How China Talks 'Innovation' Without Investing In It

29 December, 2014 / Articles

“Innovation” has become a favorite word for Chinese headline writers. From individuals to private firms and even public institutions, everybody and everything aims to be an innovator.

Though the OECD Economic Outlook 2014 predicted that China will probably become the country in the world which invests most in Research and Development (R&D) within five years time, the “Innovative Country” that former President Hu Jintao set as a goal for China in 2006 still seems to be far away.

Sure, it’s true that the Chinese lunar orbiter Chang’e successfully soft-landed on the moon and the manned submersible Jiaolong achieved considerable advances in deep-sea research. But both had seemingly limitless effort and money pouring in from the government. The significance of these accomplishments is more political than economic.

In today’s global economy, markets aren’t looking for a pompous race to the heavens or below earth, but rather those small but beautiful solutions that can solve everyday practical problems. Too many Chinese couldn’t care less whether iPhone represents true independent innovation at its best, but do wonder whether the handset of Xiaomi — the world’s third largest smartphone maker — can rival with iPhone quality at half the price.

On the European Commission’s 2014 EU Industrial R&D Investment Scoreboard the top 50 places are almost entirely monopolized by American, Japanese and European companies. While Volkswagen AG is in the top spot for the second consecutive year, Samsung and Microsoft come in second and third. Meanwhile Huawei, China’s largest telecommunications equipment maker, which ranks 26th, is the only Chinese firm to make it into the top 50 worldwide for R&D investment.

Coincidentally, Lenovo, Xiaomi, Tencent and Huawei were listed by Boston Consulting as some of this year’s global 50 most innovative companies.

As of 2013 Huawei invested about $5.1 billion in R&D, representing 12.8% of its annual turnover. Though Samsung spent almost three times what Huawei spent — $14.4 billion over the same period — Huawei’s R&D intensity is nevertheless twice that of Samsung.