Obstacles emerging on road to innovation-driven economy

Despite tremendous progress by China in science, technology and innovation since 2015, its ambition of becoming an innovation-driven economy may have reached a crossroads, with a more arduous path ahead, the UNESCO Science Report released on 11 June has said.

UNESCO’s major review of science around the world is released every five years, with the previous edition in 2015.

In the five-year span since the last UNESCO report, China’s manufacturing sector has become technologically sophisticated, but is still dependent on some core foreign technologies like semiconductors, and on acquisition of foreign technology companies.

In research, China has made major strides in many areas including artificial intelligence (AI), but faces talent shortages in that and other areas, including brain science, a priority area of research that feeds into AI and health, the report subtitled “The race against time for smarter development” said.

China has benefited from international research collaboration, which is now threatened, in particular with being ‘decoupled’ from the US as part of trade tensions with that country.

“It is unimaginable that China could have come so far without opening the country to foreign technologies, ideas and institutions,” according to the report’s China section written by Cong Cao, professor of innovation studies at the University of Nottingham Ningbo China, and a well-known expert on China’s science and technology policies.

China’s current high-profile research priorities – AI and brain research, image recognition, space exploration and quantum computing – are prestigious but may be contributing little to China’s overall development and welfare, the report notes.

And it points to a global phenomenon that research productivity is falling sharply everywhere, leading to a diminishing return on research and development (R&D) spending. “China is no exception, suggesting it may take time for Chinese investment in R&D to translate into productivity gains,” it said.

In particular the report said that to make substantial progress in research and innovation in future, China will have to overcome domestic barriers to innovation, such as inadequate intellectual property protection and excessive state support for innovative enterprises “if it is to allay the concerns of its key trading partners and pursue the open-door policy that has served it so well up to now.”

Internationally, its Belt and Road Initiative has become “a dynamic tool of science diplomacy”, the report noted.

But as China’s impact is felt around the world, including in innovation, it also needs to play a more prominent role in global science governance and it “needs to embrace the global trend towards open access, open data and open science, for instance, and to support calls for global data governance, in order to protect the individual’s data privacy”, the report said.

The UNESCO report suggests a priority for China should be tackling issues of ethical research and openness in the wake of the gene-edited baby scandal that emerged in 2018 and privacy issues relating to data and AI applications such as facial recognition, where China is a world leader; as well as addressing research misconduct that mars its output record.

Progress over five years

In 2016, when the 13th Five-Year Plan for the development of science, technology and innovation (2016-20), a key driver of China’s science and technology ambitions, got under way, “China’s innovation capacity was found to be wanting. China still possessed relatively few core technologies, innovative enterprises and entrepreneurs,” the report noted.

Development between regions was uneven and the role of scientific research and innovation in supporting and leading socio-economic development “left room for improvement”.

The first four megascience and engineering programmes introduced under the 13th Five-Year Plan have been launched: quantum communication and quantum computing; brain science and brain-inspired intelligence; a deep-sea space station; and an integrated space-Earth information network.

China doubled gross domestic expenditure on R&D (GERD) between 2012 and 2019 to more than CNY2.2 trillion (US$341 billion) – 2.23% of gross domestic product (GDP).

This fell short of the government’s Medium and Long-Term Plan for the Development of Science and Technology (2006-20) target of 2.5% by 2020. It is also short of US research intensity at 3.1% of GDP in 2019, but surpassed the average for the European Union of 2.0% of GDP, according to 2018 figures.

The Medium and Long-Term Plan, a key document by which China’s R&D and innovation ambitions are measured, stipulated that by 2020 dependency on foreign technology was to be reduced to less than 30%. According to the Ministry of Science and Technology, the ratio actually declined to 31.2% by 2016 as domestic investment in R&D grew rapidly and spending on foreign technology imports shrank.

However, the share of China’s GERD spent on basic research has been around the 5% mark for many years compared to 13% for the European Union under its Horizon 2020 programme.

“Not only has the proportion of expenditure allocated to applied research been declining – around 11% in 2018 – but “the chronic imbalance in favour of experimental development has been largely underestimated in policy circles”, the report said.

Talent and scientific output

The number of university students and researchers is on the rise and China’s booming economy is attracting a growing number of returnees who are staffing universities, research institutes and enterprises. “These agents of change are enriching China’s political, socio-economic and technological fabric,” the report notes.

China’s scientific output – papers published in prestigious journals – has increased by as much as 49% since 2015 and the country has also emerged as a world leader for the volume of patenting.

Each individual Chinese researcher has also become more productive, while the report notes that almost one-quarter of articles in the past five years focused on cross-cutting strategic technologies such as AI, robotics, biotechnology or nanotechnology, reflecting government policy documents’ focus.

Chinese scientists published more than the global average between 2011 and 2018 on a number of topics that reflect the current policy emphasis on more sustainable development. Topics include national and urban greenhouse gas emissions, hydropower and the sustainable withdrawal of fresh water.

AI drive emerging bottlenecks

The flagship of China’s science progress has been AI, “enabling it to secure a place in the top echelons for both technological development and applications,” the report said. Papers published by Chinese scientists on AI increased from 4.3% in 1997 to 27.7% of the global total in 2017, far outstripping other countries. “None of this would have been possible without government support,” according to the report.

On 20 July 2017, China’s State Council released its strategic plan for AI to ensure China catches up with the US in AI technologies and applications by 2020 and becomes ‘the world’s primary centre for AI innovation’ by 2030.

The plan also called for the formation of clusters of AI innovation centred around national laboratories at universities and research institutes, while taking advantage of the Thousand Talents programme, referring to China’s initiative to attract foreign and Chinese scientists from abroad with substantial pay and benefits packages; and the Belt and Road Initiative, its trade and infrastructure project with countries in Southeast Asia and Africa.

International collaboration is having a significant effect on China’s publications related to AI, accounting for as many as 42.6% of the country’s top papers, according to the UNESCO report. China has also become the largest owner of AI patents, followed closely by the US and Japan. Combined, these three countries account for 74% of the patents granted in AI worldwide.

Around 52% of China’s top 30 institutional owners of AI patents are universities and research institutes, demonstrating the science-based nature of these technologies. Its talent pool is growing – by the end of 2017, it counted 18,232 AI specialists, or 8.9% of the global total, second only to the US at 13.9%.

Tsinghua University and the Chinese Academy of Sciences are the world’s largest ‘factories’ for turning out AI talent, according to the report. Chinese AI companies have been mushrooming since 2012. China counted 1,011 companies in AI as of June 2018, ranking second behind the US with 2,028. “More often than not, these Chinese firms have global ambitions,” the report noted.

Nonetheless, China still has ground to make up when it comes to core AI technologies such as computer hardware and algorithms. More significantly, China’s AI development lacks top-tier talent, with a skills gap with the US, in particular, the report underlined.

“China may count the second-largest number of researchers to have published papers or been granted patents in the field of AI in the past decade, but the proportion of those considered to be in the top 10% of their field is smaller than in other AI-leading nations,” it said.

Slower economic growth, trade and risk of decoupling

China’s current science and innovation trajectory may not be maintained. The COVID-19 crisis caused China’s economy to shrink by 6.8% in the first quarter of 2020 – the first contraction for almost three decades. The Chinese economy had already been growing at a slower pace than in earlier years, caused by structural issues and because of a disruptive, prolonged trade dispute with the United States.

“This dispute has spilled over into issues which may undermine China’s efforts to become an innovation-driven nation,” according to the UNESCO report. “Sources of tension include high technology, technology transfer, intellectual property protection and even China’s Thousand Talents programme,” it said.

Nonetheless, “China’s efforts to enhance its endogenous innovation capability have paid off,” the report notes, pointing to home-grown giants Huawei and ZTE, the world’s two largest manufacturers of telecommunications equipment.

But partly to reduce reliance upon, or decouple from US high-tech suppliers, the Chinese government launched its 10-year, state-led industrial policy in 2015 called ‘Made in China 2025’, inspired by a similar German programme, Industrie 4.0.

This was to enable Chinese companies to compete worldwide in 10 cutting-edge sectors of manufacturing. It has specific sector-by-sector goals and is backed by government subsidies that their foreign competitors in China cannot take advantage of, as well as mobilising state-owned enterprises and pursuing intellectual property acquisition to help the 10 strategic industries “to leapfrog over their Western competitors and reduce China’s reliance on foreign technology”.

Intellectual property has been a focus of trade tension and suspicion about China’s research intentions and has complicated trade talks between China and the US for some time.

In 2018 the European Commission in Brussels filed a complaint with the World Trade Organization, alleging that foreign companies were induced to transfer intellectual property to their Chinese partners and to set up research centres in China as ‘performance requirements’ for obtaining government approval to operate in sectors like electric vehicles.

Belt and Road science diplomacy

On 14 May 2017, in his opening keynote speech at the first Belt and Road Forum for International Cooperation, Chinese President Xi Jinping proposed turning the Belt and Road Initiative (BRI) into a ‘road to innovation’.

He announced the BRI Science, Technology and Innovation Cooperation Action Plan, with a focus on science and technology people-to-people exchange, joint laboratories, science park co-operation and a technology transfer initiative to create five technology transfer platforms in countries of the Association of Southeast Asian Nations, Arab states, Central Asia and Central and Eastern Europe, along with some joint research centres in Africa.

Scientific co-operation is an important element of the BRI, with a near-term goal of having 5,000 outstanding young scientists from BRI countries working in China and more than 150,000 researchers on exchange and training programmes in China within five years.

China has since hosted more than 500 young researchers from BRI countries on short-term exchanges and trained over 1,200 in a technology training programme tailored to their needs.

In 2018, the Chinese Academy of Sciences and 36 international institutions, including UNESCO, set up an Alliance of International Scientific Organizations in the Belt and Road Region (ANSO), headquartered in Beijing’s Huairou Science City.

ANSO now has 52 members, which participate in thematic alliances such as the BRI Health Corridor or the BRI Food Security Corridor. Each year, ANSO also provides 300 PhD students and 200 masters students from BRI countries with scholarships to study at Chinese universities.

The Chinese Academy of Sciences’ own Digital Belt and Road programme has inaugurated eight international centres of excellence in Morocco, Pakistan, Thailand, Zambia and other countries. By 2019, the academy had invested more than CNY1.8 billion (US$279 million) in BRI-related science projects.