Why is innovation so important to China?
A cyclist rides past the CCTV Headquarters in Beijing on February 28, 2010. The futuristic 54-storey building standing 234 metres, or 768 feet tall, for the state-run China Central Television was designed by European architects Rem Koolhaas and Ole Scheeren. (Getty Images)
September 13th, 2011
08:00 AM ET

Why is innovation so important to China?

Editor's Note: John Kao, dubbed "Mr. Creativity" by The Economist, is the chairman for the institute of large scale innovation and author of Innovation Nation. You can follow John on TwitterFacebook and at www.johnkao.com. This post is the second of six pieces by John about his recent trip to China. The first post was China as an innovation nationCheck back each morning this week at 8am for the next installment.

By John Kao – Special to CNN

Why is innovation so important to China? The obvious answer to this question is linked to the importance of economic growth as a driver of social development, a rising standard of living and national eminence.

While China’s growing prosperity is evident, it is worth noting that its GDP is 49% based on manufacturing, a percentage that has held steady for over twenty years. This was described by one senior government official as the result of a “bad deal.” “We make things for the world,” he said, “but we get the pollution, the need to consume natural resources and energy, we get the CO2 emissions and environmental problems.”

Over-reliance on manufacturing in China’s economic base carries significant vulnerability. First, China’s development model will be squeezed from below by new low-cost producers from South East Asia and elsewhere. China’s cost advantage has also come from deferring social investment and entitlements that citizens in other societies take for granted. And if global economic policy makers have their way, China will revalue its currency upward, which will make its cost structure and exports more expensive.

Thus, China will likely become a higher-cost producer, whether because of lower-cost competition, higher currency value or greater social investment. Its current business model is vulnerable as low-cost manufacturing - its traditional value creation engine - inevitably slows down.

It is natural therefore that China would seek a big answer through innovation in desiring to move to the higher value added, upstream part of the economic spectrum. In addition, China has a clear economic interest in diversifying into service industries, a move that so far has not met with significant success by their own admission.

Two other current reasons for China’s current passion for innovation come to mind. First, I believe that there will be an explosion of interest in social innovation there as pressure for a higher standard of living increases. Innovation in a range of public services that don’t necessarily come from government, but could be provided by a host of entrepreneurs, will provide ample fuel for a new wave of innovation.

And innovation will also be important because Chinese businesses currently face a kind of “brand barrier.” While Chinese consumers are increasingly concerned about value, they are said to prefer global brands, especially if they come from the growing middle class. As one entrepreneur put it plaintively, “If I put out a new product, no one will want to buy it from me. Local brands are not recognized.” So there is pressure for new kinds of marketing innovation to enable Chinese brands to rise above the clutter and provide a clear value proposition in the quality and originality of local products that goes beyond low-cost.

This is all well and good, but I believe there are deeper reasons for China’s commitment to an innovation agenda that must be understood in a historical context.

First of all, it must be remembered that China has been a society deeply interested in knowledge and discovery for several thousand years. China has historically been a source of an astonishing amount of new ideas that resulted in the development of gunpowder, hydraulic engineering, seismic sensors, pharmaceuticals - going back millennia. This is perhaps most thoroughly documented in the magisterial work of the sinologist, Joseph Needham, who in a 20 volume work entitled Science and Civilization in China chronicled the vast canvas of China’s commitment to knowledge advancement in a variety of fields ranging from life sciences to civil engineering. As a side note, one of our Chinese colleagues, in responding to a question about Chinese intellectual property (IP) practices, stated rather tartly, “We created a lot of IP like gunpowder and the compass, but we didn’t patent it. Maybe this is why China needs to be more careful about its IP position in the future.” This also illustrates China’s innovation challenge; innovation only comes from the adoption of new ideas, technologies and scientific breakthroughs. China invented gunpowder, but used it to make fireworks. It was left to the West to apply gunpowder to the development of weapons.

To understand today’s focus on innovation in China today, there is also the question of mentality. The literal words for China mean “middle kingdom.” Marco Polo, when he first visited the Emperor of China, Kublai Khan, was told that China had no need for goods from the outside world because it possessed all things in abundance. One finds an echo of this perspective in China’s current drive for indigenous or “homegrown” innovation, about which much more will be said in a later post in this series. But the breadth of the Chinese innovation agenda, the desire eventually to be eminent in all aspects of the innovation horizon, suggests a desire for self-reliance in the innovation domain foreshadowed by the emperor’s comment to Marco Polo.

Finally, innovation is important to China because it fits the times. There is pent-up desire to improve the state of Chinese society, and innovation is seen as key to this. China’s modern history consisted of 150 years of suffering - poverty, famine, war, disruptive social movements such as the so-called Boxer Rebellion, invasion and occupation by the European powers that led to a host of so-called "unequal treaties" such as the opium trade introduced by Great Britain and being treated as second class citizens in their own country, civil war, the Japanese invasion of China in the prequel to what we know as World War II and more.

Few countries have known as much hardship. So it is really only in the last few decades that China has achieved any kind of stability. And in this period, China has experienced a remarkable explosion of socially constructive energy. The skyline of China is mute testimony to this, festooned as it is with new skyscrapers exemplifying some of the very best (and some of the worst) of modern architecture.

In Beijing we have Rem Koolhaas's astonishing CCTV Headquarters building alongside other iconic architectural achievements. And one feels the wealth everywhere in such terms as couture brands, as well as Maserati and Maybach dealerships.

China today is a country filled with ambition that aims if only unconsciously to reclaim its mantle as the middle kingdom. Thus its stance on innovation policy, which will be discussed in greater detail in posts coming up later this week, becomes clearer by referring to a historical context. China does not want to depend on others. And it is crucial to understand that China does not wish to participate in what it perceives to be unequal or disadvantageous relationships with foreigners. Rather, it wishes to create the domestic capability to be able generate innovation itself and has translated this into a set of explicit national goals and initiatives. It is investing like there is no tomorrow in innovation infrastructure in such terms as universities, broadband, talent policies, economic clusters and new investment regimes. As regards innovation in China, the past is truly prologue and the future is being fueled by the highest possible level of innovation ambition.

The views expressed in this article are solely those of John Kao.

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Topics: China • Innovation

soundoff (28 Responses)
  1. USA

    @HowlinWolves
    Whether China is sick or healthy, China is always my mother.
    If you really love China (if u are a Chinese), please do not use that kind tone of voice when speaking about our dear mom.
    "And it is crucial to understand that China does not wish to participate in what it perceives to be unequal or disadvantageous relationships with foreigners. Rather, it wishes to create the domestic capability to be able generate innovation itself and has translated this into a set of explicit national goals and initiatives. It is investing like there is no tomorrow in innovation infrastructure in such terms as universities, broadband, talent policies, economic clusters and new investment regimes." Go China go!

    If China collapses, just the refugee alone will be enough to drown us all!
    Let all hope China make it for we will all gain at the end! Why would anyone think otherwise?

    September 13, 2011 at 8:59 am | Reply
    • j. von hettlingen

      True, Like a good mother she thinks for her children's future. "China’s modern history consisted of 150 years of suffering". Now the country enjoys prosperity and the people deserve a good life. But don't ignore those who lack behind. Don't forget history! Be Confucian!

      September 13, 2011 at 3:51 pm | Reply
      • j. von hettlingen

        Please read – who LAG behind! Don't forget history! Don't forget the Confucian values!

        September 14, 2011 at 6:16 am |
  2. TheTrader

    The Walmarts of world went to China to but "cheap". But China is freshly out of stock of cheap, so they have started to move elsewhere. I commented on your earlier posting that the Chinese have to recognize that they are their own biggest customer, and until that happens they are in for a turbulent 5 to 10 year period. You could drive in the outskirts of Shanghai, Hangzhou, Ningbo and many other cities and see many beautiful high rise buildings that remain empty. The average Chinese citizen just cannot afford the asking price for these property. The average engineer makes about 4000 RMB. How can he or she afford a 2 bedroom apartment that is running upwards of 1 Milion RMB.

    China is quickly becoming a victim of it's own rapid growth. The standard of living of the average citizen has skyrocketed to unimaginable heights. People have more, they consume more, and they are doing more. But salary has not keep pace with costs of things.

    The next few years will be critical. China has to lower taxes so the people have more expendable income. We are already moving production to 3 other countries, as China prices itself out of cheap goods. Our cost of goods went up by more than 50% in the past 9 month alone. For a business, this is not sustainable.

    One thing is pretty much certain. China as a destination for manufacturing cheap goods is over. So, the innovations that you are talking about here better come fast and furious. China cannot produce a passenger jet, and think it can compete with the Boeing 737 or Airbus A320. It has to come up with something much better. They cannot afford ro just continue copying anymore.
    The saviour for China is going to be their own people.

    September 13, 2011 at 3:48 pm | Reply
  3. TheTrader

    The Walmarts of world went to China to buy "cheap". But China is freshly out of stock of cheap, so these major retaiilers have started to move elsewhere. I commented on your earlier posting that the Chinese have to recognize that they are their own biggest customer, and until that happens they are in for a turbulent 5 to 10 year period. You could drive in the outskirts of Shanghai, Hangzhou, Ningbo and many other cities and see many beautiful high rise buildings that remain empty. The average Chinese citizen just cannot afford the asking price for these property. The average engineer makes about 4000 RMB. How can he or she afford a 2 bedroom apartment that is running upwards of 1 Milion RMB.

    China is quickly becoming a victim of it's own rapid growth. The standard of living of the average citizen has skyrocketed to unimaginable heights. People have more, they consume more, and they are doing more. But salary has not kept pace with costs of things.

    The next few years will be critical. China has to lower taxes so the people have more expendable income to spend. We are already moving production to 3 other countries, as China prices itself out of cheap goods. Our cost of goods went up by more than 50% in the past 9 month alone. For a business, this is not sustainable.

    One thing is pretty much certain. China as a destination for manufacturing cheap goods, is comng to an end for us. So, the innovations that you are talking about here better come fast and furious. For example China cannot produce a passenger jet, and think it can compete with the Boeing 737 or Airbus A320. They have to subsidize this jet and sell it cheap just to break into the marker. To make it work, China has to come up with something much better. They cannot afford to just continue copying anymore. They have to present to the world something like the Dreamliner or A380.

    I love China and I think the saviour for long term sustainable China is going to be their own people.

    September 13, 2011 at 3:59 pm | Reply
  4. sowhat

    ..............Should this be a surprise? From all the countries in the world the US isn't the only onw who could innovate, it just think it's the only one.

    September 13, 2011 at 5:26 pm | Reply
  5. Mike Houston

    There are only two "innovations" that need to occur in China, and those two will open hundreds of pathways to further
    progress toward being the "innovation nation". The first must come from the top (CCP) down to individuals, and it is very
    simple: Stop being afraid of "the people". That fear is manifested every time the government locks up a man like Ai Wei Wei. It shows every time someone is executed for a nonviolent crime (a businessman for embezzlement, a Filipino woman duped by drug runners into carrying drugs thru an airport). It shows whenever "unauthorized"
    assemblages occur and are broken up violently by police. It shows when outside press is prevented from filming
    or reporting on various political aspects of Chinese government and society. It shows when a visit by the Dalai
    Lama to some other country is considered to be an "insult" to Chinese pride. It shows when internet communications are monitored and censored by the "Government"(CCP). In short, lighten up, and quit trying to micromanage life.
    The second "innovation" is also very simple and relates to the first: Get a coherent, humane, and equitable legal
    and judicial system that is immune to interference from political, military, or commercial interests.

    Innovation is not something that can be willed into existence by bureaucratic demand. It usually comes from
    serendipitous discovery by intellectually curious, unfettered, individuals. It will rarely come by "committee".

    September 13, 2011 at 5:54 pm | Reply
    • AngryCenter

      Mike,
      Great post!

      September 14, 2011 at 12:53 pm | Reply
    • Viewer

      I can use this comment and re-direct it back at America

      September 19, 2011 at 12:08 pm | Reply
      • bob

        Obviously, you're quite right. A look in the mirror is worth a thousand words.

        January 2, 2013 at 9:50 pm |
  6. C Beeko

    China is a great nation. The innovation initiatives they have implemented are to be commended. However, until China embraces international laws pertaining to the intellectual property belonging to citizens of other nations around the globe – they will not receive the respect they deserve in regards to innovation. The unfortunate global perception is that they are a country of product piracy, trade mark infringement, patent infringement, cheap knock-offs and stolen copyrights.

    China's first step to be taken seriously as a country of innovation is to respect the innovation of others. They must agree to sign and enforce intellectual property treatys with the other nations of the modern world.

    September 13, 2011 at 6:26 pm | Reply
    • bob

      You're right. They should have patented every single one of their inventions and sue the hell out of every western countries.

      January 2, 2013 at 9:48 pm | Reply
  7. Uuganbat

    Author mentioned that Marco Polo visited Kublai Khan, the Emperor of China somewhere in the middle. But it would be total irresponsibility of him to state it. Kublain Khan was a grandson of Genghis Khan and the Emperor of Yuan Dynasty which was the largest empire existed on the earth.

    September 13, 2011 at 10:41 pm | Reply
  8. ali

    Innovation takes a massive amount of immigrants to mix things up. China and other Asian countries just doesn't have the tolerance for that.

    September 14, 2011 at 4:31 am | Reply
    • bob

      yeah right.. I guess China's great history of inventions and discoveries are from many immigrants. You've got to be kidding me. A stricter immigration policy is a must.

      January 2, 2013 at 9:32 pm | Reply
  9. carleck

    China's current answer to innovation and new technology is stealing the intellect of other nations.

    September 14, 2011 at 6:55 am | Reply
    • bob

      from envious western and western slave nations

      January 2, 2013 at 9:36 pm | Reply
  10. Humble Genius

    True, "unbundled" innovation will be very difficult in China, because (at the very end) it is simply a Communist nation with the dreams (and a suite) of a Capitalist one.

    Innovation requires that the human being-and-mind are allowed to move and act freely in multiple directions, it requires experimentation, questioning, all mated with a strong sense of private/Intellectual property, etc.

    On the other hand, NO ONE can call China an innovation-driven country when all it does is ask foreign companies (like BMW, lately) to "share" their technology with China, happening over-and-over again.

    PROFOUND changes will be necessary for China to occur, so (when they launch their next high-speed train) it does not crashes either.

    As a read before, "an economic giant with feet of clay".

    September 14, 2011 at 8:38 am | Reply
    • bob

      I guess they were doing fine during the imperial periods, under one ruler. The Chinese then were the most innovative people on earth.

      January 2, 2013 at 9:45 pm | Reply
  11. Marc L from NY

    China is going to have a big problem on their hands. Plant the seeds of innovation, and people are going to start rebelling against their communist rules. The people are going to discover freedom and are going to demand it and China will then have to decide to concede to the will of the people, thus giving up communism, or they will have to crush any kind of rebellion to keep their grip on power.

    September 14, 2011 at 10:27 am | Reply
    • bob

      you mean like they did during the han and qin dynasties? Get real.

      January 2, 2013 at 9:44 pm | Reply
  12. AngryCenter

    To add to the great posts from Mike Houston, CBeeko, Humble Genius, and Marc L ... specifically regarding to China's oppression of their people, respect for intellectual property, and ability to operate bottom-up instead of top-down... these are definitely road blocks to an innovative culture and society.

    In a way, I hope that because the government is making a mandate to drive innovation, this would mean that they have to eventually address these points. In a way, this 'government sanctioned' goal becomes the catalyst to philosophical changes into their own society. They will have to come to terms that when they want to protect their own intellectual property, they have to protect others. The executives and bureaucrats who need innovations will now have to start asking for input from the the workers. This, in turn, get the workers (i.e. the common people, the masses) to start speaking out and to start questioning. Once you get people to understand that they have the power to speak even if they are low in the totem poll, they may start rising to the challenge in other aspects of life.

    I know this is wishful thinking, but that is my hope....that this will help push China to a more open society.

    September 14, 2011 at 1:06 pm | Reply
    • bob

      "I know this is wishful thinking, but that is my hope....that this will help push China to a more open society."

      why? So you western "intellects" can bring about peace and prosperity? That would be a first.

      January 2, 2013 at 9:42 pm | Reply
  13. sparcdesign

    The article sites Renzo Piano as the architect for the CCTV building, but it was Rem Koolhas. The photo caption states it correctly. Really interesting article-will be anxious to read the others.

    September 15, 2011 at 1:23 pm | Reply
  14. bob

    I guess they were doing fine during the imperial periods, under one ruler. The Chinese then were the most innovative people on earth.

    January 2, 2013 at 9:40 pm | Reply

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