The 5th Week Reading Materials
Innovation in China
From brawn to brain
If China is to excel at innovation, the state must give entrepreneurs more freedom
Mar 10th 2012 | from the print edition
THE end of cheap China is at hand. Blue-collar labour costs in Guangdong and other coastal hubs have been rising at double-digit rates for a decade. Workers in the hinterland, too, are demanding—and receiving—huge pay increases. China is no longer a place where manufacturers can go to find ultra-cheap hands (see ). Other countries, such as Vietnam, are much cheaper. What will this mean for China and the world?
Contrary to conventional wisdom, it will not mean that companies close their Chinese factories and stampede to somewhere poorer. China is still a terrific place to make things. Labour may be cheaper elsewhere, but it is only one cost among several. Unlike its lower-paying rivals, China has reasonable infrastructure, sophisticated supply chains and the advantage of scale. When demand surges for a particular product, the biggest firms in China can add thousands of extra workers to a production line in a matter of hours.
So China is not about to hollow out. But if it is to keep growing fast, it must become more innovative. At present Chinese innovation is a mixed bag. There are some outstanding private firms. Frugal engineers at private companies such as Mindray, which makes medical devices, and Huawei, a telecoms giant, are devising technologies that are cheaper and sometimes better than their rich-world equivalents. Manufacturers operating near China’s coast, whether home-grown or foreign, are adept at “process innovation”—incrementally improving the way they make things. And China’s internet start-ups, such as Tencent (a social-networking service) and Alibaba (an e-commerce company), have had a genius for copying Western business models and adapting them to the Chinese market.
But innovation is about more than this. One way of defining it would be as fresh thinking that creates value people will pay for. By that measure, China is no world-beater. Though its sweat produces many of the world’s goods, it is designers in Scandinavia and marketers in California who create and capture most of the value from those products.
China’s leaders know this, and are pouring billions of dollars into research and development. The current five-year plan calls for “indigenous innovation”, which the 1
government thinks it can foster by subsidising “strategic” industries and strong-arming foreign firms to transfer intellectual property to budding national champions. That system of state capitalism worked when the aim was to copy and adapt other people’s ideas in the cheapest way possible. But can new ideas truly be created by fiat? Elsewhere governments have tended to run into two problems: the state is not a good innovator, and it gets in the way of others who are. Is China really so different?
Although the Chinese government invests a fortune in research and development, too much of this cash is wasted, according to the OECD. Most of it goes into development; not enough into research. It is far too difficult for new Chinese ideas to move from the laboratory to the marketplace. And the pockets of research excellence that exist—for example, in genomics—tend to be disconnected and politicised fiefs. Meanwhile, the state’s efforts to pick technology winners have been patchy. Telecoms has been a success, but electric cars have not, and subsidising clean-energy manufacturers has had mixed results. As for trying to set up regional internet clusters, China seems committed, but so far Silicon Valley has proved far too complex and delicate a system for a bureaucrat to copy.
Let me in to the dragon’s den
If the argument that the Chinese state is uniquely innovative is at best unproven, the obstacles in front of a small private-sector innovator are clear. The most obvious is piracy. China’s intellectual-property laws are not bad on paper, but are enforced patchily and partially. Another problem is the way so many industries have been consolidated in the hands of favoured firms. Antitrust and competition laws are not applied vigorously to well-connected champions. State-directed banks take the Chinese people’s savings and lend them at microscopic interest rates to national champions. This starves clever but unconnected firms of capital, and cheats savers, too.
Nobody expects the Chinese government to let the reins go completely, but it needs a less top-down approach that gives its citizens more space to experiment. It must let private investors risk money on ideas they think might work, and bear the consequences of failure. An obvious place to start would be to let firms build on what they already do well, such as process innovation. But the next Chinese breakthrough may actually come in an unexpected field. China was once a dazzling innovator: think of printing, paper, gunpowder and the compass. If its rulers loosen their grip a little, it could be so again.
Premier Wen's Government Work Report
Chinese Premier Wen Jiabao delivers a government work report during the opening meeting of the Fifth Session of the 11th National People's Congress (NPC) at the Great Hall of the People in Beijing, capital of China, March 5, 2012. (Xinhua/Yao Dawei)
Parliament session starts, China to "make progress while maintaining stability"
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BEIJING, March 5 (Xinhua) -- China opened its annual parliamentary session on Monday, cutting the projected economic growth to 7.5 percent and vowing to "make progress while maintaining stability" in 2012.
This is the first time for China to lower its annual economic growth target after setting it around 8 percent since 2005.
China cuts 2012 GDP growth to 7.5 pct to boost development quality
BEIJING, March 5 (Xinhua) -- China sets its GDP growth target at 7.5 percent this year, down from 8 percent in 2011, according to a government work report delivered by Premier Wen Jiabao at the parliament's annual session Monday.
This is the first time for the Chinese government to lower its economic growth target after keeping it around 8 percent for seven consecutive years, in face of global turbulence and a pressing demand for accelerating economic structural improvement after years of breakneck growth.
China targets 4% consumer price rise this year
BEIJING, March 5 (Xinhua) -- China aims to rein this year's consumer price growth at around 4 percent, according to a government work report delivered by Premier Wen Jiabao at the annual parliamentary session on Monday.
"In projecting a CPI increase of around 4 percent, we have taken into account imported inflation, rising costs of factors of production, and people's ability to absorb the impact of price increases, while leaving room for the effect of price reforms," Wen said.
China vows 9 mln new jobs in 2012, stresses people's well-being
BEIJING, March 5 (Xinhua) -- China aims to create more than 9 million new jobs in towns and cities this year as part of the government's efforts in bettering people's well-being, Premier Wen Jiabao told the parliament's annual session Monday.
"Employment is of great importance to China's development and the people's well-being," Wen said at the Fifth Session of the 11th National People's Congress which opened Monday morning, nothing that the government would make every effort to increase employment.
China aims to increase exports, imports by 10 pct
BEIJING, March 5 (Xinhua) -- China aims to increase the volume of total exports and imports by around 10 percent year-on-year in 2012 to further improve its international balance of payments, Premier Wen Jiabao said in a government work report Monday.
The targeted foreign trade growth is a sharp slowdown from last year when China's imports and exports rose 22.5 percent year-on-year to 3.64 trillion U.S. dollars.
China to make plan to narrow income gap: Premier Wen
BEIJING, March 5 (Xinhua) -- China will promptly formulate a master plan for reforming the income distribution system in a bid to narrow the widening income gap, Premier Wen Jiabao said in a report 3
submitted to the parliament's session Monday morning.
The government will strive to raise the proportion of individual income in national income, and raise the proportion of remuneration in the primary distribution, Wen said at the opening meeting of the Fifth Session of the National People's Congress, China's parliament.
China to continue proactive fiscal, prudent monetary policies in 2012: report
BEIJING, March 5 (Xinhua) -- China will continue to follow a proactive fiscal policy and a prudent
monetary policy in 2012, carry out timely and appropriate anticipatory adjustments and fine-tuning, and make policies more targeted, flexible, and forward-looking, Premier Wen Jiabao said Monday.
China will keep the deficit and government debt at "appropriate levels", Wen said in a government work report delivered at the annual session of the National People's Congress (NPC), China's top legislature. China to keep RMB exchange rate basically stable
BEIJING, March 5 (Xinhua) -- China will keep the exchange rate of its currency yuan basically stable at an appropriate and balanced level, Premier Wen Jiabao said in his government work report Monday. "We will improve the mechanism for setting the RMB exchange rate, make the floating exchange rate regime more flexible," Wen said in the report delivered at the annual parliamentary session opened Monday.
China faces many difficulties, challenges globally, domestically: Wen
BEIJING, March 5 (Xinhua) -- China still faces many difficulties and challenges internationally and
domestically in economic and social development, according to a government work report delivered by Premier Wen Jiabao at the annual parliamentary session Monday morning.
"We are keenly aware of that," Wen said, describing the global economic recovery as "tortuous". He said the global financial crisis is still evolving, and the sovereign debt crisis in some countries will not ease any time soon.
Farmers' rights to land not to be violated by anyone: Wen
BEIJING, March 5 (Xinhua) -- Farmers' rights to the land are property rights conferred by law, and these rights must not be violated by anyone, Premier Wen Jiabao said at the annual parliamentary session Monday morning.
"We will place farmland under strict protection, and formulate and promulgate regulations concerning compensation for the expropriation of rural collective land," Wen said at the opening of the annual session of the 11th National People's Congress.
Economic restructuring most pressing task: Wen
BEIJING, March 5 (Xinhua) -- Transformation of the mode of development and economic restructuring are the most pressing tasks at present for the Chinese government, Premier Wen Jiabao said in a government work report Monday.
These measures are the "key to solving the problems of imbalanced, uncoordinated, and unsustainable 4
development" in China, said Wen in the report delivered at the annual session of the National People's Congress, China's top legislature.
China to impose "strictest control" over water resources: report
BEIJING, March 5 (Xinhua) -- China will impose the strictest control over water resources, according to a government work report released to the media ahead of the parliament's annual session.
The government will rationally set and adjust water resource fees in different localities, and carry out integrated price reform of water used for agricultural purposes, says the report to be delivered by Premier Wen Jiabao at the opening meeting of the Fifth Session of the National People's Congress (NPC).
China to further promote culture development: Premier Wen
BEIJING, March 5 (Xinhua) -- China will further promote the reform and development in its cultural system to provide a large quantity of high-quality cultural products to meet people's demand, Premier Wen Jiabao said at the parliament's annual session Monday morning.
The government will vigorously promote nonprofit cultural services and strengthen cultural
infrastructure in communities, particularly in rural areas and the central and western regions, Wen said in a government work report delivered at the opening meeting of the Fifth Session of the 11th National People's Congress (NPC), the top legislature.
China aims to extend old-age pension scheme to cover all residents
BEIJING, March 5 (Xinhua) -- China is trying to make a frog jump in building its social security system by further extending the old-age pension program to cover all residents, Premier Wen Jiabao said in a government work report delivered at the parliament's annual session Monday.
"By the end of the year, we will have achieved full coverage of the new old-age pension system for rural residents and the old-age pension system for non-working urban residents," Wen said at the Fifth Session of the 11th National People's Congress opened here Monday
China aims to increase 12 million low-income housing in 2012
BEIJING, March 5 (Xinhua) -- China hopes to complete 5 million units of low-income housing this year and start construction of another 7 million units as part of an effort in improving people's living
conditions, according to a government work report delivered by Premier Wen Jiabao at the parliament's annual session Monday.
"We will work speedily to improve the system for constructing, allocating, managing, and recalling low-income housing units," Wen said in the report.
China to strengthen innovative social administration: Wen
BEIJING, March 5 (Xinhua) -- China will strengthen and make innovation in social administration to resolve various social conflicts that come along with the nation's fast economic development, Premiere Wen Jiabao said in his government work report on Monday.
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"We will work hard to resolve social conflicts, make innovations in social administration, and enforce the law impartially and with integrity," Wen said at the annual session of the 11th National People's Congress.
China's property market regulation to continue: premier
BEIJING, March 5 (Xinhua) -- China will continue to regulate the real estate market to bring down property prices to a reasonable level, said Premier Wen Jiabao at the opening of the annual parliamentary session Monday.
"We will strictly implement and gradually improve policies and measures for discouraging speculative or investment-driven housing demand, build on progress made in regulating the real estate market," said Wen when delivering his government work report at the Fifth Session of the 11th National People's Congress (NPC).
China pledges to develop non-public sector by breaking up monopolies
BEIJING, March 5 (Xinhua) -- China vows to develop the non-public sector of its economy by breaking up monopolies and relaxing restrictions on market access, Premier Wen Jiabao said Monday at the opening of the parliament's annual session.
The government will encourage nongovernmental investment in areas such as railways, public utilities, finance, energy, telecommunications, education, and medical care, Wen said.
China to further reform medical, health care services
BEIJING, March 5 (Xinhua) -- China will further reform its medical and health care services in 2012 to better people's well-being, Premier Wen Jiabao said in his government work report delivered at the annual parliamentary session Monday.
"We will move faster to improve the medical insurance system covering the whole population,
consolidate and expand the coverage of basic medical insurance, and enhance our capability to provide and manage basic medical services," Wen told the Fifth Session of the 11th National People's Congress opened Monday. Central authorities to fully support HK, Macao in economy, people's well-being: Wen
BEIJING, March 5 (Xinhua) -- The central authorities of China will fully support Hong Kong and Macao in their efforts to boost economic growth, improve the people's well-being and promote democracy, Premier Wen Jiabao said here Monday.
The central government will implement coordinated policies and measures for supporting the economic and social development of Hong Kong and Macao, and open the mainland much wider to trade in services with the two regions, said Wen at the opening meeting of the Fifth Session of the National People's Congress, China's top legislature.
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