China's Innovation Policy is a Wake-Up Call for America

in Asia Pacific Issues, May 2011, East-West Center

12 Pages Posted: 27 Apr 2016

See all articles by Dieter Ernst

Dieter Ernst

East-West Center; Centre for International Governance Innovation (CIGI)

Date Written: April 10, 2011


How serious a challenge is China’s innovation push for America? To answer this question, the paper first defines what we mean by “innovation”. Part two reviews conflicting perceptions in the US and China of what are legitimate goals of innovation policy. The American government believes that markets should drive innovation. China’s government, in turn, emphasizes the critical role of public policy and argues that one should not always apply the same criteria in judging performance of latecomers as one would with the advanced industrial economies. An analysis of China’s recent policy initiatives and its response to foreign complaints shows signs of gradual albeit uneven progress toward greater pragmatism and less market regulation.

Part three examines the impact of China’s innovation policy on the country’s innovative capacity and reviews data on the speed of learning and catching-up that is transforming China’s production and innovation system. Both input indicators (R&D investments; number of engineers and scientists) and output indicators (science and technology publications, patents) of China’s evolving innovation capabilities show that China has become a serious competitor, not only on price but also on technology. In the three decades since its opening to the world economy, China’s speed of catching-up in innovation has been truly impressive. But barriers to innovation in China remain substantial, ranging from severe quality problems in education to plagiarism in science, and barriers to entrepreneurship and private R&D investment. And a comparison of the China data with US indicators demonstrates that the US retains a strong lead in overall innovative capacity, and that China still has a long way to go to close the innovation gap. These data strongly argue against fears, sometimes played up for political purposes, that China’s progress in innovation threatens US technology leadership. Instead, China’s rise should serve as a wake-up call for America. Both the US government and the private sector need to join forces and develop a national strategy to enhance the country’s innovative capacity and to create well-paying jobs in research, product development and engineering. An important message of the paper is that America needs to upgrade its own innovation system in order to cope with the challenge of China’s innovation policy from a position of strength. Upgrading America’s innovation system also is necessary so that American firms can reap ample opportunities for cooperation with China. Chinese firms will continue to need access to American innovations across a broad spectrum of industries and services. China’s innovation push thus will create new markets for American firms, provided they stay ahead on the innovation curve. In addition, China’s persistent innovation gap with the US arguably explains why China’s government is gradually moving toward greater pragmatism in its innovation policy. While technology-related trade conflicts will continue, it may now be possible to transform technology-centered competition between both countries into a positive sum game. But this requires that US policy moves beyond ad hoc responses to trade conflicts and addresses long-term strategic issues that prevent effective cooperation in areas of joint interest, such as climate change and new energy technologies as well as life sciences and nanotechnology. In short, both China and the US have a strong interest in deepening cooperation in the development and application of new technologies. But implementing such cooperation faces many hurdles. The risk of rising protectionism is an important barrier; hence there will be no escape from the day-to-day grind of trade negotiations. More fundamentally, US-China cooperation in innovation needs to be on an equal footing, with reciprocity of rights and obligations on contentious issues like, for instance, finding the right balance between the protection of intellectual property rights and China’s interest in technology diffusion. Establishing such reciprocity between countries at different stages of development will not be easy. While incumbent industry leaders seek to retain the status quo, newcomers like China seek to adjust the old rules to reflect their interests as latecomers. But progress towards adjusted rules of reciprocity should be possible, once America and China accept that, while their economic systems are different, their economies and innovation systems are interdependent. As for China, its innovation policy would be well advised to accept America’s right to insist on safeguards against forced technology transfer through policies like compulsory licensing, information security standards and certification, and restrictive government procurement policies.

Keywords: China's innovation policy; US innovation policy; US-China cooperation in science and technology

Suggested Citation

Ernst, Dieter, China's Innovation Policy is a Wake-Up Call for America (April 10, 2011). in Asia Pacific Issues, May 2011, East-West Center . Available at SSRN:

Dieter Ernst (Contact Author)

East-West Center ( email )

1601 East-West Road
Honolulu, HI 96848-1601
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2

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