An Analysis of the Technological Capabilities of Chinese Corporations

ABSTRACT

Throughout the 1990s, China saw not only a sudden burst in the volume of its exported goods, but also a large shift in the structure of these goods from one-dimensional products to machines and electronics. But with the ratio of added value remaining low, the industrial dynamism that these changes reflect was mostly limited to increases in quantity. The reason for the low ratio of added value in the industrial sector can be determined without asking the domestic and foreign corporations. While inefficient economic systems and corporate practices are part of the cause, the problem is essentially the result of poor technological innovation.

When the United Nations Development Project evaluated the technology innovation capabilities of several countries including China based on the four factors of technology creation, the dissemination of new technologies, the dissemination of conventional technologies, and the level of technical skill, China's dissemination of new technologies - its assimilation of new technologies to cultivate new industries - was the only area that received positive marks. It is also true that, domestically, 70 percent of the registered patents (including invention patents, utility model patents, and design patents) are registered by foreigners, while overseas in the US market, the largest market in the world, China has only registered 2 percent of the patents registered by Japan. In an evaluation by Japanese companies, the on-site technical skills of Chinese factories was put on the same level as other Southeast Asian countries. The lack of technological capability is apparent in the imitation products that flood the country, and is also evidenced by the large amounts of Chinese products seized by US and European customs offices.

The long term problems affecting China are (1) the low priority placed on investing into technology development (the propensity being for hard investments), (2) state sector leadership of the innovation system, (3) a lack of consciousness about protecting intellectual property rights and insufficient implementation of a support base for technological development. These are the structural problems that are responsible for China's current weakness in technological capability.

Since China's induction into the WTO, the intellectual property strategies of multi-national corporations have involved the country in multiple intellectual property disputes with foreign countries. As a result, China has been prodded, from both within and abroad, into strengthening its protection of intellectual property. In an effort to overcome its weakness in technological capability and develop a strategy for intellectual property rights, China has thus far (1) enriched its research resources, (2) begun to patent and industrialize its research products, (3) and strengthened its checks on intellectual property infringements. Parts of the Chinese industrial sector plan to break from the norm and create technology-oriented corporations by (1) increasing their investment in technology development, (2) accelerating technology adoptions, (3) emphasizing the employment of foreign as well as domestic technicians from the outside, (4) buying foreign companies.

In terms of the future of Chinese technological capability, seeing that technologies in most industries like software and biotechnology have little continuity and require little accumulation, while it may be possible to break into the development market on an individual basis, the broad scale flowering of technological creation needed to support an efficient system of innovation will be difficult to achieve.

Thinking about the implications for Japan based on this outlook, the following actions can be suggested: (1) the utilization of China's R&D institutions and human resources, (2) the expansion, contingent on the strengthening of technology governance, of Japanese technology transfers into China, and (3) the encouragement of Chinese corporations to industrialize their discoveries and technologies in Japan where the environment is secure and rich in resources.