Mestrando: Leandro Roberto Baran

China's innovation policies: Evolution, institutional structure, and trajectory

Feng-chao Liua, Denis Fred Simonb, Yu-tao Suna, Cong Caoc,

Abstract

China has transformed itself from a planning to a market-oriented economy over the past three
decades and has sustained a fairly long period of rapid economic growth, to which the
contributions from innovation in science and technology (S&T) have become increasingly
important. Then, how have China's innovation policies evolved to reflect the changing and
supposedly better understanding of innovation by China's policy makers? The paper tries to
answer this question through a quantitative analysis of 287 policies issued by China's central
government agencies between 1980 and 2005 and of 79 policies introduced between 2006 and
2008 to implement the Medium- and Long-Term Plan for the Development of Science and
Technology (20062020). China has shifted its S&T and industrial policy-centered innovation
strategy and has pursued a series of better coordinated, innovation-oriented economic and
technology initiatives that give greater attention to a portfolio of policies that include critical
financial, tax, and fiscal measures. There has been a gradual departure from the pattern in
which innovation policies are formulated by one single government agency, therefore steering
China to a different and probably more promising innovation trajectory.

Politica x Inovao

Of the constituting ministries of the State Council, China's cabinet, the Ministry of Science and
Technology, which succeeded the State Science and Technology Commission (SSTC) in 1998,
is a principal participant in China's S&T enterprise. MOST administers China's national S&T
programs, ranging from basic and applied research and development to down-stream
commercialization of S&T achievements, supports innovation within enterprises (along with the
National Development and Reform Commission, NDRC), and manages and promotes science
parks and incubators. It also exercises an important role with regard to the design and
implementation of S&T and innovation policies in conjunction with the Ministries of Education
(MOE), Agriculture (MOA), Health (MOH), and Industry and Information Technology (MOIIT), the
former Commission of Science, Technology, and Industry for National Defense (COSTIND),
which was merged into the MOIIT in 2008. Indeed, MOST assists these entities formulate and
execute policies related to their respective missions in science and technology and allocates
resources to various programs involving personnel in these entities. The Ministry of Finance
(MOF) has become increasingly important in the formulation of innovation policies, especially in
scrutinizing ministerial budgets, allocating monies for particular projects and initiatives, and
monitoring the appropriate usage of the funds.

One of NDRC's responsibilities is to formulate policies related to enterprise innovation and high
technology in Chinese economic and social development. NDRC also manages and implements
major S&T programs such as the State Major S&T Achievement Industrialization Program, the
State Key Industrial Testing Program, and the National Engineering Research Center Program,
which date back to the former SPC and SDPC.

The Chinese Academy of Sciences (CAS), an entity with multiple functions in research, high-
tech development, technology transfer, and training, also plays a significant advisory role in S&T
policy-making through its academicians (yuanshi), who, along with academicians of the Chinese
Academy of Engineering (CAE), an advisory institution, provide services to support decision-
making tied to the nation's engineering and technological advance. The National Natural
Science Foundation of China (NSFC) mainly supports basic research and mission-oriented
research projects through competitive and peer review processes.

Nevertheless, it is the CCP that has final say in innovation policy-making, as it does virtually in
all matters in China. While it is true that the party's direct involvement in scientific and technical
matters has diminished since the heyday of the Cultural Revolution and especially since the
reforms of the mid-1980s, the reality is that the CCP remains the overall authority in all major
political, economic, and S&T-related policy matters.

Polticas Inovao

The first period (1980-1984)

The total number of innovation policies issued during this period was fairly small only 17 with
the majority being in the category of S&T policy (6) plus a few industrial (4), financial (4), and tax
policies (3); there was no formal fiscal policy of any significance.

The period started with the general revitalization of China's S&T system, including research
institutions, experiment bases, technology equipment and facilities, all of which emerged from
the Cultural Revolution severely damaged. The leadership felt compelled to restore the nation's
key S&T organizations and industrial technological capabilities. The 1978 National Science
Conference was held against such a backdrop, during which Deng Xiaoping, who later would
become China's paramount leader, remarked that S&T is the primary productive force and
intellectuals are part of the working class, therefore laying the ideological foundation for
designing China's new S&T development strategies in years to come. From then on, it can be
said that China truly rekindled its commitment to S&T development and innovation activities.

Second Period (1985-1984)

While the total number of innovation policies during this period reached 76, the main focus still
was on S&T and industrial policies (34 and 25 respectively). Both financial and tax policies
increased only to eight and the first fiscal policy was issued.

Thanks to the 1985 decision on S&T system reform, high-tech start-ups that were spun off from
various research institutes and universities emerged in Zhongguancun and other high-tech
concentration areas. Thus, the establishment of high-tech parks became a prominent aspect of
the new S&T push. In 1988, the State Council formally approved setting up the Beijing
Experimental Zone for New Technology and Industrial Development, now known as the
Zhongguancun Science Park, granting 18 preferential policies on taxes, loans, and personnel
mobility and recruitment to support its development. Three years later, the State Council issued
the Announcement on the Approval of National High- and New-Technology and Industrial
Development Zones and Related Policies and Regulations, approving another 26 national high-
tech parks (as of now, China has a total of 53 such parks at the national level).8 This document
not only defined the qualifications for certifying high- and new-tech enterprises operating within
a high-tech park, but also stipulated various forms of preferential treatment for supporting their
overall development.

It is during this period that SSTC started to take on a more pronounced role in launching and
administering national S&T programs. The most noticeable example is the State High-Tech R&D
Program, also known as the 863 Program, launched in March 1986, to monitor high-tech trends
in the world and make efforts to develop China's own high-tech industries.

In addition to formulating broad S&T guidelines in 1989 and 1994, and specific sector guidelines
for information technology and biotechnology respectively in 1988, the State Council also
focused on one special issue accelerating technological progress by importing technology and
facilitating its assimilation.

Third Period

This period is marked by the introduction of the concept of innovation into China's discourse,
and thereby the expansion of China's innovation policies beyond S&T and industrial policies. At
the same time of having a big jump in the number of S&T policies (from 34 in the second period
to 84) and a modest increase in the number of industrial policies (from 25 to 35), this period
witnessed the rapid introduction of financial, tax, and fiscal policies (from 8 to 35, 8 to 28, and 1
to 12 respectively).

Second, S&T policy was geared toward stimulating broad institutional reforms at government-
affiliated R&D institutions. In 1999, 242 institutes affiliated with the former SETC were among
the first to be transformed they were either merged into existing enterprises to become their
internal R&D units or converted into technology-oriented enterprises themselves. Other types of
R&D institutes, including those in the areas of public goods, went on to be restructured as well
and CAS started a Knowledge Innovation Program to revitalize itself. Third, policies specifically
focused on the conversion of S&T achievements started to appear. Fourth, support for private
S&T enterprises became one of the key foci of Chinese innovation policies.

Concluso

In a word, over the years, innovation policies have increased in number, variety, and reach.
From the perspective of policy domains, more recognizable S&T and industrial policies
dominated the first two periods, while financial, fiscal, and tax policies played a more prominent
role in the latter period. In terms of content, innovation policies during the first two periods
focused on the initiation of new S&T programs, but shifted in emphasis to innovation capacity
building and further to the creation of an innovation-friendly environment during the third period
through the enhanced management of S&T programs. The reliance on a single policy
framework to support the implementation of specific S&T programs gave way to the formation of
a rich portfolio of diverse policies in which financial, tax, and fiscal policies had become as
strategically important as traditional S&T and industrial policies in the innovation promotion
framework. That is, more consideration was given to the alignment and coordination between
and across policies of the same and different derivation. For China, whose highly vertically
oriented bureaucratic structure often precluded close communication, coordination, and
cooperation across ministries and other government organizations, such progress on the S&T
front represented a major breakthrough.