A-RESEARCH AND DEVELOPMENT SECTOR OF CHINA
In the last three decades, countries around the world are emphasizing on Research and Development sector, and there are very valid reasons to emphasize on this particular sector. Studies infer that Research and Development are essential for innovation and the invocation is highly significant for the economy. For instance, industries that emphasize on innovation use fewer resources to produce more and of quality. It not only benefits that industry as it gives that industry a competitive edge, but also it benefits the economy, as industries begin to exploit scarce resources more prudently (Guimón and Agapitova).
Another reason for the extraordinary emphasis on innovation is that innovation it facilitates the development of products and services of new and unique type, which influence or touch various aspects of contemporary life. For instance, when a new product is formed, by the requirement of modern life, it benefits more and facilitates better living (China Power).
It is very evident that innovation influences not only conventional industries, but also unconventional industries (Defense Industry). In fact, unconventional industries, such as the defense industry, rely solely on innovation for the competitive edge. The western military machine is more potent and modern than the rest of the world, because of the emphasis on innovation. The defense industry has produced most modern and unique weapon systems and aircraft in Western countries, which have allowed these countries to maintain a military edge against their rivals. This information suggests that innovation, which is in actuality a kind product of Research and Development sector, has various natures and it has relevance for various sectors of an economy.
B-CHINESE POLICY TOWARDS THE SELECTED SECTOR
Since the opening up of the Chinese economy, as a result of a change in the political-economic policy of Deng Xiaoping, the emphasis has mostly remained on manufacturing sector (the leading sector of Chinese economy). However, recently, Research and Development have become the new focus of Chinese government. The objective is not only to improve quality of overall economy but also of particular sectors and industries of the economy. For instance, the technology industry is a highly lucrative industry, which affects all sectors of the economy; however, West has the monopoly over it (that is waning). Now China and other non-western countries are also emphasizing on the technology industry / sector to realize various kinds of political-economic objectives. Therefore, we see that China has devised strategies at the state level, with the intention to transform its economy from the conventional economy to an innovation-based economy.
It has identified Research and Development sector as an instrument and innovation (product of R&D sector) as a tool for the realization of its strategic-economic goals. Studies infer that overall strategy, of focus on R&D, has various sub-strategies. For instance, China desires that its private sector, which has grown in size, must lead the quest to transform its economy into innovation/technology-based economy. Mostly, it is the private sector, which plays a most significant role in the technology sector, and private sector, primarily relies on innovation for competitive advantage (purely out of necessity) (Murphy).
In Western countries, like the United States, France, Germany, and others, private sector leads the technology sector, and in all industries of these countries, firms rely on innovation for competitive advantage. For instance, a private defense company, Lockheed Martin, provides various kinds of weapon systems and aircraft to the United States and other countries. The company solely relies on innovation to produce most modern weapon systems. Similarly, Apple, another technology company of American origin, produces most modern and unique technological products, such as smartphones and laptops, for its global consumers.
It is true that China desires its private sector to play a major role to expand its Research and Development sector; however, the state does not shy from investing in or spending on R&D sector. For instance, in the year 1995, China spent around $10 billion on R&D; whereas in the year 2015, it spent around $300 billion to $400 billion; making it is the second country to spend most of the R&D sector (after the United States) (Murphy) (China Power).
The gradual increase in spending, on R&D sector, reveals that China is not solely relying on the private sector to produce results about innovation and transformation of the economy based on innovation. This strategy is not unique, as other countries, like the United States, Japan, and Germany, also spend on R&D sector to produce particular outcomes.
Studies reveal that the increase in spending, on R&D sector, has a positive correlation with the exceptional growth of the Chinese economy (in the last three decades). As China had more money to spend, the investment in R&D sector grew. We must acknowledge that conventional manufacturing economies strive to become an innovation-based economy, in which service sector is the dominating sector.
FDI
The methodical scrutiny of literature, about China’s economy, suggests that initial emphasis, of China’s economic strategy, was Inflows of Foreign Direct Investment. It’s believed that FDI inflows would improve the performance of various sectors of China’s economy and its spillover would facilitate China’s industries, about various sectors, to modernize or evolve. Therefore, not only economic policies were changed, but also economic system was slightly amended to facilitate foreign direct investment. However, China only allowed foreign investment only in particular sectors of the economy.
The new policy, which had identified Foreign Direct Investment (inflows) as an instrument of change in the economy, produced satisfactory results for China. However, it could not transform China’s economy into the innovation-based economy, which could compete for post-industrial economies (Japan, United States, Britain, Germany, etc.). Therefore, to achieve a competitive edge against its rivals, the focus shifted to FDI outflows from FDI inflows. The rationale for FDI outflows was that it FDI outflows would produce large spillovers, which bring a qualitative change in the Chinese economy. Chinese firms targeted Research and Development Sector of post-industrialized countries, which may produce a large spillover effect (Zhao and Liu).
The strategy was unique, as almost all countries prefer FDI inflows, rather than FDI outflows, as FDI outflows may have an adverse impact on growth and employment.
C-DOES GOVERNMENT FACILITATE THE GROWTH OF THIS SECTOR OR RETARD IT?
It is very evident that China intends to transform its economy from an orthodox manufacturing economy to an innovation-based economy and for that reason, it has exponentially increased spending in R&D sector. The figures reveal that China is spending on R&D sector has grown thrice, which indicates that China desires an expansion of R&D sector.
The results also reveal that spending on the selected sector has produced large dividends. For instance, China’s technology sector grew evidently in last two decades, and many Chinese firms are now competing against technology firms (of post-industrial economies) in various global markets. For instance, Huawei is a leading communications technology company, which produces various kinds of technology products that include smart-phones. The company competes against various American and other Western companies in American/western markets.
In defense industry too, China is closing the gap, which suggests that China’s spending in R&D sector is paying off. According to some reports, China’s airpower will rival West’s Airpower, which helps in understanding the growth of the technological / R&D sector (The Economist).
Generally, it was assumed that China was merely copying Western technology; however, evidence has gradually perished this thought. Now various Chinese innovations-based companies are producing high-quality products at very low cost, which is a worry for leading innovation-based companies. Therefore, West’s attitude towards China’s expansion of R&D sector and growth with its sub-sectors (technology-sector) has changed and compelled them to change the strategy/policy towards China.
Sometimes, additional emphasis on a particular sector of economy stuns its natural growth, for instance, United States protect its steel industry and give various kinds of economic/corporate concession to its steel industry, which has affected the industry’s evolution. However, in case of China, it is very apparent that emphasis on R&D sector has not adversely affected its growth. In fact, Chinese technology-based firms have become more competitive in last two decades, facilitating other industries to grow or evolve as well.
As the data about the expansion of R&D sector and increase the competitiveness of China’s technology/innovation-based firms are less mature, it would be unwise to infer how spending has affected R&D sector. However, it’s very apparent that an increase in the spending, on R&D sector has facilitated the evolution of China’s economy from an industrial economy to post-industrial economy. It has been projected that expansion of R&D sector, at this pace, would not only transform the Chinese economy, but also it would reduce the qualitative gap between western and Chinese economies. This development would have serious implications for Western economic and military hegemony, and it would give birth to new political and economic realities (Xinhua).
In fact, the objective of a healthy economy is to have the capacity to influence various strategic and economic outcomes. China is already influencing various outcomes, strategic and economic, in the region and beyond, which has become possible only because of the healthy economy (of enormous size).
D-IMPLICATIONS OF THIS POLICY FOR PARTNERS AND COMPETITORS
We infer, from methodical investigation/scrutiny of evidence that innovation in one industry benefits the evolution of other industries too (spillover effect). Therefore, China, which intends to use innovation as an instrument to modernize its overall economy (especially its defense industry), is emphasizing on Research and Development Sector. The strategy, of the Chinese state, is to leverage on Research and Development most effectively so that objectives of economic prosperity and improved quality of life can be achieved.
To improve quality of its economy, China is focusing FDI outflows, and it believes that its spillover will evolve overall economy. In addition to FDI outflows, the focus is on massive spending on R&D sector.
For competitors, the implications are dire, as China is closing the gap at an exceptional pace. This development has begun to undermine the West’s economic and military hegemony. For its partners, like Pakistan, these developments are extremely beneficial, as China’s progress is also facilitating economic and military progress in these countries.
E-Work Cited
China Power. “Is China a global leader in research and development?” CSIS.ORG. CSIS.ORG, 1 January 2018. Web. 2 May 2018. https://chinapower.csis.org/china-research-and-development-rnd/.
Guimón, José and Natalia Agapitova. “Why should governments of developing countries invest in R&D and innovation?” African Journal of Business Management 7 (2013): 899-905.
Murphy, Flynn. “How private-sector research is changing China.” Nature. Nature, 17 January 2018. Web. 2 May 2018. https://www.nature.com/articles/d41586-018-00546-z.
The Economist. “China will soon have air power rivalling the West’s.” The Economist. The Economist, 15 February 2018. Web. 2 May 2018. https://www.economist.com/news/china/21737074-some-technologies-it-has-surpassed-it-china-will-soon-have-air-power-rivalling-wests.
Xinhua. “China’s R&D spending up 11.6% in 2017.” China Daily. China Daily, 13 February 2018. Web. 2 May 2018. http://www.chinadaily.com.cn/a/201802/13/WS5a827ffea3106e7dcc13c829.html.
Zhao, Wei and Ling Liu. “Outward direct investment and R&D spillovers: the China’s case.” Conference Proceeding of “Emerging Multinationals”: Outward Foreign Direct Investment from Emerging and Developing Economies, 2008. 1-26.
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