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 (236 Responses)
  1. cleancool

    @justsayin, you mimic exactly like your presidential candidate mitt romney. Calling Chinese a thief is not very wise, I believe the americans are themselves the greatest crook of ALL time. Look at the covert activities of the CIA and the underhanded dealings of your state department, check it out at the WIKILEADS. God bless Julian Assange. He exposed ALL the dirty tactics that the americans used. Your american presidents, past and present have a tendency to LIE. Look at Nixon, Clinton and Bush. These are the testimonies of the " integrity " of your u.s. government. I trust the Chinese government, more than self-righteous u.s. government. GOD bless China.

    September 15, 2011 at 8:42 am | Reply
  2. T40g

    Sorry, but without an economy, the USA can only win the beginning of a war, but not the end of one – much like Germany's problem in WWII. Germany's economy didn't have the capacity to replace their advanced weaponry, so eventually they lost. For the same reasons, if we fought China today, we'd lose, eventually.

    September 15, 2011 at 9:15 am | Reply
    • Piaofu

      A timely reminder perhaps is this fact : –

      Do you know that America did not get out ot the great depression at all. It was World war One which started in 1929, that saved USA from what would have been an unrecoverable and prolonged national financial disaster.

      The great depression was said to be started by only a couple of very greedy Wall Street big time speculators. Can you imagine that happening! But the trading rules have sincechanged, so we are quite safe I thought – until Lehman Brothers and again Wall Street 🙂

      September 15, 2011 at 9:56 am | Reply
      • Piaofu

        Correction, I accidentally press submit before I could edit.

        A timely reminder perhaps is this fact : –

        Do you know that America did not get out ot the great depression at all. It was World war II, that saved USA from what would have been an unrecoverable and prolonged national financial disaster. America supplied the war machineries and later joined the war after pearl harbour got bombed.

        The great depression in 1929 was said to be started by only a couple of very greedy Wall Street big time speculators. Can you imagine that happening! But the trading rules have sincechanged, so we are quite safe I thought – until Lehman Brothers and again Wall Street

        September 15, 2011 at 10:55 am |
  3. Piaofu

    The Chinese youths are pursuing better education and training, and more jobs are being
    created as investments continue to pour into China. China's consumer base would become
    the world's fastest growing – and the largest.

    Millions of cars and thousands of aircrafts, particularly, are expected from China within
    this decade.

    A car market normally saturates at more than 500 cars per 1000 people,
    and by that measure, China is several decades away from saturation. It is currently only
    around 25 cars per 1000 people. But not just oil guzzlers, battery operated cars are now
    going to be the new thing in China.

    Foreign car manufacturers better get ready for China, as it will be the world’s
    largest car market of the future.

    I see China taking the new initiative to invigorate the lack lustre global economy in the next few year.
    China's ballooning consumer demands would also help businesses all over Asia – and to a
    certain extend US and the EU too.

    So, Mr President- to= be, dont you forget this fact !

    China like to have nice sincere friends , "you talk nice to me, I will be nice to you too " Get it?

    September 15, 2011 at 9:31 am | Reply
    • JohnKao

      顶!

      September 15, 2011 at 9:43 am | Reply
    • wesszr

      How about China's destruction of wildlife?
      How about China's medieval set up animal fights.
      How about illegal import of ivory.
      How about the simple minded way of thinking that bones of Tigers can make you healthy or stronger.
      And this is only about aninal welfare, let alone how China deals with humans disagreeing with the Chinese governemnt.
      Let's ask Nepal. The world would be a better place without China.
      Thank you very much.

      September 15, 2011 at 9:51 am | Reply
      • Piaofu

        While I sympathise with the endangered tigers, I think as more western medicines are being used in China, because new generation of Chinese become more exposed to western medicines, old cures using tiger bones and rhino horns would become outdated.

        Already, sharkfin soup is a NO NO in Chinese weddings in China, l was told.

        Anyway, I think global warming, caused by random use of fossil fuel in USA, will eventually kill fastermore tigers and other endangered animals in the jungle than Chinese traditional tiger bone medicines would.

        September 15, 2011 at 10:41 am |
  4. 毛主席

    我来说 “好好学习,天天向上!”

    September 15, 2011 at 9:41 am | Reply
  5. Piaofu

    China cannot afford to democratise until its economy has a firmer footing. China has learnt a lession from the collapse of the Soviet Union – where the citizens in Russia and othe former Soviet states face severe food and and job shortages. Their economies were in tatters, until now for some of the states.

    Eventually, I see a socialist democracy in China in 30 years time. But not any time sooner. Especially when Chinese people can see for themselves that American style democracry is ...... very unsuitable for good economics.

    September 15, 2011 at 9:42 am | Reply
  6. Bingerfang

    China cannot continue to exist in its current form.

    September 15, 2011 at 10:37 am | Reply
    • Mike Houston

      You're right for a variety of reasons. The main reason, though, is that "consumerism" as a model for economic
      well being is not sustainable when population overtakes availability of natural resources. China has long since
      been too populous. All the "innovation", all the technical expertise, all the "brain power" in the world can't keep
      China going as it is now (or the U.S. either, for that matter) It won't be long before a "consumption-resource-population" tipping point is reached...

      Then the real tigers, the paper tigers, real bears and circus bears will gobble up everything that's between
      them and finally they'll gobble up each other...

      September 15, 2011 at 1:50 pm | Reply
  7. Ed

    China is a living proof of saying "stealing can be successful too". This is an end of innovation era. Welcome to Dark Age.

    September 15, 2011 at 10:44 am | Reply
    • Piaofu

      " This is an end of innovation era. Welcome to Dark Age."

      Ed, is this how common Americans rationalise? Pity America !

      September 15, 2011 at 11:29 am | Reply
      • Ed

        Using your pity on workers at Foxconn Plants in China. They are working, eating, and sh***ting at them same place.

        September 15, 2011 at 11:34 am |
    • TechPoint

      Losers always blame on other than look at the issues for themselves – do you consider yourself “stealing” when you learn from school or others? Its easy to blame on China as a scapegoat due to our domestic issues – high unemployment rate (blame on cheap Chinese labor to take on jobs no Americans want); high national debt (blame on China keeps buying our treasuries and finance our beyond the means consuming habits); manipulation of currency (well, America is actually the biggest currency manipulator of keeping printing money while stockpiling gold)…all these issues are created by ourselves or our capitalistic system – look at the demise of Bear Stern and Lehman Brothers, sub-prime housing market, educational system, medicare, wars in the middle east, personal debts, politics…..can we all blame on China?

      September 17, 2011 at 12:34 am | Reply
  8. Piaofu

    A very famous quote from that Mormon president hopeful?

    America is somewhat also guilty of stealing – Chinese brains. Which you find plenty of them in NASA .

    So when you sell a fighter jet you expect it to be copied, sooner or later. The Russians are doing it too. One day America may have to copy China technology too – who knows. Remember the Chinese built the fastest train in a short period of time. Ok its still not a completely safe train, but still it is the fastest. Never underestimate China or overblow your AmericaN horn too often. The world is evolving, and new technology is changing sides. China now has the money to reinvent and innovate like never before.

    September 15, 2011 at 11:05 am | Reply
    • Ed

      Chinese brains? Are they Chinese American? Ever wonder why they are rather work for the USA than China? They have to be a US citizen to be work for NASA.

      September 15, 2011 at 11:24 am | Reply
    • Ed

      Oh, working for in NASA isn't that making them a communist traitor? either that or they are spies then again that making them stealing/hacking.

      September 15, 2011 at 11:32 am | Reply
      • chingsoonyew

        So you can't trust your own citizens. I bet you are frightened of your own shadow.

        October 13, 2011 at 2:34 am |
  9. Piaofu

    Your Republican president hopeful is playing to the crowd. He knows you all just love to hear USA talk tough with China.

    No wonder the 14 trillion dollars national debt ! Wasted by the same people you loved to quote.

    "stealing" technology is smarter than wasting 14 trillion dollars in wars that nobody wants to get involved in!

    September 15, 2011 at 11:37 am | Reply
    • Piaofu

      "stealing" technology is smarter than wasting trillions of dollars in wars that nobody wants to get involved in!

      September 15, 2011 at 11:39 am | Reply
    • Ed

      Finally admitting to stealing technology, thank you. Remember stealing not the same with innovation.

      September 15, 2011 at 11:40 am | Reply
      • johnnyvista

        "stealing" –

        " " just means quoting you. Does not mean admission of guilt or wrong.

        September 15, 2011 at 1:49 pm |
      • chingsoonyew

        I am very sure killing is more sinful than stealing. Remember Vietnam, Korea, Iraq, assasinations of South American leaders.

        October 13, 2011 at 2:37 am |
  10. howedo

    Why is ppl talking about nukes on here?

    September 15, 2011 at 12:17 pm | Reply
  11. jorge washinsen

    Where,oh where is Al Gore?

    September 15, 2011 at 2:17 pm | Reply
  12. Mike Houston

    Stiffled, gagged and tied to a chair in an American neo-con cellar that was built and paid for with Chinese money
    by a bunch of American Corporate oligarchs and corrupt Chinese CCP fools who want to achieve the "American
    standard of living" before China implodes upon itself...

    September 15, 2011 at 2:31 pm | Reply
  13. us1776

    Both China and the U.S. have plenty of "issues" in their own countries that they each need to be working on.

    Neither one is perfect.

    September 15, 2011 at 3:09 pm | Reply
  14. The all potent one

    Strange game, the only way to win is not to play

    September 15, 2011 at 4:01 pm | Reply
  15. wilbur

    China will flood when the top 6 dams are hit with cruise missiles fired by US ships or subs from direction of Taiwan. That will trip the 10,000 dams below. China will wash to the sea as planned in the 1930's. The dams are mostly bad so it will happen anyway. About 500 million mostly poor Chinese will die, much to the relief of China. We will be told differently. Learn to Kowtow this time and forget it. If rain is good in spring, it will happen.,

    September 15, 2011 at 5:08 pm | Reply
    • us1776

      A cruise missile would bounce off one of those dams like it was a BB.

      And what's with all the animosity? Have you ever traveled anywhere and met people from around the world?

      September 15, 2011 at 5:25 pm | Reply
    • chingsoonyew

      You are talking about killing people. What does that make you? Here we are talking about innovations. If only your mother knew, she would have told your father to go to the bathroom.

      October 13, 2011 at 2:40 am | Reply
  16. KC

    The only thing China is innovative about is stealing other peoples ideas and mass marketing it as their own

    September 15, 2011 at 5:38 pm | Reply
  17. Barry G.

    China is a totalitarian society, and they must control (and restrict) all information and maintain considerable isolation, in order to maintain control over their citizens and in order to maintain their narrow-minded world view.

    What do you think will happen when the 1.5 billion citizens of China get wind of what has been and is happening in the world?

    Surely this wouldn’t be good for the relative few, who control and rule China.

    September 15, 2011 at 5:56 pm | Reply
    • Piaofu

      So how is American democracy, freedom of speech, human rights blah blah .... benefit USA citizens, really?

      What about this –

      9.1 % unemployed Americans?

      bankrupt state governments ?

      a national debt of mindboggling US$14 trillion ?

      15% Americans living in abject poverty ?

      overdue upgrading of basic infrastructures like public housing for the poor, roads and bridges ?

      people trapped in home mortgages – because they were encouraged to buy houses that they really cannot afford to ?

      why USA needs to borrow US$1.3 trillion from a communist country – China ?

      and what about this: –
      the circus show put up by the Republican Congress to resist raising America's debt default , and risking
      pension payouts being stopped and suffering the retirees ..........this is good American democracy?

      I am for democracry, but never for cowboy Democracy 🙂

      September 15, 2011 at 9:48 pm | Reply
  18. rahm

    So many abusive abrasive loudmouths, ignorant not only about other peolples history but even their own.
    Listen, do not manufacture "facts" to support your emotional views, open yourselves up to other points of view, calm down, think fairly. You might end up being a happpier well adjusted person. Do it.

    September 15, 2011 at 6:22 pm | Reply
  19. ljheidel

    Your "credibility" to the "world" doesn't matter if you're the biggest dog, and China knows that. They don't care if they break a few eggs in the interim while making this omelet.

    September 15, 2011 at 7:22 pm | Reply
  20. Gene

    Dear John Kao. Let me tell you who today's world works. It makes no difference, on how innovative Chinese are. Today, in globalized economy, innovative idea generated somewhere in USA, by USA engineer, in the matter of seconds gets shared in multinational organization across the whole globe, across the whole organization. Most of the benefits, most of the productivity increases due to the idea will go to Chinese workers of this multinational organization. The USA engineer, if lucky, will double his salary. That is all.

    September 16, 2011 at 12:41 am | Reply
  21. tiananmen nepal taiwan

    the world allows the chinese to subjugate their people as slaves & pacifies them with access to intellectual property stolen from the west.

    September 16, 2011 at 1:10 am | Reply
    • ote

      I rather be a happy Chinese slave than a starving Indian "free".

      September 16, 2011 at 11:33 am | Reply
  22. cmpsci

    This discussion about innovation is nothing but the tail wagging the dog. The main problem with the USA is that the average American is becoming poorer and less educated than prior generations. Given that the economic engine is more aligned with consumer consumption growth as opposed to actually producing something of real value, only further exacerbates the decline of the US. The "innovators" in the US will be innovating for those markets that can pay the most for their products, and hence, those markets will benefit first from the technology and/or service. If China displaces the US in this capacity, then China will be the net beneficiary of the innovation ... period. The last and most important point is that when you are the number one market, you get to set the rules and nobody wants to be excluded from access to that market ... so ... figure it out from there ....

    September 16, 2011 at 1:19 am | Reply
    • chingsoonyew

      The customer is always right. People who innovates think of monetary rewards. So do not think that the innovators is doing it for free, just to to contribute to mankind.

      October 13, 2011 at 2:48 am | Reply
  23. iloveamerica

    i'mgoingtocarvelettersontoherskin

    September 16, 2011 at 1:37 am | Reply
  24. iloveamerica

    it'sGoingtoSay,"Whycan'TyoushowMeRespect?Idon'tEvenKnowyou"

    September 16, 2011 at 1:55 am | Reply
  25. iloveamerica

    AfterThisIwillCommitSuicide,ButSheWillKnowHowLifeIsLikeOnTheOtherSide-HowItisLikeToLiveWhenYouhaveNothingToLiveFor.

    September 16, 2011 at 1:57 am | Reply
  26. johnnyvista

    The fastest way to cure US economy ill is to start another major war somewhere, a war similiar to the Vietnam War scale. \Wars of this scale please this self interest group of millionaires and billionaires who are in
    the business of supply weapons, fighter jets, bombs, ammunitions, logistics etc.... They would be glad to employ
    more workers.

    This is one of the main reasons America is fighting meaningless, expensive war in Iraq and Afghanistan. Anyone who
    objects to pulling out the troops has to be a party of the special interest group of millionaires and billionaires military manufacturers and suppliers.

    Most US big companies are flushed with cash, but they are not employing more workers. It's political . All part of the Repulican scheme of things for 2012 elections. Which is to ensure President Obama gets the full blame, and not the big company bosses, for the stubborn high unemployment. QED.

    September 16, 2011 at 2:28 am | Reply
    • chingsoonyew

      USA's economy is war-based. Think how it got out from the great depression. Thats the economy lesson it has learned and so they it will always be using this strategy. USA is the world's largest arm merchant. That's innovation. CDS.Create, Destroy, Sell. CDS as in the Collateral Default Swap which has brought miseries to 99% of the people of this earth. But who cares, The death merchants are making lots of money.

      October 13, 2011 at 2:59 am | Reply
  27. rick bagley

    china only seems to be progressing because the country is soooo backward. if they allowed their money to float to its realistic level, they would be bankrupt. when the try all they can and do not get the reward they want, WWIII will begin.

    September 16, 2011 at 4:51 am | Reply
  28. cleancool

    Take a look at your soup kitchen in los angeles and the homeless in new york, one from a third world would never believe what they see. American democracy, human rights and economic miracle is just a packaging for the outsider to admire. The truth is far from it. Check it out yourself. I got stunned when I saw those poverty stricken americans queuing up at the soup kitchen in los angeles. The u.s. bureau of census have declared that they are 42.6 million americans who live below the poverty line. Those are not mexicans or hispanics, blacks but white americans., probably anglo-saxons. These self rigtheous americans should take a serious look at themselves, rather than condenming others.

    September 16, 2011 at 5:27 am | Reply
  29. Sanjib

    I think China is doing what China should do now. They have tons of money, investing in higher education, infrastructure, roads, trains etc. They have already stealth Jet fighters, Air-craft carrier, Nuclear weapon and space technology. Most of the technologies are home made. So it is not convincing any more (from western countries) to say China is a paper tiger. Though I believe that Europe & USA is still ahead in technology, only the economic situation is getting worse. But naturally negative side is also there in China: Bribes, corruption, intellectual property violation, fake commodities, devastating labour situation and most dangerously COMMUNIST DICTATORSHIP. But there is no denial that it is only CHINA from Asia that can challenge Europe and USA. It is good to be honest and give some credit for the rise of China. It is possible that ego of some people is getting hurt by enormous economic rise and moderate technological rise of China and they invented the word "paper tiger".

    September 16, 2011 at 7:14 am | Reply
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