China's re-innovation strategy disarrays innovation race

M Rokonuzzaman | Published: June 24, 2018 21:21:43 | Updated: June 24, 2018 21:23:20

China has issued new standards for photovoltaic (PV) manufacturers. Two women operate on a production line of a solar panel making company in Shangrao, East China's Jiangxi province. — Photo courtesy: China Daily

The rivalry between the USA and China in the technology world has started to surface as trade war. China's income growth through manufacturing is saturating. Like the USA, Europe, Japan and South Korea, China should upgrade its economic activities through technology acquisition and transferring it into innovation. For China, attaining increasing technology capability is an imperative; it is the prerequisite to acquiring and generating new technologies to overcome structural hurdles to economic development. Such technology capabilities opens the door to turn ideas as opposed to raw materials and muscle power into wealth-the ultimate frontier of wealth creation and endless opportunity for income growth. China must unlock this potential in its race of keep progressing with development. But such capability development by China poses two major threats to the USA-loss of both economic and military supremacy. Most importantly, China's re-innovation strategy of acquiring such vital capability upsets global innovation race-weakening the wealth creation capability.

Acquisition of scientific knowledge and turning it into technology invention leading to wealth creation is the primary means for the human race to meet growing consumption with depleting resources. If China acquires such capability to increase wealth, why should the USA or anybody else be unhappy? China's progress in producing solar cells at decreasing price is lowering burning of fossil fuel--making air cleaner and opening the possibility of sustainable energy solution. Shouldn't we appreciate such capability? The issue, which is surfacing now, is not about China's intention of acquiring technology capability. It's about the methodology applied by China to acquire such capability. In future, the issue may expand further.

Historically, innovation has been led by scientific discovery and technology invention around it. For example, the generation of knowledge of solid state physics and turning it into the invention of transistor in 1947 led diverse innovation-creating multi-trillion dollar new industry. Similarly, the relentless journey of scientific discovery and continued progression of technology invention over the last 100 years has led to increased energy efficiency in lighting-resulting in highly efficient light emitting diode (LED) based light bulb innovation. Such journeys are long, and often highly risky in a globally connected competitive economy. Innovations like LED light bulbs, robotics, or passenger jets took almost more than 100 years to reach their current forms. But China wants shorter success path in the space of innovation to uplift its economic status further. To do so, China has undertaken re-innovation strategy to succeed into technological innovation economy. As opposed to inventing new technology and innovating new products around it, china has rather opted to imitate, and consequentially re-innovate existing successful products. It does not necessarily mean that China has not been trying to undertake research and development (R&D) to acquire basic technology capability. Over the last 15 years, China has increased R&D finance from around $30 billion to close to $400 billion, making it the 2nd largest R&D spender. China's such R&D spending has ballooned publication records and patent filling. But it is being alleged that China's staggering more than a million patent filling per year is basically to create legal foundation to defend intellectual property infringement to support its re-innovation strategy.

As reported by Bloomberg and many other news outlets, to pursue re-innovation strategy, it's being alleged that China has been internalising foreign state of the art technologies through patent filling, compelling foreign companies to transfer technologies in exchange of market access, giving incentives and subsidies to local firms to imitate and re-innovate successful foreign products, compelling producers to increase local sourcing at an accelerated rate, limiting access of foreign firms to domestic market, alluring developing countries to buy high-tech products from Chinese firms by offering concessional loans, manipulating stock price of foreign high-tech firms to make them easy prey for the acquisition. The list goes on. Already, some companies have raised serious concern about the loss of their technology capability to China's strategy. For example, there has been reported Japan's concern about the loss of Sinkansen technology to China. Upon partnering with local firms for accessing the market, often foreign firms find that their local partners have acquired their technology know-how and patented through local IPR offices creating barriers to their business. China's re-innovation tactic has many consequential effects for the USA and the rest of world to be concerned with. 

China's large domestic market offers Chinese firms to benefit from the scale effect in commercialising their re-innovated products. As re-innovation is far less expensive than inventing technology and innovating new features or product from the scratch, Chinese re-innovated products are far cheaper than original ones. Moreover, these firms are also getting subsidy in different forms to lower the price further. With concessional loans and other trading agreements, these products are finding paths to enter the market outside China. As a result, re-innovated products, being cheaper, are posing threat to dislodge firms who spent decades and risked investment to develop the new technology and innovated the original product. As a result, the world will likely be losing firms having the track record of scientific discovery, invention and innovation. With the increasing population of firms with re-innovated products, the world will keep losing the capability of creating new wealth from innovation. This is a serious concern for the world leaders and civil society to think about.

China's re-innovation strategy is not only hurting the high-tech interest of the USA and other advanced countries only. It's also a growing concern for developing ones. For example, it's being alleged that China has been providing diverse incentives and subsides to local firms to acquire robotics and artificial intelligence technologies. With this capability, China has accelerated the deployment of robotics in its manufacturing plants to deal with labor shortage. Such state intervention driven strategy is making robots cheaper than even least costly industrial labor of the world. As a result, developing countries like Bangladesh or India are suffering from unjust lose of labour advantage. Such reality is creating discontinuity in the development pathways of these countries. Global community should look into such an issue to address broader development consequences likely to be faced by the world. Moreover, subsidy driven re-innovation is also making imports of high-tech consumer products like smartphone from China cheaper than to assemble them locally with relatively less costly labour.

There is no denying that China should acquire technology capacity to innovate to create high-paying jobs. But China's re-innovation strategy places innovation race in disarray, weakening the capability of the world to create more wealth from depleting resources through invention. It's not just about the friction between China and the USA about technology superiority; the bigger picture is about whether the re-innovation strategy is making the world stronger or weaker in creating new wealth.

M Rokonuzzaman Ph.D is academic, researcher and activist on Technology, Innovation and Policy. zaman.rokon.bd@gmail.com

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