China Struggles With Innovation

BY JACK DINI – China ranks 151st out of 181 countries in the World Bank’s annual survey of environments for entrepreneurs. “China has a long way to go before it will be anything like the US in its ability to foster innovation or entrepreneurship,” says Daniel Altman. (1)

Yet hardly a week goes by without a headline pronouncing that China is about to overtake the US and other advanced economies in the innovation game. Patent filings are up, China is exporting high-tech goods, the West is doomed. Or so goes the story line. (2)

So, what is innovation? According to Wikipedia, “Innovation is the development of new customer value through solutions that meet new needs, unarticulated needs, or old customer and market needs in new ways. This is accomplished through different or more effective products, processes, services, technologies, or ideas that are readily available to markets, governments, and society.”

As Steve Lohr reports, “Innovation is a tricky thing to measure. Patents are the most widely used yardstick, but they are an imperfect gauge of innovation at best. A November 2011 report by Thompson Reuters tries to draw a more accurate link between corporate patent filings and real innovation. It does so by measuring not only the number of patents a company files but also the influence, global reach and success of its patents. The result is a list of the 100 most innovative companies in the world, not ranked, just in or out. Most of the names on the list are no surprise. Forty percent are from America, including IBM, Apple, Microsoft, Boeing, Exxon Mobile, and Intel. One surprise! Not a single Chinese company is on the list. Yet China has become the most prolific patent filer in the world, pursuing a national plan to become an economy based on innovation rather than imitation.” (3)

Yet there is less here than meets the eye. Over 95% of the Chinese applications were filed domestically with the State Intellectual Property Office. The vast majority cover Chinese ‘innovations’ that make only tiny changes on existing designs. In many other cases, a Chinese filer ‘patents’ a foreign invention in China with the goal of suing the foreign inventor for ‘infringement’ in a Chinese legal system that doesn’t recognize foreign patents. (2)

The rise in technology espionage has permitted rival companies across the emerging world to make the same goods at lower costs. Proprietary technology was proprietary no more, which would, at least, in part, explain why the number of patent lawsuits against Chinese ‘innovators’ more than doubled from 7,500 in 2003 to 17,500 in 2007. And even though China has opened more than fifty courts to deal with intellectual property cases, the headline in an article published in the April 2008 Economist magazine tells it all: “850,000 lawsuits in the making: Doing business in China.” (4)

Gary Shapiro notes, “Innovation has been America’s strength for many reasons: our can-do attitude; a free market system that rewards savvy risk takers; an educational system that encourages questions rather than rote learning; our First Amendment that promotes different views without government censorship; our heterogeneous society; and our willingness to treat failure as a learning experience rather than a badge of dishonor. By contrast, the Chinese have a long tradition of copying others; not respecting intellectual property or having a culture that even recognizes it; a bias towards conformism; and a government that quells dissent. Given this vast cultural difference, it may be a stretch for the Chinese to shift from manufacturing to innovation.” (5)

So yes, China is making rapid strides in a number of areas; however, on an across-the-board basis, it still has quite some distance to cover before becoming a global innovation power. (2)

References

1. Linda Tischler, “China knows it must innovate,. But can it?”, fastcodesign.com, September 8, 2011

2. Anil K. Gupta and Haiyan Wang, “China as an innovation Center? Not so fast,  Wall Street Journal, July 28, 2011

3. Steve Lohr, “In innovation race, China is not yet a rival, study says,” bits.blogs.nytimes.com, November 15, 2011

4. Dambisa Moyo, How the West Was Lost, (New York, Farrar, Straus and Giroux, 2011), 110

5. Gary Shapiro, “Can China eclipse the US on innovation?”, forbes.com, July 11, 2012

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