In the past months, in response to an emerging technological war between the US and China, the Chinese government has launched initiatives to promote technological innovation and increase technological self-reliance. But given the uniqueness of the innovation industry, China’s policymakers must be clear on what works and what does not.
First, China’s strategy to promote technological self-reliance should not impact its role in the tech industry global supply chain. Given the complexity of high-tech industries, especially the highly-specialized semiconductor field, no country, including the US, can be entirely independent. If China becomes too obsessed with becoming self-reliant, it risks isolation and lagging even further behind.
Second, China must be aware that financial investment alone does not lead to innovation. For a long time, a major self-perceived advantage of China’s political system has been its ability to mobilize resources across the country for major projects. While this strategy works in some areas, such as infrastructure building, it has proved ineffective in promoting innovation. In order to achieve breakthroughs in the microchip industry, governments at different levels have launched initiatives involving huge amounts of investment and tax incentives. But almost all of these projects have faded into oblivion.
Analysts have long pointed out that the main problems with China’s research programs are a lack of investment and not enough focus on fundamental research. In 2018, China’s spending on research and development (R&D) increased to 2.19 percent of its GDP, not far behind the US’s 2.84 percent. But compared to countries who lead in innovation, the lion’s share of China’s R&D spending went to experimental development. Only 5 percent of China’s R&D spending went to fundamental research, and 11 percent on applied research.
By comparison, the US spent 17 percent and 20 percent on fundamental research and applied research. The explanation for these disparities is that experimental research is more investment-intensive and the financial rewards come faster and easier, while fundamental research takes years, if not decades to see major progress, and it is not directly linked to financial benefits.
Ren Zhengfei, founder of China’s tech giant Huawei, told media that core technologies in the semiconductor industry require strong support from fundamental research, which is a weak link in China’s R&D sector.
“What China needs to make progress is not financial investment, but lots and lots of mathematicians, physicists and chemists,” Ren said. He cautioned against the idea that China can take short cuts to catch up with other countries, arguing that it must shift its focus to time-consuming fundamental research.
Finally, the government should be aware that the problems preventing China from becoming an innovator do not exist solely in the R&D sector. To genuinely promote the spirit of innovation, China should take a systematic approach to address persistent problems, including reforming its exam-oriented education system, so the country can nurture an innovation-friendly business environment with better intellectual property protection.
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