Chinese innovation – paper tiger or king of the hill?
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September 14th, 2011
08:00 AM ET

Chinese innovation – paper tiger or king of the hill?

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 third 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

Two narratives are in play these days with regard to China’s innovation future. They could not be more polar opposite. One is openly dismissive of China, while the other sees a massive threat from the East on a scale that makes the Japan of the 1980’s seem like a tea party. The truth as always lies somewhere in between. But there is value in deconstructing these current perceptions because the future of China is definitely in play, and with it the world’s response.

Perhaps the most obvious example of narrative #1 is a recent editorial in the Wall Street Journal, titled Chinese Innovation, A Paper Tiger. It argues that China’s innovation prowess has been misleadingly marked up because of the number of patents it has filed. The authors, respected management academics, contend that the quality of those patents is low, more related to incremental improvement than groundbreaking innovation and therefore, China is not an innovation force to be reckoned with.

While this may be an argument for teaching logic in business schools, it is typical of a more general thesis - that the Chinese are imitators, that they will always remain “downstream” from us who are the “upstream” wellspring of world-changing innovation. The “paper tiger” reference itself suggests a kind of pejorative payback, in that it was originally used by Mao Zedong to describe America’s lack of military will during the Korean war era.

Read post #1: China as an innovation nation.

Others who want to dismiss Chinese innovation with broad brush, negative strokes accuse the Chinese of attempting to win by cheating, citing ongoing issues with piracy and counterfeiting, or the perception of self-serving national innovation policies.

Finally there are those who feel that Chinese innovation is not relevant because the wheels are likely come off the Chinese economic juggernaut over time for many reasons, including: corruption, bad accounting practices, real estate bubbles and a social payment overhang of massive proportions.

The potential for upping the vitriol ante is disturbingly large, and does not lack for proponents. For example, Congressman Frank Wolf of Virginia recently introduced retaliatory legislation that effectively prohibits the White House’s Office of Science and Technology Policy (OSTP) and NASA from any scientific collaboration with China, specifically any funding effort "to develop, design, plan, promulgate, implement or execute a bilateral policy, program, order, or contract of any kind to participate, collaborate, or coordinate bilaterally in any way with China or any Chinese-owned company." This is one reason why OSTP - the U.S. lead in the innovation dialogue with the Chinese Ministry of Science and Technology - was not along for our study tour. If the Chinese had questions about our fiscal policies, think how they must now begin to wonder about our politics.

So where does this leave us? As mentioned earlier, the truth is somewhere in the middle. China is not the Beast from 20,000 Fathoms that is poised to eat our (and everyone else’s) lunch. But they are richly endowed with innovation assets and their portfolio of investments are likely to pay off, which clearly makes them a force to be reckoned with.

What are these assets? First, and at an actuarial level, China’s massive population creates the world’s largest talent base. If you believe in the golden bee-bee theory of creativity (for example, that one out of a million people is a genius), then China has approximately 1,400 of such big brains. Capital? China has tons. Also, pent-up consumer demand and a high savings rate will support the development of an ocean of new businesses. National will? No one who visits China can miss the zeal with which national development is being pursued and the kind of hunger for knowledge that leads to business and social advancement.

Read post #2: Why is innovation so important to China?

Venture capital? Absolutely. While venture investing tracked at a respectable $5.4 billion in 2010, its growth rate is described as being “second to none” by Lux Research. And the ranks of business angels and entrepreneurs, though admittedly not many in the all-important serial entrepreneurs categories, is growing rapidly.

In terms of a national strategy for innovation, China definitely has one, and is iterating on it to realize continuous improvement. Innovation is clearly featured as a national priority in the 12th 5-year economic plan. More importantly, they have a cadre of leaders who get it, are responsible for it and are doing it. Innovation stewardship? Check. Infrastructure? Massive investment is pouring into science, technology, institutions of higher education, broadband etc. And perhaps most importantly, China has a national vision that the innovation drive is linked to.

Of course, there are significant liabilities on China’s innovation balance sheet and a good number of significant potholes on her path to becoming an innovation powerhouse. Three are worth mentioning in particular.

Pothole #1 is the Chinese tendency to think vertically from an organizational perspective. That is to say the person on top gets wide latitude to call the shots, whether they are the CEO, the professor or the domain expert. Part of the subtext of the periodic suppression of dissent in China, in my view, is because it is culturally dissonant and disrespectful to oppose the authority of one’s elders. I’m not justifying the Chinese position, but rather pointing out the challenges to the kind of innovation that largely comes from the edges and bottoms of organizations, and does not necessarily run parallel to a status hierarchy.

Related to this pothole is the overweighting of Chinese education towards neo-Confucian rote learning and “respect the teacher, learn the content” style of pedagogy. This shapes a culture that avoids risk and prefers incrementalism based on known business models rather than disruptive innovations that represent a leap into the unknown.

Pothole #2 is the tendency to rely on a centrally planned and top down approach to innovation. The Chinese approach to motivating innovation by linking benefits to the production of scientific papers and patents for example may be of some practical utility. But it also speaks to a nostalgia for an industrial model of productivity made up of objective inputs and outputs, metrics, and transform algorithms that fly in the face of much of what we know of as disruptive innovation, which can be inherently inefficient, nonlinear and on the edge.

Pothole #3 relates to ethical standards. The world will not accord China the full credibility it deserves until issues of reliable accounting, scientific honesty, and effective policing of intellectual property theft are addressed. The ethical issue inevitably leads to a perception of self dealing, and will be used by Congressman Wolf and others of his persuasion to justify the kind of retaliatory, zero-sum thinking that could lead to what one might call an innovation war. I will deal with that scenario as well as the potential for China-U.S. innovation collaboration in my fifth post of this series.

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

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Topics: China • Innovation

soundoff (235 Responses)
  1. Occupado

    China will be the next bubble to burst. 99 percent of the workers who make our flat screen TVs and smart phone can't even move their families to the towns where they work, much less afford to buy one of the products they build for themselves.

    Workers' paradise? I don't think so. Counter revolution? Not a question of if, but of when.

    October 21, 2011 at 6:44 am | Reply
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