Indigenous Innovation and Globalization

Is China’s Indigenous Innovation Strategy Compatible with Globalization? by Liu Xielin and Cheng Peng; Honolulu:  East-West Center, 2011.

Much ink has been spilled over the correct path to turn China from the world’s contract manufacturer into an innovator on a par with the United States. Indeed, there are those who suggest that such an evolution is probably impossible given the straightjacket of Chinese culture.

As tempting as it is to go with the skeptics, there is mounting evidence that Chinese can and do innovate, and that innovation can happen with the backing of the government. (If you disagree, it would be worthwhile to review the funding source for many of America’s storied postwar innovations: if you follow the money, you wind up on Capitol Hill or the Pentagon as often as Wall Street or Sand Hill Road.)

The authors of this short book, Liu Xielin and Peng Cheng, argue that China is indeed beginning to innovate in part because the government is underwriting China’s effort to close the technical gap between its enterprises and engineers and those of the west. If they stopped there, it would be easy to dismiss both as government stooges.

They are not: once they have acknowledged the merit of government involvement, they then assess its limitations. Specifically, they note that in addition to putting China into policy conflict with nations that should be customers for Chinese innovations, government involvement (read “micromanagement”) of the innovation process closes it off from the overseas markets that are the real target of the indigenous innovation policy in the first place.

Turning China into an innovation powerhouse is neither a matter of letting markets do their thing, nor of government control: it is a matter of striking a careful balance between the two. Ascribing the best possible motives to China’s policymakers, the Party and government are looking for the best way to strike that balance. But old habits die hard: the received myth in Beijing is that the government that has brought a half-dozen major industries to near-parity with their global counterparts through vigorous funding and protective policies. Why, then, should things be done differently going forward?

Liu and Cheng do an admirable job at answering that challenge, but the problem is in the received myth. China’s homegrown industries succeed in the marketplace (both at abroad and at home) in inverse proportion to government involvement, not as its result. It is only when the government alters the rules of the market that local companies in innovative industries achieve success. Such heresy may be too dangerous for the authors: Liu is at the Chinese Academy of Sciences; Cheng at the Beijing University of Forestry. Nonetheless, their analysis hints in the right direction, and hopefully their thinking will enter the political discussion in Beijing.

2 thoughts on “Indigenous Innovation and Globalization

  1. …”can happen with the backing of the government”

    The question is not whether or not it can happen with the “government”, but whether or not the model of funding/ incentives provided by the Chinese government can/will be effective.


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