BEIJING — “Innovation” has become a favorite word for Chinese headline writers. From individuals to private firms and even public institutions, everybody and everything aims to be an innovator.
Though the OECD Economic Outlook 2014 predicted that China will probably become the country in the world which invests most in Research and Development (R&D) within five years time, the “Innovative Country” that former President Hu Jintao set as a goal for China in 2006 still seems to be far away.
Sure, it’s true that the Chinese lunar orbiter Chang’e successfully soft-landed on the moon and the manned submersible Jiaolong achieved considerable advances in deep-sea research. But both had seemingly limitless effort and money pouring in from the government. The significance of these accomplishments is more political than economic.
In today’s global economy, markets aren’t looking for a pompous race to the heavens or below earth, but rather those small but beautiful solutions that can solve everyday practical problems. Too many Chinese couldn’t care less whether iPhone represents true independent innovation at its best, but do wonder whether the handset of Xiaomi — the world’s third largest smartphone maker — can rival with iPhone quality at half the price.
On the European Commission’s 2014 EU Industrial R&D Investment Scoreboard the top 50 places are almost entirely monopolized by American, Japanese and European companies. While Volkswagen AG is in the top spot for the second consecutive year, Samsung and Microsoft come in second and third. Meanwhile Huawei, China’s largest telecommunications equipment maker, which ranks 26th, is the only Chinese firm to make it into the top 50 worldwide for R&D investment.
Coincidentally, Lenovo, Xiaomi, Tencent and Huawei were listed by Boston Consulting as some of this year’s global 50 most innovative companies.
As of 2013 Huawei invested about $5.1 billion in R&D, representing 12.8% of its annual turnover. Though Samsung spent almost three times what Huawei spent — $14.4 billion over the same period — Huawei’s R&D intensity is nevertheless twice that of Samsung.
Unfortunately Chinese companies such as Huawei are very rare. As this newspaper found out by reading the annual reports of China’s top 30 listed companies, whether it’s China CNR Corporation, a locomotive manufacturer, or Zoomlion, a construction machinery manufacturer, they spend on average only 2-3% of their annual revenue on R&D. This is also the average that most Chinese companies have invested in it since 2008. As one company executive bluntly put it: All Chinese enterprises put in little money in R&D.
What’s missing?
So why is it that Chinese companies are devoting so little to R&D?
First, because following the crowd in China still pays off. Not only do you avoid risk, but this standard low-cost approach can produce returns in a fast developing market such as in China.
Chinese people“s rising revenue is bringing about huge demand and market opportunities. Even without creating anything original, as long as you are fast and efficient at copying, you will be successful.
In addition, Chinese enterprises are relatively weak in R&D capability. Such capability requires a long-term accumulation of experience and cannot be achieved overnight. Companies that pursue profits via R&D find it requires a long time to bear fruit, and this doesn’t comply with most Chinese companies’ criteria to see immediate benefits.
Perhaps it is not totally fair to blame Chinese companies’ lack of passion and sense of necessity for the shortcomings on innovation. As a matter of fact, in comparison with the technological dilemma, what is even more urgent is improving the competitive and legal environment in China.
Fortunately, compared with the grand slogans of the past, such as “Building China as an Innovative Country,” the current government of President Xi Jinping has a more sober and pragmatic approach. It places more emphasis on management and institutional innovation in paving the road for encouraging technological innovation.
Obviously, it can be useful for China to devote huge state resources (known as the Nationwide System in Chinese) to achieve breakthroughs, such as its moon landing and submersible expedition. But without providing the right soil for innovation on the ground level, the pursuit of meaningful technology for our lives and products with market value will be just a mirage.
What is certain is that the companies that invest the most are not necessarily the ones with the most creativity. But those who invest too little will never be the leaders driving innovation.
