Industrial Revolution Driven by Innovation

By staff reporter HOU RUILI

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Industrial Revolution Driven by Innovation

By staff reporter HOU RUILI

AS world production powerhouses, the U.S., Germany and Japan scrambled to promote their innovative manufacturing, China published its action plan in May 2015. Titled “Made in China 2025,” this 10-year blueprint aims to achieve breakthroughs in core technologies in various key sectors, greatly promote product quality, and improve manufacturing through application of digital, intelligent and Internet technologies, while notably reducing energy and material consumption and pollutant emissions. It seeks also to foster a batch of competitive multinational corporations and industrial clusters.

Developed countries already occupying the upper end of the global industrial chain engage in this drive with the aim of further upgrading their manufacturing. China, meanwhile, hopes to migrate from its disadvantaged position in the global industrial division and value chain. New technologies and the genesis of new products and industries exert a strong force in China nowadays, ushering in a new round of Industrial Revolution and promoting economic transformation and upgrading.

The 17th China Hi-tech Fair opens in Shenzhen on November 16, 2015.

Old Development Model No Longer Sustainable

At US $10 trillion, China’s economy is the world’s second largest. But in the last seven years, the old model of growthrelying on investment and exports has become unsustainable. Although a new type of urbanization and industrialization, along with agricultural modernization and IT applications, all bring potential investment opportunities, China needs accurate and controllable investment, not inefficient, expedient investment that bring only short-term benefits.

The 2015 Chinese Smart Hardware Egg Years Innovation Conference convenes in Beijing on April 11, 2015.

China’s export volume has been number one in the world for five consecutive years. But, due to its low prices, China constantly suffers imposition of antidumping sanctions from the U.S. and the EU, and remains a target of other global anti-dumping investigations. Large quantities of goods are moreover subject to recall over quality issues or constituents that fall short of Western standards.

Since the advent of reform and opening-up, China has always striven to invite foreign capital and to exchange market-share for technologies. However, foreign companies still closely control core technologies and key parts. In addition, domestic input into independent research and development is deficient. All these factors contribute to the current situation wherein China’s manufacturing still languishes at the middle and lower reaches of the global value chain. Although China produces 30 percent of global products, it is only able to obtain one-sixth of their total value.

Vice President Shi Yong of the China Machine Industry Information Research Institute said, “Future enterprises must possess the capacity of original design, which requires better understanding of the internal mechanisms of product operations, and embracing more complicated design strategies. This capacity is nurtured by long-term experience and coordinated development across the entire industrial chain.”

The one-child policy has moreover changed China’s demographics. The early onset of an aging population is vitiating China’s advantages in labor, while some Southeast Asian nations are breaking into the global market chain with significantly lower labor costs.

Against such a backdrop, where may China find a driver to sustain mediumhigh speed growth? Premier Li Keqiang has the answer: “By promoting structural reform,” i.e. by developing a sustainable growth model that relies on innovation and consumption.

Development Powered by Science and Technology

Historic projects of the ilk of satellite launches, manned space flight and hybrid rice once greatly boosted China’s comprehensive strength. China is now racking up internationally influential achievements once more in basic sciences, cutting-edge sciences, and strategic technologies. In accordance with national development goals, China has selected 16 strategic products, generic technologies and crucial projects for the National Science & Technology Major Project. By relying on both state investment and market operation, China aims to arrive at R&D breakthroughs in these areas before 2020, fill strategic gaps, and form industrial chains, and thereby promote economic development.

Zhao Houlin, secretary-general of the International Telecommunication Union, once noted that the information and communication technology industry provides an opportunity for China to promote a new “Industrial Revolution.”From 2G to 4G, China’s mobile communication technologies had undergone a course of catching up and attaining breakthroughs, before finally taking the lead.

In February 2013, China’s Ministryof Industry and Information Technology instituted research into standardization of 5G. Huawei, the world’s largest telecommunications equipment company, plans to invest US $600 million in R&D on setting 5G standards and commercial applications. China Mobile is actively involved in the formulating of 5G standards by International Telecommunication Union.

Ever since the PRISM Gate scandal erupted, quantum communication technologies have attracted worldwide attention since these are able to resolve information security issues in national defense, finance, government affairs, and business. China is currently taking the lead in this field. Last year Chinese scientists Pan Jianwei and Lu Chaoyang’s team won the Physics World Breakthrough of the Year 2015 award for achieving quantum teleportation with multiple degrees of freedom.

Many startup entrepreneurs Iocate their offices in Zhongguancun, Beijing.

In 2016 China will start to massively apply quantum communication when the Beijing-Shanghai Quantum Communication Trunk Line, the first of its kind in the world, is completed and inaugurated into operation. The “Quantum Scientific Experiment Satellite” developed by Chinese scientists, also the first of its kind, will also be launched. In October 2015, Aliyun and QuantumCTek, under the auspices of the Chinese Academy of Sciences, jointly announced their development of quantum cryptography products, the potential Chinese market for which is estimated in the ballpark of RMB 50-100 billion.

Main indicators of China’s independent innovation already place it among leading world levels. The National Innovation Index Report 2014 published by CASTED (Chinese Academy for Science and Technology for Development) shows that China’s R&D fund in 2013 had reached US $191.21 billion, surpassing Japan for the first time to rank second in the world. The number of science papers published internationally also came in second, with the total amount of citations to such papers occupying the fourth slot. The ratio of high-tech export products among manufacturing exports assumed the world’s number two spot, while added value of knowledge-intensive service industries took third place.

The latest annual report of the WIPO (World Intellectual Property Organization) demonstrates that China submitted the most patent applications in 2014, exceeding the numbers of the U.S. and Japan combined. Chinese citizens and enterprises filed most patent applications not only in China, but also overseas.

Talents are of vital importance in innovation. While China is gradually losing the demographic dividend of common labor, its quantity and cost advantages in high-end human resources will continue to have an impact.

In 2013, China joined the Washington Accord, considered the goldstandard of engineering education. This means that China’s engineering education has risen to international levels and is beginning to find world acceptance. Noteworthy here is that the cost in China of cultivating one engineer is about US $30,000 per year, one-tenth of the cost in the U.S. The total number of Chinese science and technology professionals and research and development talents currently ranks respectively first and second in the world.

China’s entry into an active phase of scientific and technological innovation is evident. It is shifting from imitation to independent innovation, and then to upgrading in an effort to scale toward commanding heights of industrial development.

Although most Chinese manufacturing enterprises are still at Industrial 2.0 or 3.0 stages, enhanced innovation capacity will help China to gain an edge in international competition and catch up with the upgrading plan “Industry 4.0”currently implemented by developed countries.

Entrepreneurship: Arduous, but Thrilling and Exciting

There is only one Jack Ma, who led a small company of 18 in a modest residence in Hangzhou to become the e-business giant changing worldwide consumption patterns. Today the average one startup every day in the Entrepreneurship Street of Zhongguancun gets RMB 5 million in finance. They, however, are still the lucky few.

At the 2014 Summer Davos Summit, Chinese Premier Li Keqiang proposed the ideals of mass entrepreneurship and innovation. Months later, this was inscribed in the Government Work Report. Also included therein was the Internet Plus action plan. These two new mottos also began to appear in the action plans of Chinese provinces.

Deng Feng worked in the U.S. SiliconValley before coming home to Beijing to found Northern Lights Venture Capital. He says that when he returned to China to set up a business a decade ago, a lot of people thought him crazy. “But today governments, educators, and even some parents, all believe that starting a business is sound and reasonable.”

Hu Houkun, rotating CEO of Huawei, speaks at the Mobile World Congress on March 3, 2015.

“Dog bathing for just RMB 9.9, in your home.” This advertisement circulates widely on WeChat and it comes from Momoday, China’s largest pet service platform. This platform is the fourth product of 27-year-old Hou Yong. Before Momoday, he developed software enabling youngsters taking the same bus to make friends. He says the road towards entrepreneurship is full of pitfalls and that one should never fear making mistakes.

Medicinepower focuses on home delivery of pharma-products. Its founder, Ren Bin, says that entrepreneurship is not for money in the first place, and that a real entrepreneur’s desire is simply to make x-kind of product successful and meet certain consumer demands. He conceived Medicinepower late one night when he felt unwell while working overtime, but was unable to find a single pharmacy open.

Li Guoxun quit his job at megasearch engine Baidu and launched an ecommerce company vending agricultural produce. His income dropped even as his work intensified. But he says the excitement cannot be measured in money. Since he was born into a farming family he would be very happy to effect changes in the circulation mode of Chinese agricultural products.

Many, including migrant workers, business managers, college graduates and company employees, are also returning to their hometowns with capital, technologies and advanced management philosophy in this golden era of business creation. In some counties in central and western China, the number of enterprises established by these returnees and the industrial value they create account for half of the local economy.

Last year, the Chinese government introduced more measures to remove various restraints on entrepreneurship. In particular, its easing of the industrial and commercial registration system has unleashed a flood of newly-registered enterprises, with about 12,000 companies now born each day. In 2015, 13.12 million new jobs sprung up in China.

Twin Drivers of Economic Growth

In Darty Mall at the Madeleine Plaza in downtown Paris, the most expensive refrigerator brand is Haier. Established in 1984, Haier went on to become a domestic famous brand in the next 10 years, and has now morphed into a middle- and high-end brand in developed countries. Its sales have been number one among all large household appliances globally.

Tan Lixia, vice president of Haier, says: “Haier is transforming from a manufacturer of products to an incubator for makers.” The Haier Maker Platform debuted on November 19, 2014, and is connected with 95 industrial park incubators across China to invite venture capital and makers with resources.

Haier has also built up an Internet finance platform to integrate the entire industry, top to bottom, with finance firms. Thus industrial finance, consumer finance, consumption factoring and venture capital may all develop on this platform.

Innovation and entrepreneurship not only help small and mid-sized enterprises survive, but also help large corporations prosper. As Li Keqiang observed in the speech he presented at the 2015 Summer Davos Summit, China has various platforms for innovation and entrepreneurship, which not only include small and micro businesses, but also larger ones. Platforms for mass entrepreneurship and innovation, crowd-sourcing, crowd-support and crowd-funding are already giving rise to revolutions in production and management modes.

Internationally competitive and innovative technologies and enterprises are emerging in areas like mobile communications, power-generation equipment, e-commerce, machine tool building, household appliances, engineering machinery, aviation, space exploration and high-speed railways, while visionary entrepreneurs are surging to the fore. Huge growth potential also lurks within emerging industries such as 3D printing, new materials and new energies.

Entrepreneurship and innovation aim for breakthroughs or even revolutions in production models and efficiency levels. They are now becoming powerful twin drivers of China’s economic growth.C