Dear Colleague:
Perhaps you'll find this of interest. A second WSJ op-ed (also on
innovation in China) is scheduled for mid-August.
Regards,  Anil Gupta

Anil Gupta & Haiyan Wang, "China as an Innovation Center?  Not So Fast,"
The Wall Street Journal, July 28, 2011:

BUSINESS ASIA, July 28, 2011
China as an Innovation Center? Not So Fast
An impressive volume of patent filings conceals serious challenges to
Beijing's R&D aspirations.

Hardly a week goes by without a headline pronouncing that China is about to
overtake the U.S. and other advanced economies in the innovation game.
Patent filings are up, China is exporting high-tech goods, the West is
doomed. Or so goes the story line.

The reality is very different. China is indeed mounting considerable
efforts on the innovation front. However, many of the pundits seem to
confuse inputs with outputs.

The "inputs" for innovation are impressive. China's R&D expenditure
increased to 1.5% of GDP in 2010 from 1.1% in 2002, and should reach 2.5%
by 2020. Its share of the world's total R&D expenditure grew to 12.3% in
2010 from 5.0% in 2002, placing it second only to the U.S., whose share
remained steady at 34-35%. According to UNESCO, China now employs more
people in science and technology research than any other country.

At first blush, data on "outputs" also look impressive. According to the
World Intellectual Property Organization, Chinese inventors filed 203,481
patent applications in 2008. That would make China the third most
innovative country after Japan (502,054 filings) and the U.S. (400,769).

Yet there's less here than meets the eye. Over 95% of the Chinese
applications were filed domestically with the State Intellectual Property
Office. The vast majority cover Chinese "innovations" that make only tiny
changes on existing designs. In many other cases, a Chinese filer "patents"
a foreign invention in China with the goal of suing the foreign inventor
for "infringement" in a Chinese legal system that doesn't recognize foreign

A better measure is to look at those innovations that are recognized
outside China—at patent filings or grants to China-origin inventions by the
world's leading patent offices, the U.S., the EU and Japan. On this score,
China is way behind the others.

The most compelling evidence is the count of "triadic" patent filings or
grants, where an application is filed with or patent granted by all three
offices for the same innovation. According to the OECD, in 2008, the most
recent year for which data are available, there were only 473 triadic
patent filings from China versus 14,399 from the U.S., 14,525 from Europe,
and 13,446 from Japan. Data for patent grants in 2010 by individual offices
paint a virtually identical picture.

Starkly put, in 2010, China accounted for 20% of the world's population, 9%
of the world's GDP, 12% of the world's R&D expenditure, but only 1% of the
patent filings with or patents granted by any of the leading patent offices
outside China. Further, half of the China-origin patents were granted to
subsidiaries of foreign multinationals.

Why is there such a big gap between innovation inputs and outputs? Partly
it may simply be a matter of time. Innovation requires not just new efforts
but also a rich stock of prior knowledge. As new players on the technology
frontier, Chinese organizations will need several years to build the
requisite stock of knowledge.

But other factors are also at work. For instance, processes for allocating
government funds for R&D projects remain highly politicized and
inefficient. Policy makers have a strong penchant for megaprojects backed
by individual ministries and give R&D grants based largely on political
clout and connections rather than scientific peer review.

As Yigong Shi and Yi Rao, deans of Life Sciences at Tsinghua and Peking
Universities respectively, observed in a recent editorial in Science
magazine, for grants ranging from tens to hundreds of millions of yuan, "it
is an open secret that doing good research is not as important as
schmoozing with powerful bureaucrats and their favorite experts.. . . .
China's current research culture . . . wastes resources, corrupts the
spirit, and stymies innovation."

China's research culture also suffers heavily from a focus on quantity over
quality and the use of local rather than international standards to assess
and reward research productivity. The result is a pandemic of not just
incrementalism but also academic dishonesty. A 2009 survey by the China
Association for Science and Technology reported that half of the 30,078
respondents knew at least one colleague who had committed academic fraud.
Such a culture inhibits serious inquiry and wastes resources.

China's educational system is another serious challenge because it
emphasizes rote learning rather than creative problem solving. When
Microsoft opened its second-largest research lab (after Redmond, Wash.) in
Beijing, it realized that while the graduates it hired were brilliant, they
were too passive when it came to research inquiry. The research directors
attacked this problem by effectively requiring each new hire to come up
with a project he or she wanted to work on. Microsoft's approach is more
the exception than the rule among R&D labs in China, which tend to be more

Yes, China is making rapid strides in some areas such as telecommunications
technology. However, on an across-the-board basis, it still has quite some
distance to cover before becoming a global innovation power.

Mr. Gupta is the Michael D. Dingman Chair in Strategy and Entrepreneurship
at the Smith School of Business, The University of Maryland and a Visiting
Professor in Strategy at INSEAD. Ms. Wang is managing partner of the China
India Institute. They are the co-authors of "Getting China and India
Right"(Wiley, 2009).