Innovation Nation

Americans seem to love worrying about China. There are fears that Chinas economy is growing too fast and fears that it is growing too slowly. There are critics that bemoan U.S. debt to China and some that fear a military conflict. Now， another worry has emerged from the American media： Chinas growth is built on unsustainable cheap labor and government support， and that it will collapse without a pivot toward invention and innovation.

China is “getting rich but unless it can learn to innovate， its economy will never overtake the United States，” writes Michael Schuman in a November issue of Time magazine titled Why China Cant Create Anything. Ironic， considering that China has been known as the birthplace of many of humankinds most significant innovations： paper and printing， the compass， noodles， belt drives， the toothbrush and， of course， gunpowder. Chinas inventive spirit is still in force in the modern era， with the development of new pharmaceuticals， cancer therapies， maglev wind power generators and e-cigarettes—all from Chinese inventors. Its in Chinas DNA to be innovative.

Schumans point， however， is well taken. China has been focused on manufacturing and lifting its massive population out of poverty to create a middle class. It is far more expedient for companies to use existing product designs rather than going through the arduous process of product testing and refinement. Better to save their money for expanding their sales and manufacturing networks than for original research. Lee Kai-Fu， venture capitalist and former President of Google China said that Chinese entrepreneurs practice iterative innovation—borrowing an existing idea and tweaking it for the Chinese market.

Another issue facing China at the moment is that many of their top engineers and product designers are producing the best inventions for foreign-owned companies， or they have moved to Western countries for higher salaries， leading to brain drain. Of the top five firms with China-based applications for U.S. patents， only one is a Chinese mainland company—telecom giant Huawei. Topping the list were Foxconn， a Taiwanese manufacturer of Apple products， and Microsoft.

Even if the benefits of Chinese innovation are primarily boosting foreign companies， Chinese developers are gaining valuable international experience. Signs of the new innovative era of Chinas economic rise are already apparent. Though many companies are taking a “buy it” rather than “build it” approach to speeding up market growth， the need for original product development is gaining momentum. Research and development （R&D） expenditures increased to 1.6 percent of the GDP in 2012， up from 1.1 percent a decade earlier， according to the World Bank. Chinas share of the worlds R&D expenditure grew to 13.7 percent last year， second only to the United States.

“Right now， the United States is seen as the innovation leader of the world， and China is right behind it. But in five to 10 years， China could lead，” KPMG partner Egidio Zarrella told Forbes. Big data， cloud computing and mobile apps， in particular， are emerging markets for Chinese innovation.

Promoting innovation has emerged as a key goal from the recently concluded Third Plenary session of the 18th Central Committee of the Communist Party of China. Party chief Xi Jinping called for an“innovation-driven development strategy”and for the development of internationally recognized brands. The social reforms， the growing middle class and consumer society will also help stem the brain drain of talented Chinese inventors.

If China can successfully cross the gap from workshop of the world to inventor of world-class brands， the possibilities are endless. All signs point to a supportive role from the Chinese Government and a favorable market. These reforms have the potential to change the lives of more than 1 billion people， and the world at large.