The Industrialization of China's New and High Technology
Gao Changlin
National Research Center for Science & Technology Development,
Ministry of Science and Technology
I. Present Situation of Industrialization of China's New and High Technology
As a developing country, China is now still at the middle stage of industrialization and the general development level of its high-tech industry is obviously far behind that of developed countries, but its development rate is relatively rapid with a good momentum of catching up with the developed countries. Calculated according to the newest classification standard of the OECD for new and high-tech industry, in 1993, the total output value of China's high-tech industry amounted to 187.52 billion yuan (at current prices, the same below). The total output value of China's high-tech industry accounted for 5.3 percent of that of the manufacturing industries, which is much lower than the level of major developed countries and newly industrialized countries in the same period. For instance, that of the United States was 15.1 percent, Japan, 14.9 percent, the Republic of Korea, 15.0 percent, Britain, 14.1 percent and France, 9.8 percent. In 1998, China's total output value of high-tech industry reached 558.14 billion yuan and the proportion of the value to that of the manufacturing industries further rose to 9.4 percent. That shows that China's high-tech industry has developed into a certain size and its proportion in the manufacturing industries has risen steadily. The exports of high-tech products are also on the increase. In 1991, the export value of China's high-tech products was US$ 2.88 billion and in 1999, the export value rose to US$ 24.70 billion. The proportion of the export value of high-tech products to that of manufactured goods rose from 5.2 percent in 1991 to 14.1 percent in 1999.
II. Major Problems in the Development of China's New and High-Tech Industry
1. The intensity of R&D input is low and the technological intensity is not high
R&D intensity is one of the indices internationally recognized to measure technological intensity. It is also one of the important international indices to define high-tech industry. The intensity of R&D in China's high-tech industry, however, is not obviously higher than that of its non-high-tech industry. The intensity of R&D in some of the high-tech industries is even lower than that of the non-high-tech industry. In 1996, the R&D expenditure on China's manufacturing industries was 14.33 billion yuan, accounting for 2.3 percent of the value added of the manufacturing industries. Of that, the R&D expenditure on high-tech industry amounted to 2-79 billion yuan, accounting for 4-8 percent of the value added of high-tech industry. High R&D intensity and high intensive technology are particular features of the high-tech industry in developed countries. Taking the 1990 data as an example, the R&D intensity of the OECD aerospace industry, the computer and office facility manufacturing industry, the electronics and telecommunications equipment manufacturing industry, and the pharmaceutical industry reached as high as 36.3, 30.5, 21.6 and 18.7 percent respectively. This was obviously higher than that of other non-high-tech industries and, of course, much higher than that of the high-tech industry in China.
2. Low value-added rate
In 1998, the proportions of value added of China's manufacturing industry and non-high-tech industry to the total output value were respectively 25.6 and 25.7 percent; and the proportion of value added of high-tech industry to the total industrial output value dropped from 28.7 percent in 1993 to 23.9 percent in 1997. The proportions of the value added of aerospace industry and pharmaceutical industry to their respective total output value were 27.0 and 28.5 percent respectively; and the proportions of value added of computer and office facility industry and that of electronics and telecommunications industry to their respective total output value were 23.7 and 22.3 percent respectively. But the proportions of the value added of high-tech industry to their total output value in major developed countries such as the United States, Japan, Germany and Britain as well as in the Republic of Korea have all exceeded 30 percent.
3. Lack of international competitiveness
The exports of high-tech industry represent the competitive capacity of high-technology on the international market. The National Science Foundation of the United States collected the data on exports of four high-tech industries of 68 countries and calculated the proportions of the exports of high-tech industry of the countries in the exports of the world's high-tech industry. According to the constant price of USD in 1987, exports of China's manufacturing industries accounted for 3.2 percent in the exports of the world's manufacturing industries, higher than those of two newly industrialized countries, the Republic of Korea and Singapore. The proportion of exports of China's high-tech industry to that of exports of the world's high-tech industry was only 1.8 percent, lower than the Republic of Korea's 4.1 and Singapore's 7.7 percent.
During the 1987－98 period, imports of China's new and high-tech products all exceeded exports of all products, bearing a deficit every year and helping to lead to an unfavorable trade balance. Especially in the early 1990s, the trade deficit of high-tech products was expanding annually. In 1994 the trade deficit reached US$ 14.276 billion. Since 1995, the balance of payment of China's high-tech products took a turn for the better, but the trade deficits were still high. In 1999, the trade deficit of high-tech products once again broke the level of US$ 10 billion to reach US$ 12.9 billion.
4. Self-owned intellectual property rights are few and most of brand products are in the hands of transnational corporations
According to statistical analyses of the OECD classification standard for hightech industry, of the invention patent applications that China has received in recent years which contain a high technical content, take a leading position in economic competition and have notable international competitive capacity, most are from foreign countries or foreign enterprises.
Of 10,377 and 10,764 applications for high-technology invention patents in 1997 and 1998 , foreign applications registered in China took up a larger share and their proportions reached 67.8 and 71.2 percent respectively. Domestic applications in aerospace industry were in a slightly favorable position, accounting for 57.8 and 52.5 percent respectively. Domestic applications in other three major high-tech industries, however, were in an unfavorable position. In 24 other classifications, patent applications from China took a leading position in only five sectors, that is, in the aircraft manufacturing industry, the aircraft repair industry, the computer peripheral equipment manufacturing industry, other electronic equipment manufacturing industries, and the chemical pharmaceutical industry. The proportions of the applications in the industries took up 52.5 to 84 percent and many of the proportions tend to decline among the patent applications.
It is particularly noteworthy that in the electronics and telecommunications sectors, patent applications from Japan, the United States and the Republic of Korea take the lion's share and all of the applications are from enterprises. The Japanese applications are mainly from Matsushita, Sony, Hitachi and NEC; the U.S. applications are mainly from Motorola and IBM; Korean applications are mainly from Samsung and Hyun Dae. It is only these major brands that monopolize the electronics and telecommunications market. Comparatively, domestic brands are also trying to expand their market share, but they are still weaker in technology content, market competitiveness and popularity of brands.
III. Suggestions on Promoting Development of China's New and High-Tech Industry
1. Instituting a strategy for developing high-tech industry based on independent technological innovation
China is a large country in introducing technology in the world. Especially since China started reforms and opening up, it has imported large quantities of technology in the process of China's fast economic growth. Some industries have cultivated the capacity to independently develop new products and new technology on the basis of technology import, but some industries have not been free of dependence on foreign technology after their technical imports. Since the beginning of the 1990s, transnational corporations have tended to invest and run business in China. As a result, some industries in the country have almost been monopolized by solely foreign-funded enterprises or Sino-foreign joint ventures. In the coming years, international economic integration will accelerate and China will also actively participate in the process of economic globalization. Therefore, China will continue to introduce technology from foreign countries in the future. Enterprises in China are expected to enhance their ability in learning technology and to base the development of high-tech industry on independent research and development.
2. Encouraging development of small-sized enterprises engaged in new and high technology
Major efforts will be made to support and enhance the “incubating” capacity of small and medium-sized enterprises engaged in new and high technology. Small and medium-sized enterprises represent the vigor of the development of the national economy and they constitute the major source of China's economic competitive capacity for the future. The successful experience in developing high-tech industry at home and abroad shows that enterprises, small or large, will be able to score rapid growth in market competition provided they meet domestic and foreign market demands, have the ability in making scientific and technological innovation and in opening up markets, and exert efforts to enhance management and operational standards. Therefore, in the process of promoting the development of high-tech industrialization in China, concepts should be updated, and no one should expect to promote high-tech industry to a large scale and high level just by large-sum investment at one time. Efforts should be made to create and maintain an environment favorable for fast and healthy development of small and medium-sized enterprises engaged in new and high technology.
3. Attaching importance to the cultivation and use of young talents engaged in high technology
The development of new and high technology industry relies particularly on young talent engaged in science and technology. While staff engaged in new and high technology, who are cultivated at home, are encouraged and supported to open their business, necessary conditions should be created to encourage young talent studying abroad and engaged in new and high technology research to return home to launch their businesses. Only when it has a large group of excellent talent and establish a mechanism to cultivate and absorb talent can China's high-tech industry grow vigorously and steadily.
4. Establishing the venture capital system
High-tech industry is also high-risk industry. The transformation of high-tech fruits and high-tech innovation has great market risk. Banks, insurance companies and enterprises groups usually shrink back at high-tech programs. That, however, is just the sector with bright prospects for venture capital investors. In a certain sense, enterprise incubators in China have cultivated many enterprises engaged in the development of new and high technology and have turned out a large quantity of products in the past 10 years, but few of them can be developed for industrialization. As far as the size and functions of the enterprises are concerned, they are running small-sized businesses. In the coming years, only when the development of China's high-tech industry is integrated with venture capital, can high-tech industrialization be realized after high technology fruits are commercialized.
5. Highlighting major sectors to support and guide the development of major new and high-tech industries
Resources should be concentrated on and breakthroughs achieved in strategic sectors involving the national economy and the people's livelihood, and state security, and the key sector restricting China's economic development. The demands of high-tech industry on such supportive conditions as funds, technology, talents and equipment are much higher and thus the risk is also higher. The advantages of China's system should be brought into full play and China should concentrate its limited resources on supporting and running well a group of large-scale and key high-tech enterprises in strategic sectors concerning the national economy and the people's livelihood and state security. At the same time, a market competition mechanism should be introduced. Priority should be given to those industries that represent the development trend of high technology in the world, to those that can catch up with the world's advanced level in the future and have broad market prospects. In particular, priority should be given to those industries that play an important role in optimizing China's industrial structure and improving the national competitiveness, and to those industries that enjoy certain advantageous conditions and foundation in the country. Such industries include those for power-driven cars, express trains, clean coal and other clean energy, biotechnology, environmental protection technology, computer networks and software technology. China should concentrate its efforts on supporting the above industries according to market law and the Chinese government should give more support to the research and development of key industries so as to achieve “leapfrogging” development. In the meantime, the state should gradually withdraw from production and service sectors of mature high-tech products in order to make room for non-governmental capital to make profits and guide the high-tech industry to advance toward large-scale industrialization.
6. Formulating policies to encourage Chinese enterprises to engage in high technology development overseas or to establish strategic alliances with foreign transnational corporations
China has a group of high-tech enterprises, including Haier, Legend and Chunlan, which have set up research and development institutes in developed countries. They directly make use of overseas high technology resources in their research and development and have narrowed the gap between some China-made products and the products made by developed countries. Some of their products have been up to internationally advanced levels. To date, however, the state has not given policy support to the spontaneous activity of these enterprises. It is suggested that special policies be formulated or guiding investment be allocated to encourage and support China's high-tech enterprises to develop new and high-tech products abroad and to take intellectual property rights and markets for such products at home and abroad. Such measures will facilitate the rapid development of China's high-technology development capacity and standard and help Chinese enterprises to learn latest trends and market changes in the world's high-technology sector.