forums for dialogue, negotiation, and discussion across different sectors, policy areas, and countries also have an important function in resolving contentious issues and in strengthening meaningful and lasting collaboration.

On top of this, current geopolitical frictions enhance – rather than reduce – the need for science diplomacy in academic cooperation and exchange. Western countries’ cooperation with China must be firmly anchored in certain fundamental values concerning democracy, integrity, individual rights, and ethics.

Many of the problems today are global and apply, we believe, to most countries and actors. Whatever challenges lie ahead, they must be solved through skilful international collaboration and innovation.