China Innovation Eco-System

Dragon - Sustaining Technology and Research
Deliverable 4.3: Dragon-STAR
Dragon-STAR
Deliverable 4.3
Deliverable 4.3 Innovation Ecosystem in China

DRAGON-STAR
SUSTAINING TECHNOLOGY AND RESEARCH
Sociedade Portuguesa de Inovao

EXECUTIVE SUMMARY
This report is Deliverable 4.3: The Innovation Ecosystem in China of the Dragon Star
Sustaining Technology and Research.
The report is expected to analyse the innovation measures and system in China and
especially the incentives and obstacles towards the exploitation of research results. The
report aims to provide a comprehensive analysis of Chinas Innovative Ecosystem and
specifically, to identify innovation support mechanisms regarding:1) Public policies on
innovation; 2) Capacity Building on innovation; 3) Supporting schemes and initiatives for
international Science, Technology and Innovation (STI) collaboration, with a focus on
collaboration with the EU; 4) Regulations and financial incentives that support innovation
and internationalization; 5) Framework conditions for research and innovation; 6)
Opportunities and obstacles for the innovation ecosystem.
A short summary of the contents presented in each section of the document is presented
below:
The
section entitled
Chinas National Innovation Ecosystem
provides a
comprehensive overview of Chinas innovation capacity, analyzing topics such as

policies, regulations and programmes that enhance and/or restrict innovation in
China. With regard to policies that support S&T Innovation. The study focuses on the
main policies promoted by the Chinese government in the past years, more
specifically by the Minister of Science and Technology (MoST). The Training
Programmes section covers the measures implemented in regard to training
incentives, both for Chinese and foreign researchers. China has been building a
strong economic base for training and also exploiting the bilateral relations with
Europe. Regarding the support schemes/programmes for International Collaboration,
the study identifies several bilateral programmes already established between China
II

and different European countries, building an important base of success cases

regarding this subject. Concerning the regulations and financial incentives, the
report focuses on Chinese governmental incentives, as well as venture capital and
angel fund investments. These incentives aim to decrease the gap between Europe
and China in terms of innovation capacity. In addition, the study analyzes the
infrastructure support for S&T innovation following a regional approach to evaluate
three types of infrastructure: Special Economic Zones (SEZ), Innovation Clusters and
Science Parks and Business Incubators.
The Framework Conditions for Research and Innovation analyzes Intellectual

Property Rights (IPR) Protection issues, Standards, Market Regulations, Access to
Public Procurement and Entrepreneurial Activities. The recent efforts regarding IPR
protection issues to create an attractive environment for patent and trademark
licensing for foreign companies, strengthening of its administrative and judicial
protection in IPR, among others represent positive efforts in aligning the IPR
legislation with that of Western economies. However, some of this legislation is still
weak and favours Chinese companies over foreign ones, restricting innovation
activities between China and other countries. Standards and Market regulations
follow the same path, as China struggles to level the policies favouring Chinese
companies over foreign ones. Concerning Public Procurement, the developments
over the past years have shown that China is now orienting its procurement policy to
innovation and technology transfer. In regard to entrepreneurial activities, the
Chinese government has been active in promoting such initiatives, reducing
corporate tax and Value Added Tax (VAT) for high-technology enterprises, SMEs and
Information and Communications Technology (ICT) firms.
The Obstacles towards the Exploitation of Research Results identified include

protectionism and the standard of technology innovation. The analysis indicates that
Chinese State-Owned Enterprises (SOEs) can inhibit the innovation system and that
the eastern region of China is where more investment is made in research and
III

innovation. Additionally, the problems concerning discriminatory standardization

policies, inadequate IPR protection, forced technology transfer, unequal financial
incentives and strict pricing control block technology innovation, requiring more
efforts from the Chinese government in taking the necessary control measures.
IV

INDEX
1. Introduction.................................................................................................................. 1
2. Chinas National Innovation Ecosystem....................................................................... 3
2.1 Policies Supporting S&T Innovation .................................................................................... 5
2.2 Training Programmes Supporting S&T Innovation .............................................................. 9
2.3 Support Schemes/Programmes for International Collaboration ...................................... 11
2.4 Regulations/Financial Incentives Supporting International Collaboration in S&T ............ 20
2.5 Infrastructure Supporting S&T Innovation ........................................................................ 23
2.6 Chinese Higher Education System ..................................................................................... 27
3. Framework Conditions for Research and Innovation ................................................. 30

4. Obstacles for International Collaboration in STI ......................................................... 36
References.................................................................................................................... 40
TABLES
Table 1 Important Innovation related Indicators............................................................................ 5
Table 2 12th Five-Year Plan Achieved Results ................................................................................. 6
Table 3 Important Higher Education Indicators............................................................................ 28
Table 4 Goals for the Higher Education Development in China ................................................... 28

1. Introduction

1. Introduction
This report is Deliverable 4.3: The Innovation Ecosystem in China of the Dragon Star
Sustaining Technology and Research project.
The Deliverable is part of Work Package 4 Research and Innovation: supporting
technological cooperation, which aims to reinforce bilateral cooperation in the fields of
research, technology and innovation between the EU and China. This report is expected to
analyse the innovation measures and system in China and especially the incentives and
obstacles towards the exploitation of research results.
More specifically, the document aims to identify innovation support mechanisms regarding:
Policies which encourage innovation.
Capacity Building which support innovation.
Supporting schemes and initiatives for international STI collaboration.
Regulations and financial incentives that support innovation and internationalization.
Framework conditions that support Research and Innovation.
Incentives and obstacles for the Innovation Ecosystem in China.
The Chinese STI system is developing fast and dynamically and China has become a major
new actor in the global economic system for knowledge production. Innovation has its
special implication in the context of China: economic growth, competitiveness, comparative
advantage, national security and a higher standard of living.1
In order to provide a general scope of the National Innovation Ecosystem (NIE) in China, the
report is structured as follows: first, the report will focus on the Chinese NIE, specifically
regarding the policies and capacity building programmes, supporting instruments and
initiatives, as well as regulations and financial incentives which support STI development in
China and its international cooperation. Following this section, a detailed analysis of the
framework conditions for research and innovation is provided. Finally, the report presents
the incentives and obstacles regarding the exploitation of the research results.
1
Innovation Vital Signs, Framework Report, 2007

2. Chinas National Innovation Ecosystem

2. Chinas National Innovation Ecosystem
China is currently one of the main players in the economic and financial environment, mainly
due to the fact that it is considered to be a key driver of the worlds economy, the extent of
its productive sector being mainly in terms of raw material supply and the large number of
reserves that it has.2
The country ranks 35th out of 142 countries in the Global Innovation Index with relative
strengths in this assessment in reading, mathematics, and science, firms offering formal
training, creative goods exports and Gross Domestic Expenditure on R&D (GERD) financed by
business enterprise, among others. Concerning the relative weaknesses, press freedom, the
regulatory environment, GERD financed from abroad and Environmental performance are
included.3
Having a Gross Domestic Product (GDP) of 8.227 trillion USD (5.942,6 trillion Euros4) in 2012
(45,3% from industry, 45% from services and 9,7% from agriculture), China has been
witnessing a GDP growth of more than 7% per year, mainly focusing on the industry and
services sector.5 Regarding its trade balance, since 2009, China has positioned itself as the
number one exporter in the world and the second importer country at the international level.
The large amount of Foreign Direct Investment (FDI) allowed China to increase the
exportation of value-added products, shifting from exportation of basic products to
production and assembly of electronic equipment.6
Chinas GERD has more than doubled from 2005 to 2010, becoming in 2009 the second
largest country after the United States. GERD has reached 1,77% of Chinas GDP in 2010.7
Table 1 below shows important indicators related to Innovation in China.
China Ficha de Mercado, AICEP Portugal Global, 2013

http://www.globalinnovationindex.org/content.aspx?page=data-analysis, last accessed in March, 2014
4
All amounts in EURO in this document are calculated based on the following USD: EUR exchange rate: 0.722.
Source: Oanda. http://www.oanda.com/lang/pt/currency/converter/, last accessed in April 2014
5
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html, last accessed in March, 2014
6
China Ficha de Mercado, AICEP Portugal Global, 2013
7
Science and Innovation: China, OECD Science, Technology and Industry Outlook 2012, 2012
3

Table 1 Important Innovation related Indicators
Indicator
Value
Year
Global Innovation Index
Ranks 35 out of 1428
2013
GDP
8.227 trillion USD (5.942,6 trillion EUROs)9 2012
GERD
1,77% of GDP10
2010
The continued development of an innovation ecosystem in China is important for both

Chinese and foreign companies. This development follows the rapid economic growth that
China has seen in the past few decades, transforming the country into a global
manufacturing hub, which has attracted billions of dollars in foreign direct investment.11
2.1 Policies Supporting S&T Innovation

One of the key innovation policies that have been put into practice in China is The National
Science and Technology Development Plan for the 12th Five-Year Period: 2011-2015 (12th S&T
Plan). This was drafted by the Chinese MoST in collaboration with other government
agencies, such as the National Development and Reform Commission (NDRC), the Ministry of
Finance (MOF), the Ministry of Education (MOE), the Chinese Academy of Sciences (CAS), the
Chinese Academy of Engineering (CAE), the National Natural Science Foundation (NSFC), the
China Association for Science and Technology, and the State Administration of Science,
Technology and Industry for National Defence. It was first released in the opening session of
the National Peoples Congress (NPC) in 2011, aiming to accelerate Chinas economic growth
by focusing on scientific development, innovation and domestic demand.
The major aims of the Chinese innovation policy in the 12th S&T Plan are enhancing the
competitiveness of enterprises and the promotion of indigenous innovation.12 In order to
8
http://www.globalinnovationindex.org/content.aspx?page=data-analysis, last accessed in March, 2014

https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html, last accessed in March, 2014
10
11
Innovation Policy, Industrial Policy and Market Access, 2013
12
Mini Country Report, Georgia Institute of Technology, 2011
9

promote Chinese industries, the 12th Five-Year Plan identified seven strategic emerging
industries that are currently receiving preferential investment and policy support: energy
conservation and environmental protection; next generation IT; biotechnology; highend
equipment manufacturing; new energy; new materials; and new energy vehicles.13
Three years after the implementation of the 12th Five-Year Plan, some results are already
verifiable. From the information released by the Chinese government, some indicators are
still facing many challenges in achieving the proposed goals, as shown in Table 2 below:
th
Table 2 12 Five-Year Plan Achieved Results
Indicators
Energy use per unit GDP
Reduction in CO2 per
GDP
GDP growth in 2013
Service industry growth
in 2013
Urbanization growth in
2013
Goals
16% growth
Results Achieved
5,5% growth
17% reduction
6,6% reduction
7% growth
7,6% growth
4% growth
4% growth
4 % growth
5.3 % growth
From the results obtained so far for the indicators analyzed, the GDP growth goal was
achieved in the past 3 years and some indicators seem to be still far away from the initial
predictions, for example, Energy use per unit GDP and Reduction in CO2 per GDP.14 Also,
the Service industry growth in 2013 and the Urbanization growth in 2013 goals have
been achieved by the Chinese administration, the latter being even higher than the initial
prediction.
In addition, China has prioritised and established key goals for its science and technology
development through the National Medium- and Long-term Program for Science and
Technology Development (MLP Programme) document, in which it suggests the following
guidelines:
13
14
Give priority to technological development in some major sectors in the coming 15
Chinas Absorptive State: Research, innovation and the prospects for China-UK collaboration, 2013
http://berc.berkeley.edu/china-12th-five-year-plan-three-years-two-go/, last accessed in April 2014

years such as energy, water resources and environmental protection, among others.
Further improve the national IPR system and strengthen the enforcement of IPR
protection laws and regulations. These policies for IPR protection have been
upgraded in the last decade, mainly because of the national IPR strategy
implementation in 2008. As an example, the numbers of domestic patent
applications and registrations grew from 69.535 and 41.881 items in 1995 to 878.000
and 502.000 items in 2009, respectively.15
Encourage enterprises to play a key role in innovation through their involvement in

state projects and the provision of tax incentives and other financial support
measures.
Boost investment in science and technology.
The plan states that the number of patents and leading academic papers from
Chinese nationals will rank among the worlds top five by 2020.
Increase gross expenditure on R&D to 2,5% of GDP and the basic research to 15% of
R&D spending by 2020.
Reduce Chinese reliance on foreign technology to below 30%.16
In addition, it is relevant to note that in the past 10 years Chinas employment on the R&D
sector has grown from 1 million to 2,8 million and the R&D as a share of GDP doubled from
0,8% to 1,75%.17
These guidelines show the increasing concern from the Chinese government for the
development of its science and technology base and for the improvement of its innovation
activities.
Another important topic regarding Chinas national innovation policy concerns open
innovation. New Chinese studies now focus on why and how domestic enterprises need to
remain competitive through open innovation. Although efforts have been made on the
academic side, policy makers still seem very reluctant in accepting this term it is still seen
as one of several approaches of innovation suitable for China. For policy makers, open
15
16
17
China 360, Innovated in China: New frontier for global R&D, 2013
Indigenous Innovation In China: Implications For Sustainable Growth, 2010
China 360, Innovated in China: New frontier for global R&D, 2013

innovation conflicts with the national strategy of indigenous innovation. Strengthening

innovation capacity through indigenous innovation is seen as a key point for China to stay
competitive in the global economy.
The section below presents a set of Programmes created in China in order to promote S&T
innovation:
The Torch Programme, launched in 1988, has been responsible for building more
than 50 national level high-tech zones across China. Managed by MoST, Torch will
likely be tapped for funding infrastructure to support indigenous innovation projects
related to materials, biotechnology and electronic information, integrated
mechanical-electrical and energy-saving technology.
The Key Technologies Programme, launched in 1982, is aimed at focusing scientists

on addressing core scientific issues related to Chinas social and economic
development. It has represented Chinas largest scientific effort, involving scientists
in around 1,000 research institutes. Every five years it produces an updated Key
Science & Technologies Projects Plan. Today, the programme handles some 20
percent of central government S&T spending and is under MoSTs supervision.
The National High Technology Research and Development Programme, known as

863 for its March 1986 founding date, was launched to promote Chinas high-tech
development key areas such as information technology, biology, aeronautics,
automation, energy, materials and oceanography. Government institutes, university
research labs and state-owned companies, R&D departments participate in these
863 initiatives. CAS is the biggest recipient of the 863 programme money.
The National Key Laboratories Programme, launched in 1994, was designated to

increase S&T capacity by building research facilities with world-class equipment for
basic and applied research. Within a decade, 1.3 billion Yuan were spent building
153 key labs. The goal is for these labs to work with Chinese enterprises for
innovation.
The National Basic Research Programme, launched in 1997 (known as the 973

programme), was created to conduct basic research aligned with such national
strategic targets, such as agriculture, energy, information technology, healthcare and
materials. Today it is the main central government programme for basic research and
it receives around 10 percent of the central government S&T budget.18
Besides these policies, the Chinese government is also focusing on creating an impact on the
world stage through the production of quality academic papers written in English. In 2013,
MoST released the Guidelines for the 2014 National S&T fund on publishing S&T works. In
2011, China accounted for almost 16% (compared to 4% in 2002) of the total share of world
output regarding the number of scientific papers.19
Regarding foreign-invested companies, Chinese leaders have come to believe that the core
technologies will not be achieved via foreign equipment purchases or foreign investment
flows, which reduced China's reliance on foreign technology imports over the last decade
(OECD Review 2009).20
China has been actively implementing new measures to develop its S&T innovation. The
National S&T Plan, the MLP Programme and other important programmes referred to in this
section are good examples of these innovation policies. It is relevant to note, despite all the
progress, some goals established in the 12th Five-Year Plan are still far away from being
achieved.
2.2 Training Programmes Supporting S&T Innovation

Regarding Chinese training programmes supporting S&T Innovation, several initiatives have
been implemented during the past few years. China has implemented strategies of
development through science and education (since 1992) and human resources (since 2003).
During this period, the country has gradually established a national financial aid system for
innovation talent through various talent programmes sponsored by government agencies
18
19
20
Chinas Drive for Indigenous Innovation A Web of Industrial Policies, 2011

INNO-Policy Trend Chart, Innovation Policy Progress Report, 2009

such as the NSFC, the MOE, and the CAS. Since 2006, China has been implementing a
strategy to build an innovation oriented country, issuing its Medium and Long-Term Talent
Development Plan (20102020).
Several of these initiatives are described below:
Recruitment Programme of Global Experts: Launched in 2008, the Thousand Talents

Programme plans to attract about 2.000 leading talented individuals under the age
of 55, who hold professorships or equivalent positions in renowned foreign
universities or research institutes, for a period of 5 to 10 years. Besides this, another
initiative was launched in 2011 The Thousand Youth Talents Programme for
Distinguished Young Scholars which aims to attract around 2.000 excellent young
overseas scholars, under the age of 40, by 2015.21
International Training Programme on Science, Technology and Innovation Polices of

China 2013: This training programme introduced the participants to STI policy issues
in developing countries, creative economy and innovation policy, China's national
innovation system, R&D, innovation statistics in OECD countries, among others. The
training was attended by 24 participants from Indonesia, Mongolia, Nigeria, Tanzania
and Vietnam, and 7 participants from China local S&T departments for the 20-day
training programme. This training programme was funded by MoST and UNESCO.22
China-Europe Business Management Training Programme (BMT): the proposed

EU-China Business Management Training Programme aims to develop a sustained
capacity to deliver world-class, practice-oriented business management training for
Chinese professionals. Through enhancing the managerial capabilities in China, also
and especially beyond the already advanced regions of Chinas Eastern Provinces,
this endeavour will support business to facilitate Chinas social and economic reform,
and to create lasting relations between the Chinese and European economies.
Ultimately, this programme will be beneficial for Chinese and European society at
21
http://academicexecutives.elsevier.com/articles/china-building-innovation-talent-program-system-and-facing-gl
obal-competition-knowledge, last accessed in January 2014
22
http://www.cistrat-unesco.org/web/news-31.htm, last accessed in January 2014
10

large by building a stronger, mutually beneficial economic base.23

Through the initiatives established by the Chinese government, it is clear that the training
policies are focused on S&T innovation. Besides promoting the recruitment of new young
talent and global experts, Chinas strategy also focuses on international S&T training sessions
to build a sustainable economic base. The bilateral relations between China and Europe are
also of great importance especially regarding the training on managerial capabilities, in
which China still lacks efficiency.
2.3 Support Schemes/Programmes for International Collaboration

Many programmes for international collaboration have been launched over the past years in
China. The Chinese government has been investing in its Science and Technology
infrastructure through the opening of international collaboration programmes between
European countries and China.
Chinas S&T innovation capacity needs to focus on the strengthening of cooperation between
inter-governmental institutions and the major S&T powers. Some of these initiatives are
being taken by the Chinese government, aiming to promote international S&T opportunities
and exchanges on technological development with industrial enterprises.
In 2013, MoST announced the China-EU Science and Technology Cooperation Programme.
This programme aims to support the development of joint innovation centres, incubators
and cooperation platforms from R&D to demonstration and translation of the research
results. The programme is opened to Chinese applicants who have good relations with their
European partners. It is also required to have a signed cooperation agreement or letter of
intent. The European side must consist of at least two cooperating institutions from a
minimum of two European Union Member States.
The 2013 China-EU S&T Cooperation Programme focuses on the following areas:24
23
http://www.ceibs.edu/bmt/atbp/index.shtml, last accessed in January 2014

http://news.nost.org.cn/2013/03/china-launches-new-funding-round-for-st-cooperation-with-europe/, last
accessed in January 2014
24
11

Urbanisation/transportation, including: green energy building, waste recycling

applications, comprehensive city management integrated technology, new energy
vehicles, among others.
Renewable energy resources, including: solar energy, wind energy, smart power grids
and storage, increased energy efficiency, among others.
Information and communication technology, including: next-generation mobile

communication,
cloud
computing,
internet
of
thing,
high-performance
supercomputers, internet security, among others.
Health, including: clinical medicine/translational medicine, biomedicine, ageing

population, among others.
In the section below, a detailed analysis of some of these programmes will be provided,
including selected bilateral programmes between European countries and China.
International S&T Cooperation Programme (ISTCP)

National Agency Managing the Programme: launched by the MoST in 2001.
Objective: aims to support Chinese scientists in international research activities (foreign
organizations can be eligible partners). It covers international cooperation projects launched
under China's multilateral and bilateral S&T agreements with other countries. ISTCP
integrates resources for international cooperation under major national S&T programmes
such as "863" and "973. There are two sub-schemes under ISTCP: the Special funds
programme and the Bilateral S&T cooperation programme between governments.
Structure and Research Topics Covered: the Special funds programme serves as an umbrella
scheme to the 863 programme, the 973 programme and other major national S&T
programmes. Consequently, the Special funds programme features the same topics as the
863 Programme, 973 Programme and other major national S&T programmes. The 973
Programme mobilises Chinas scientific talent in conducting innovative research on major
scientific issues in agriculture, energy, information, resources and environment, population
and health, materials, and related areas, whereas 863 Programme has as its mission in
12

boosting innovation capacity in high-tech sectors and achieving breakthroughs in key

technical fields.
Activities/projects supported under the 2011 programme guidelines include:
Inter-governmental science and technology cooperation projects based on bilateral

or multilateral agreements, promoting China's science and technology, economic
and social development;
High-level international cooperation projects catering to the needs of national

economic and social development and national security, in line with the policy
objectives of the country's external scientific and technological cooperation, aiming
to solve major scientific issues restricting China's economic and technological
development;
International cooperation projects with first-class foreign research institutions

universities and enterprises to carry out cooperation in research and development,
attracting outstanding overseas talents and teams to work in China, promoting
China's international scientific and technological cooperation base construction, and
strengthening Chinas capacity of indigenous innovation.
Budget: in 2008, the total fund was approximately 40 million Euros.
National Basic Research Programme (973 Programme)

National Agency Managing the Programme: launched by MoST in 1997
Objective: The National Basic Research Programme, also called the 973 Programme, is a
major Chinese national research programme that gathers strong expertise with a focus on
key basic research projects in the field of agriculture, energy, information technology,
resources and environment, population and health, and materials, among others, in order to
develop China's research capacity in key disciplines and interdisciplinary fields, and to find
comprehensive solutions to major issues in China's development.
Structure and Research Topics Covered: In 2013, the 973 Programme published calls for
proposals in the fields of: Agriculture; Energy; Information Technology; Resource and
13

Environment; Health Services; Materials; Manufacturing and Engineering Sciences;

Integrated Multidisciplinary Sciences; Major Scientific Frontier; Nanotechnology; Quantum
Control Research; Protein; Stem Cell Research; and Global Change Research.
Budget: The budget is fixed according to each project under three categories:
Type A: approximately 6 million Euros;
Type B: approximately 4,2 million Euros;
Type C: approximately 1,8 million Euros.
National High-Tech Research and Development Programme (863 Programme)

National Agency Managing the Programme: launched by MoST in 1986.
Objective: The National High-Tech Research and Development Programme, also called the
863 Programme, is a major Chinese national research programme that focuses on the
application of cutting-edge technologies in certain key areas in the National Long-term
Scientific and Technological Development Plan (2006-2020). It aims to strengthen the
independent innovation capacity of China in the high-tech fields and supports
pre-commercial high-tech projects. Only overseas Chinese researchers (including those with
foreign nationality) and Chinese researchers from Hong Kong, Macau, and Taiwan holding a
formal position with an eligible organization in mainland China can be project applicants.
Structure and Research Topics Covered: The 863 Programme focuses on research in the
following fields: information technology, biotechnology and medical technology, new
materials technology, advanced manufacturing technology, advanced energy technologies,
resources and environmental technology, marine technology, modern agricultural technology,
modern transportation technology, earth observation and navigation technology and other
high-tech areas.
Budget: In 2009, the total fund of the 863 Programme was approximately 1.08 billion Euros.
14

International (Regional) Cooperation and Exchange Programme - Major International

(Regional) Joint Research Programme
National Agency Managing the Programme: one of the sub-schemes of the International
(Regional) Cooperation and Exchange Programme of National Natural Science Foundation of
China (NSFC). The NSFC was founded under the State Council in 1986.
Objective: It aims to speed up the development of scientific innovative research, to enhance
Chinas international competitiveness in basic research, to consolidate the cooperative
relationship between NSFC and overseas scientific institutions, and to foster a group of
distinguished scientists who have great international influence.
Structure and Research Topics Covered: The priority funding areas for 2013 are as follows:
Mathematical and Physical Sciences; Chemical Sciences; Life Sciences; Earth Sciences;
Engineering and Materials Science; Information Sciences; Management Sciences; and
Medical Science.
Budget: for 2013, the budget was of 1.406 million Euros
China Mainland Local Funding Programmes
In regard to Chinese local funding programmes, this section will focus on the main funding
agencies which include Beijing Municipal Commission of Science and Technology (BMCST),
the Science and Technology Commission of Shanghai Municipality (STCSM) and Guangdong
Provincial Department of Science & Technology (GPDST). These programmes are opened to
European researches and aim to foster the promotion of STI in China.
BMCST - Beijing S&T International Cooperation Programme

The aim of this programme is to improve S&T development in Beijing through the
demonstration effect of international science and technology cooperation. The structure of
the programme focuses on three main types of projects: International R&D Cooperation
projects; Secondary Innovation Projects; and Internationalization Projects.
15

International Technology Transfer Project

In 2012, Chinas International Technology Transfer Project was initiated to facilitate the key
areas of innovation resources and attract international leading technologies to Beijing. The
project aims to improve international technology transfer.
To finance this project a joint application between third-party agencies, as well as joint
enterprises is necessary. The amount for each project will not exceed 1 million Yuan.25
Chinese Government Development Plan to facilitate technology-based industries in Beijing

Haidian District
The Chinese Government aims to support the development of R&D and regional innovation,
and to enhance the professional services of the industries, offering a 20% subsidy for
enterprises that invest in public R&D infrastructure and build service platforms. The specific
aims of this development plan are as follows:
To build a platform of technology transfer and intellectual property services among

technology transfer and intellectual property service institutions, universities,
financial institutions and enterprises, rewarding those that exhibit a quality service
performance.
To support the development of key industries in line with the incubators,

accelerators, university Science Parks, student start-ups and other innovative
entrepreneurial services, optimizing the enterprise environment for innovation and
entrepreneurship.
To provide a favourable office renting facilities to technology-based enterprises,

offering a 30% subsidy. The maximum subsidy is of 2 million Yuan for each year, up to
three years.26
STCSM - Shanghai S&T International Cooperation Programme

This programme aims to encourage S&T cooperation between the Science and Technology
25
26
http://www.ittc.cn/news/detail/8334, last accessed in February 2014

16

Commission of Shanghai Municipality (STCSM) and foreign governmental authorities and

other international scientific and technological organisations, integrating bilateral
technological advantages and accelerating S&T development and independent innovation
capability of Shanghai.27
GPDST - Guangdong S&T International Cooperation Programme

In the first year of the 12th Five-year Plan (2011-2015), the Guangdong S&T International
Cooperation Programme aims to strengthen the independent innovation capacity of
Guangdong province, boost international S&T cooperation in different areas, foster emerging
industries and upgrade traditional industries in Guangzhou province. This programme also
aims at introducing advance technologies, S&T talents and innovative research teams to
Guangdong province.
Besides the national collaboration programmes launched by China, it is also important to

briefly mention some of the existing cooperation initiatives with European countries,
specifically regarding the bilateral cooperation with Chinese clusters. Some examples of the
cooperation between China and Demark, Germany, Spain, France, Italy, Finland and the
United Kingdom are detailed below.
Denmark
Innovation Centre Denmark
The aim is to build bridges between research institutions and companies in Denmark and in
China, strengthening the access to a foreign knowledge centre of high quality.
Collaboration between the Danish Council for Strategic Research and MoST
In 2009 the Danish Council for Strategic Research, in association with MoST, launched and
implemented a joint research programme on sustainable and renewable energy, aimed at
increasing Sino-Danish research collaboration.
27
http://www.dragon-star.eu/call/shanghai-2013-st-innovation-action-plan-international-cooperation-programme/,
last accessed in February 2014
17

Germany
Sino-German Technical Cooperation Programme
China-Germany Technology cooperation is a project concerning new energy development,

aiming at increasing the level of technology and to facilitate the usage of wind power.
Spain
Memorandum of Understanding (MoU)
The MoU between TORCH and Spains Centre for Industrial Technological Development (CDTI)
was signed in 2003 with the aim of developing technological cooperation between Spanish
and Chinese companies.
France
COOPOL Innovation
This programme was established in 2008 by the Service of Science and Technology (SST) of
the French Embassy in China, after the signature in 2007 of the agreement between the
French competitiveness clusters and the Chinese science parks. Its aim is to facilitate the
cooperation between French innovative SMEs of the competitiveness clusters and their
research partners with their Chinese counterparts.
National Funding Agency for Research (ANR)/NSFC
One call for proposal launched per year to support new Sino-French projects. Open
international programme but with priorities for 2012 on ICT and Green and Sustainable
Chemistry.
Italy
Sino-Italian Technology Transfer Centre
It aims to bridge China and Italy in science parks and high-tech industries, facilitating
technology transfer and innovation cooperation, and exploring a new cooperation model for
18

China and Italy.
Sino-Italian Business Innovation Centre
The Business Innovation Centre is specialized in providing one-stop services in the areas of
technology transfer, cooperation matching-up and innovative incubation between Italian and
Chinese SMEs.
Finland
Finchi Innovation Centre in Shanghai and the Golden Bridge Innovation Centre
Provides support services for the R&D co-operation between Finnish and Chinese companies.
There are plans to further expand these activities.
National FECC-Programme (Finnish Environmental Cluster for China)
The Innovation centre located in Lahti intends to provide technology transfer services and
cooperation activities to over 300 Finnish clean-tech companies and labs about water
cleansing, waste management and buildings energy efficiency.
United Kingdom
UK Research Councils & NSFC, China
Recently there have been announced two joint calls with the NSFC, one on Smart Grids and
the other on Stem Cells. These are part of a series of calls for collaborative research of an
ongoing collaborative programme with China.
UK Research Councils & MoST, China
The UK Research Councils aim to extend relations and engagement with MoST in a jointly
funded pilot initiative to support bilateral research projects in key areas of mutual interest
aiming to develop mechanisms to support larger and long-term research partnership.
The different levels of cooperation between European countries and China still vary
according to the bilateral agreements. Some of these agreements have been able to
generate successful collaboration, while others are still at an initial stage. These programmes
19

are mainly supported by the Chinese MoST and the NSFC. In most cases, the aim of these
programmes is to support the collaboration of innovation and research activities between
European countries and China. Besides this, the 12th Year Plan launched by the Chinese
government also provides new opportunities of cooperation between European countries
and China, specifically regarding the strategic sectors.
2.4 Regulations/Financial Incentives Supporting International Collaboration in S&T
High-tech industries
Chinas State Administration of Taxation (SAT) has been granting tax incentives to high-tech
industries, trying to promote a more reasonable taxation system. These incentives include:
A reduced Corporate Income Tax (CIT) rate. The CIT rate for high-tech enterprises if
they meet the criteria specified in the SATs High-tech Enterprise Recognition
Standards is reduced to 15 percent.
Favourable CIT treatment for R&D expenses:

1. When the companys R&D expenses have been counted into the profit/loss
accounts during a certain period, but have not formed intangible assets, 50
percent of the actual R&D expenses during the period may still be deducted
from the companys taxable income.
2. When the companys R&D expenses have formed intangible assets, 150 percent
of the intangible asset costs should be amortized before taxation
Business tax (BT) exemption on technology transfer and development: The revenue
from technology transfers and development (including related technology
consultation and other services) conducted by an individual (including a foreign
individual) and an enterprise (including a foreign-invested enterprise and a
foreign-invested R&D centre) is exempt from BT.
20

Emerging cultural industries
SAT will offer more preferential tax policies to emerging cultural industries that belong to the
seven strategic industrial sectors specified in the 12th Five-Year Plan. A few specific emerging
cultural industries have already received some tax incentives:
Animation development and production: The products imported for an enterprises

animation development and production are exempt from import tariffs and import
VAT, if the animation enterprise meets certain criteria.
Digital cable TV reception maintenance: the basic digital cable TV reception

maintenance fees charged by certain enterprises (specified by the SAT and Ministry
of
Finance)
are
currently
exempt
from
business
tax
in 11
specified
provinces/municipalities/cities.
Cultural and creative services: in the coming VAT reform that is to commence in
Shanghai next year, cultural and creative services have been included in the first
batch of modern services that will be subject to VAT. The VAT rate will be charged to
6 percent.
Venture Capital in China
Regarding private funding in China, it is relevant to mention the venture capital invested
companies, which have been gaining importance over the years. The number of venture
capital invested companies in China have increased 25% from 2009 to 2010, and the total
managing fund increased 49,9%. In addition, the fund size increased 20,1% compared with
that in 2009. These companies are currently focusing on hi-tech industries. In regard to the
business environment of venture capital in China, it is relevant to point the factors below:
Chinese venture capital industries are developing rapidly and there are increasing
numbers of supporting policies from the central and local governments.
Venture capital invested companies in hi-tech industries have a higher potential of

withdrawing, and this tendency was verified in 2010, when 81,3% of these
enterprises chose to retreat.
21

State-owned venture capital investment overcomes difficulties, mainly because of

the favourable policies of 2010.
Measures launched in pilot programs for FDI in China.
The major source of capital for these venture capital companies still comes from unlisted
companies, representing 33,3%. Also, the capital from government-supported and
state-owned investment institutions represented 37,6%.28
Angel Investors in China29,
30
In China, the number of Angel Investors is growing, although the general scale of investment
is still small. In addition, the investment environment is unsatisfactory mainly due to the lack
of a complete credit system, relevant economic policies and specific laws, relatively low
success rate of start-ups and level of internationalization. As a result of the growing
reputation and need of financial support for start-ups in China, the Angel Investment
Network opened a branch in the country, providing better communication channels between
entrepreneurs and investors. Many of these angel investments have not succeeded given the
high risks of these investments and they prefer to invest through investment groups.
Despite the strong investments made during the past years, angel investment still needs to
be up scaled and accompanied by better legislation and credit systems. It is also necessary
that the Chinese government control better the source of these capital investments.
28
Status Quo of Venture Capital in China, Department of Facilities and Financial Support the Ministry of Science
and Technology, 2012
29
http://www.investmentnetwork.cn/angel-investors-in-china, last accessed in November 2013
30
http://www.syue.com/Paper/Economic/China/14383.html, last accessed in November 2013
22

2.5 Infrastructure Supporting S&T Innovation

In this section the report will focus on the Chinese infrastructure context concerning the
support of S&T Innovation. In order to produce a detailed analysis, it is necessary to follow a
regional approach of China, evaluating three relevant types of innovation infrastructure: SEZ,
Innovation Clusters, as well as Science Parks and Business Incubators. Firstly, a general
analysis of each one of these indicators is provided, according to the Chinese context.
Secondly, the study analyzes the different relevant economic regions in China, identifying the
main relevant infrastructures in each one.
Regarding the SEZs, these were established in China after the economic opening in 1980s,
mainly in the eastern coastal provinces. These zones all enjoyed special financial investment
and trade privileges and have contributed significantly to Chinas economic growth in the
past decades. Some clusters have grown out of SEZs, such as those in Beijing, Shanghai, and
Shenzhen. 31 The term SEZ covers a broad range of zones, such as free trade zones,
export-processing zones, industrial parks, free ports, enterprise zones, among others.
Chinese SEZs are more functionally diverse and cover much larger land areas than other
types of economic zones. SEZ are normally associated with seven specific zones: Shenzhen,
Zhuhai, Shantou, Xiamen, Hainan, Shanghai Pudong New Area and Tianjin Binhai New Area.
Concerning Innovation Clusters and Science Parks in China, the central government has been
putting a lot of effort into the existing industrial clusters. In 2013, the central government
announced the first batch of ten pilot innovative industrial clusters to stimulate innovation
and industrial competitiveness within clusters and stimulate industrial upgrading of the
industries located there. The plan states that a new batch of innovation clusters, which are to
be based within existing national high-tech zones, will be announced each year. In regard to
Incubators, China occupies the second place in terms of the number of business incubators
(following the United States) and first place both in total incubator area and number of
tenant enterprises. Also, the S&T Business Incubator is an important policy tool of the Torch
Plan. According to a survey by the China Torch Programme, by 2010, there were 896
31
How Do Special Economic Zones and Industrial Clusters Drive Chinas Rapid Development, World Bank, 2011
23

Technology Business Incubators (TBIs) in China. By the end of of 2012, there were 1,239 TBIs
in China occupying around 3 million square meters and holding more than 70.000
incubates.32 TBIs have become a ubiquitous phenomenon in many parts of China and are
viewed as a tool for promoting economic development, innovativeness and the emergence
of new technology-based growth firms.
The following section presents and details the different economic regions that foster Chinas
S&T innovation:
Northeast of China:
o
Bohai Rim (Beijing Tianjin Liaoning)
Shandong Cluster
South of China:
o
East of China:
o
Pearl River Delta (PRD) Cluster
Yangtze River Delta (YRD) Cluster
Southwest of China:
o
Chengdu Hi-Tech Industrial Development Zone
North-eastern China
Bohai Rim (Beijing Tianjin Liaoning) Cluster
The Bohai Rim is an Innovation Cluster that covers Beijing, Tianjin, part of Hebei, part of
Liaoning and part of Shandong. The Chinese government has provided special incentives to
companies in order for them to set up operations in the provinces of Jilin, Liaoning and
Heilongjiang.
Beijing Zhongguancun
Zhongguancun Science Park (Z-Park) is the first high-tech industrial development zone in
China, founded in 1988 and occupying a total area of 232,5 square kilometres. Z-Park has
gathered nearly 20.000 high and new-tech enterprises, represented by Lenovo and Baidu.
32
http://houston.china-consulate.org/eng/st/t1125912.htm, last accessed in May 2014
24

Tianjin Binhai New Area

The area was founded in 2006, aiming to address the major issues concerning the
development of the zone and to develop modern manufacturing, R&D, incubation and an
eco-friendly and resident-friendly city.
Among the industrial clusters in the Bohai Rim, the most competitive ones include: Insulation
materials, Metal casting in Cangzhou; Furniture in Langfang; Fasteners in Handan and
High-End Pharmaceutical Industry in Shijiazhuang.33
Shandong Province Cluster

The Shandong Province is Chinas third most populous provinces, ranking third in terms of
GDP. Among the different cities within the province, it is worth highlighting the following
strengths: access to natural resources, low-cost land or labour, developed consumer markets,
logistical connections, ease of doing business and quality of life.34
Qingdao National High-Tech Industrial Development Zone35
Qingdao National High-Tech Industrial Development Zone was opened in 1992 and is one of
Chinas first zones to be dedicated to high-tech industrial development. The area will
promote the development of competitive industrial structure, supporting high-tech
enterprises into international competition, boosting the zones economic development.
Southern China
Pearl River Delta (PRD) Cluster
PRD is one of the largest consumer markets in China. Consumers in this region have relatively
higher purchasing power than in other regions. It is located in Guangdong Province and it is
the first economic zone in China since the economic reform was launched in the 1980s.
Taking advantage of the cheap labour, it has been focusing on export-oriented manufacturing
33
Overview of Chinas Regional Development 2010 Part I: Three major city clusters, 2010
Opportunities in Shandong: Second Edition February 2011, 2011
35
http://gxq.qingdao.gov.cn/ywbwznr/egxqjs/19ebad28_3d12_46ba_bf92_c01f416487c3.html, last accessed in
February 2014
34
25

industries.36
The Science Parks and Incubators in the Southern region of China include:
Fuzhou New & Hi-tech Industry Innovation Centre;
Xiamen Hi-tech Industrial Development Zone;
Guangzhou Hi-tech Industrial Development Zone;
Zhongshan Hi-tech Industrial Development Zone;
Shenzhen Hi-tech Industrial Park.
Eastern China
Yangtze River Delta (YRD) Cluster
YRD is one of the largest and most sophisticated consumer markets in China. Shanghai is the
commercial and financial centre of this region, but it is also home to major cities in Zhejiang
and Jiangsu provinces. It has attracted considerable foreign direct investment and has
achieved significant export sales. While Shanghais economy is dominated by a large State
sector, it also houses an emerging services industry.37 The Science Parks and Incubators in
the Eastern region of China include: Shanghai Hi-tech Incubator; Jiangsu Hi-tech Incubator;
Nanjing Science & Technology Enterprise Incubator; and Kunshan High & New Technology
Innovation Service Centre.
Zhangjiang: Hi-tech Park
Zhangjiang Hi-tech Park was founded in 1992 as a national level industrial development zone
and it is located in the central part of Pudong New Area of Shanghai. Some companies from
areas such as Circuits, Bio-Tech & Pharmaceutical, Software and Creativity in Zhangjiang are
industry leaders in China, or even in the world.
South-western China
Chengdu Hi-Tech Industrial Development Zone
36
http://www.activeukchina.com/business-environment/business-and-economic-distributions-and-clusters/ last
accessed in April 2014
37
http://www.activeukchina.com/business-environment/business-and-economic-distributions-and-clusters/ last
accessed in April 2014
26

Chengdu is the centre of science and technology, finance, trade and commerce in southwest
China, and the regional hub for communication and transportation. It is composed by a large
number of international financial institutions and has a population with high proportion of
science and technology skills. Currently, there are a total of 33.237 companies registered in
CDHT, among which 1.115 are foreign invested companies.
From the research and analysis of the Chinese infrastructure supporting S&T innovation, it
seems clear that the central government has been mainly investing in the promotion of
industrial clusters, science parks and creation of business incubators. These efforts have
been successfully rewarded, especially regarding industrial clusters where innovation is
promoted at regional level. Regarding science parks and business incubators, the results on
innovation may not be as clear.
In regard to regional economic development zones, China has created major clusters in
different regions for various economic sectors, aiming to promote product and process
innovation. The continuous support given by the government seems to be a crucial factor for
the development of these regional zones and for the improvement of the Chinese innovation
infrastructure.
2.6 Chinese Higher Education System

The Chinese government has been putting a lot of efforts into improving the higher
education system in recent reforms. In 2012, China had a total of 2.442 regular higher
education institutes (HEI), which included 1.145 universities and 1.297 higher vocational
colleges. Also, around 15 million students graduated from secondary education in 2012.
From these, 3.7 million were admitted to universities and 3.1 million to vocational colleges. 38
New specialities and courses have been included in recent reforms, establishing priorities to
subjects such as automation, atomic energy, energy resources, computer science and
38
Reporting from Beijing: China Moving Towards Dual Track Education System, Establishing University of Applied
Sciences, 2014
27

biophysics, among others.39

Despite these recent improvements, according to the United Nations Development
Programme, Chinas value on the Human Development Index (HDI) was 0,699 in 2012,
ranking 101 out of 187 countries. Nevertheless, China increased its HDI value from 0,497 to
0,699 from 1980 to 2012, representing an increase of 72%. Table 3 below shows a set of
relevant indicators for the education system analysis in China.40
Table 3 Important Higher Education Indicators
Expected
HDI Value HDI Rank years of
schooling
0,699
101/187
11,7
GNI per
capita
(PPP US $)
7,94541
Number of Regular
Institutions of Higher
Education
2.442 (2012)42
One of the main characteristics of the Chinese higher education system is that it is greatly
influenced by the government, which leaves the institutions in a less autonomous position
compared to the education systems in the West.43
According to the Chinese Minister of Education (MoE), the goals for higher education
development in 2020 are the following, as presented in Table 4 below:
Table 4 Goals for the Higher Education Development in China
Indicators
Total number of people
studying in Higher Education
(millions)
Enrolment (millions)
Masters degree students
w/enrolment (millions)
Gross enrolment rate (%)
2009
2015
2020
30
34
36
28
31
33
1.4
1.7
2.0
24%
36%
40%44
Despite the increase in the number of students in higher education, universities still lack
close collaborative projects with the industrial players. According to a survey on foreign
39
Higher Education and Research in China, Embassy of Switzerland in China, 2012

The Rise of the South: Human Progress in a Diverse World, Human Development Report 2013, 2013
41
The Rise of the South: Human Progress in a Diverse World, Human Development Report 2013, 2013
42
Reporting from Beijing: China Moving Towards Dual Track Education System, Establishing University of Applied
Sciences, 2014
43
Higher Education and Research in China, Embassy of Switzerland in China, 2012
44
Education in China, Infrastructure, Government & Healthcare, 2010
40
28

employers conducted by McKinsey, these consider that engineering graduates still lack
necessary technical skills for the job.45 Chinas education system needs to focus more on
fostering students skills in innovative thinking, creativity and entrepreneurship. 46 The
Chinese government has been actively trying to change this situation by encouraging
universities to promote teaching, research and commercialization of technology. This is
reflected in the number of patents issued by universities, which accounts for around 30% of
all patent granted in the country.
Despite the lack of collaborative activities between universities and companies, there have
been new developments that represent a positive step for the promotion of innovation,
particularly for technology services such as technology transfer, licensing and sales, and
university-affiliated enterprises. These collaborations are mainly done by Chinese
state-owned enterprises foreign companies rarely collaborate with Chinese universities due
to a lack of confidence on the Chinese research system.
45
Putting Higher Education to Work Skills and Research for Growth in East Asia, World Bank East Asia and
Pacific Regional Report, 2012
46
OECD Reviews of Innovation Policy, China, 2008
29

3. Framework Conditions for Research and Innovation
30

3. Framework Conditions for Research and Innovation
This section provides a detailed analysis of the general framework conditions for research
and innovation in China. Research on the following areas was performed: IPR protection,
Standards, Market regulation, Access to public procurement and entrepreneurial activities.
These topics are considered by the project as priority framework conditions for the
promotion of research and innovation development in China. In addition, the report will
analyze the entrepreneurship activities carried out in China.
IPR Protection
The State Intellectual Property Office of China (SIPO) has been recording and publishing
information about license agreements since the end of the 1990s. SIPO records provide
detailed information on the license agreements, such as the licensor, licensee, license patent
names, patent information and contracting date.
SIPO is the authority that receives and analyses patent applications in China. There are 3
ways of filling a patent: 1) direct filing in China (for foreigners, they must use a local patent
agent); 2) file a patent in the foreign country and then file an application in China within 12
months, prioritizing on the first application; 3) file an international patent under the Patent
Cooperation Treaty (PCT), allowing the patent to be filed in an EU country and the national
phase with SIPO should be no later than 30 months after the first application with PCT. It is
essential to apply for patent protection in China when there are innovation activities. The
evaluation of patent applications takes around 3 years and is performed by SIPO.47 The
government is now aiming to encourage IP creators to focus on quality rather than quantity
through changing the incentives structure. SIPO stated that these should focus on
international and invention patents.48
47
48
IPR in China: Guidance for Researchers, Delegation of the European Union to China, 2013
31

China is greatly progressing in terms of IPR system development, given the fact that 30 years
ago there was no IPR system in China. Efforts are being made to get Chinese companies
aware of IPR. It was mentioned during the interviews that PRC State Intellectual Property
Office has introduced a series of partial regulations, such as patent administrative law
enforcement, patent examination guidelines, patent pledge registration" system, among
others. These measures support the improvement of the patenting and licensing system,
and the concern about IPR by European companies has dropped recently.
In April 2011, the China National Intellectual Property Strategy Office published Chinas
Action Plan on Intellectual Property Protection 2011. This action plan intends to amend IP
laws and regulations in order to support IPR enforcement. It also refers to the need to fortify
the cooperation between China and international institutions.
In November 2011, at the 22nd Session of the Joint Commission on Commerce and Trade
(JCCT) a number of IPR concerns were presented. The IPR Working Group committed to
deepen the dialogue about patent quality issues, government benefits regarding the owning
and development of IP.
In line with Chinas 2011 JCCT commitments, in November 2011 the State Council issued an
internal circular entitled Notification Regarding Deepening the Work for Removal of
Documents Linking Innovation Policies to Government Procurement Policies repealing
national regulations that impose domestic IP requirements for government procurement.
In April 2013, the SIPO Commissioner said that IPR protection in China is a long-term and
complex process, but it has been improving, and it needs cooperation with other countries,
rather than confrontations. In China an attractive environment was created for patent and
trademark licensing for foreign enterprises. It has also strengthened its administrative and
judicial protection in IPR (SIPO, 2013).
Standardization
In 2002, in order to analyze Chinas standards system and give recommendations to
modernize the system, a multi-year research project was launched, which is also part of the
32

10th Five-Year Plan. In 2005, the results of the project were published, and inspired the
Chinese government officials to think further on Chinas standards system. The results
suggested that a complete national technical standards regime aligning with international
systems should be built to increase Chinese participation in standard-setting activities at
both regional and international level, as well as to increase the adoption of Chinese
standards by international standards-setting bodies.
China favours domestic industries using foreign standards and technologies by setting up
technical standards. Standardization is an important way to improve market access and
conditions for European companies in China and for Chinese companies in Europe.
Standards also helped Chinas competition by improving economies of scale and promoting
interchangeability.49
Public Procurement
Due to the fast-growing economy and government policy to increase the procurement
volume and scope, public procurement in China has seen an average annual growth rate of
25% over the past seven years50. Under the 12th Five-Year Plan, infrastructure projects in
areas such as civil aviation, railways, airports, and energy are expanding rapidly. The
European Chamber estimated that Chinas public procurement market is worth about 20%
of Chinas GDP51.
Public procurement can also help promote innovation and accelerate the diffusion of
innovative products and services in the economy. The size of the Chinese market, its
dynamism and the important roles played by the central government and sub-national
authorities in the Chinese economy point to the strong potential for promoting innovation
via public demand. The volume of government procurement has been expanding rapidly,
although, at about 2% of GDP, it is still far below the levels in more developed countries.
49
50
51
OECD Reviews of Innovation Policy: China Synthesis Report, 2008

American Business in China, AmCham China, 2013
Public Procurement in China: European Business Experiences Competing for Public Contracts in China, 2013
33

In the 12th Five Year Plan, guidelines were published to standardize government
procurement level and terms for product specification across administrative levels. If
successfully implemented, evaluation transparency and accountability will be enhanced.
Chinas government released revised draft provisions during 2010, under which most
products by foreign companies in China can be certified as indigenous innovation products
and be eligible for preference in government procurement.
Entrepreneurial Activities
According to GEM 2013, it is relevant to analyze the central measure used in the report the
Total Early-Stage Entrepreneurial Activity (TEA) rate which consists of the percentage of
individuals aged between 1864 who are in the process of starting or are already running
new businesses in an economy. According to the report, Chinas TEA is around 14%, above
average in the Asia Pacific and South Asia regions. Chinas TEA is also superior to the EU
average, which only counts with 8% of TEA rate.52
In terms of policies promoted in order to develop entrepreneurship, the Chinese government
has reduced the corporate tax and the VAT for high-technology enterprises, SMEs and ICT
firms. This measure supports the development and the technology transfer of software
industries. In addition, new regulations adopted by the government to promote the Yuan
Renminbi (RMB) FDI53 in 2011 have been implemented in order to allow foreign investors to
purchase currency for investment in private equity companies. This measure aims to support
the expansion of domestic demand.54
The report also states that the percentage of population in China regarding the following
indicators is still low when compared with the Asia Pacific and South Asia average:
Perceived opportunities, Perceived capabilities, Fear of failure and Entrepreneurial
intentions. On the other hand, China ranks high on Entrepreneurship as a good career
52
53
54
Global Entrepreneurship Monitor 2013 Global Report, 2014

New Channel Opened for Flowing-back of Overseas Renminbi (RMB), 2011
34

choice, High status to successful entrepreneurs and Media attention to successful

entrepreneurs compared with the Asia Pacific and South Asia average. China continues to
show low levels of international orientation regarding entrepreneurship.
Summary
It is important to note that China still faces many challenges in this topic. The IPR protection
issues, despite the recent efforts made by the Chinese government in improving this
procedure, are still viewed as a barrier for promoting innovation, especially for foreign
companies. From the standardization point of view, China aims to reduce market entrance
barriers to foreign companies, although relevant policies still seem to favour Chinese
companies over the foreign ones. The standard system would benefit from being less
complex and more compatible with the EU and the US policies. Regarding public
procurement, the Chinese government has recognized the importance of improving the
efficiency in this process. The recent developments mentioned above in terms of
innovation-oriented procurement policy show positive signs of progress in this subject.
35

4. Obstacles for International Collaboration in STI
36

4. Obstacles for International Collaboration in STI
This section identifies and details seven relevant indicators concerning the main obstacles
related to International Collaboration in STI in China: Protectionism, Discriminatory
standardization policies, Inadequate IPR protection, Forced technology transfer, Unequal
financial incentives and Strict pricing controls.
Protectionism
The Chinese government states that foreign firms registered in China are treated equally
with local companies, while the best way to explore the markets opportunities for foreign
firms is still through partnerships with local companies or professionals.
The slow reform of State-Owned Enterprises (SOEs) has been inhibiting the enterprise-led
innovation system. SOEs have a significant control over physical assets and human capital in
China. Additionally, the monopoly position of many of these SOEs constitutes a barrier for
innovation, despite Chinas effort to privatize these enterprises. Foreign Invested Enterprises
(FIEs) and Chinese private companies represent over 80% of Chinas high-technology exports.
Despite the large role of the enterprise sector in R&D performance, their R&D quality is still
underdeveloped.55
The east coast of China receives investment mostly in research and innovation. The central
government sets the policy context, while each province/city has different regional
interpretations of national policies.56
Discriminatory standardization policies

Discriminatory standardization policies are one of the most significant issues that prevent
transfer of technologies to China, and subsequently, innovation activities. China has
established its own standards, which have fewer requirements on IPR compared to other
55
Chinas Program for Science and Technology Modernization: Implications for American Competitiveness,
CENTRA Technology, Inc., 2011
56
37

international standards from the EU or the US. China currently has not been able to make its
own standards recognized at the international level.
Inadequate IPR protection

The efforts from the Chinese government to improve IPR are steady and strong. However,
there are still cases of inequality against FIEs. The actual IPR environment does not help
create confidence for the companies. The Chinese government should continue fostering a
more predictable, equal and reliable IPR enforcement environment.57 In addition, Chinas
IPR regulations are still weak, as both judicial and administrative decisions are difficult to be
enforced due to the lack of appropriate infrastructure and mechanisms.
The lack of adequate IPR protection affects Chinas innovation capacity, mainly because
foreign firms are reluctant to provide technology transfer with Chinese counterparts and it
discourages Chinese researchers in releasing their R&D results.58
Forced technology transfer

The forced technology transfer does not actually promote technology innovation. In 2012,
the Ministry of Commerce stated that technology transfer should not be used by the Chinese
government as a precondition for market access.
Unequal financial incentives

China has set different financial incentives for technological innovation, although some of
these are discriminatory or closed to FIEs. Chinese companies can access non-discriminatory
incentives in the EU, causing an asymmetry in terms of technology innovation access.
Strict pricing controls

Since entering the WTO, China has been reducing the products and services subject to
administrative and government guidance pricing. During the last year, there have been new
57
58
Executive Position Paper (2012/2013), European Business in China Position Paper, 2013
OECD Reviews of Innovation Policy, China, OECD, 2008
38

control measures, protecting the domestic industries and pricing higher quality and
innovative products (such as European ones) out of the marketplace.59
Summary
A lot of efforts have been made by the Chinese government to address the obstacles
mentioned above. For example, The Foreign Investment Catalogue has been issued by the
Chinese government to guide foreign companies to know where to concentrate their efforts
(for instance, environment, energy and public health), and have more information about
areas that are restricted and others that are more accessible. Regarding the financial
incentives, the government also offers a series of incentives to foreign-invested R&D centres,
such as exemptions of customs duties on imported equipment, business and income tax
deductions.
59
Executive Position Paper (2012/2013), European Business in China Position Paper, 2013
39

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China Innovation Eco-System

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Dragon - Sustaining Technology and Research

Deliverable 4.3: Dragon-STAR

Deliverable 4.3 Innovation Ecosystem in China

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Chinas National Innovation Ecosystem

comprehensive overview of Chinas innovation capacity, analyzing topics such as

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

and different European countries, building an important base of success cases

The Framework Conditions for Research and Innovation analyzes Intellectual

The Obstacles towards the Exploitation of Research Results identified include

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

innovation. Additionally, the problems concerning discriminatory standardization

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

3. Framework Conditions for Research and Innovation ................................................. 30

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Policies which encourage innovation.

Capacity Building which support innovation.

Supporting schemes and initiatives for international STI collaboration.

Regulations and financial incentives that support innovation and internationalization.

Framework conditions that support Research and Innovation.

Incentives and obstacles for the Innovation Ecosystem in China.

Innovation Vital Signs, Framework Report, 2007

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

2. Chinas National Innovation Ecosystem

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

2. Chinas National Innovation Ecosystem

China Ficha de Mercado, AICEP Portugal Global, 2013

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Global Innovation Index

Ranks 35 out of 1428

8.227 trillion USD (5.942,6 trillion EUROs)9 2012

The continued development of an innovation ecosystem in China is important for both

2.1 Policies Supporting S&T Innovation

http://www.globalinnovationindex.org/content.aspx?page=data-analysis, last accessed in March, 2014

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Table 2 12 Five-Year Plan Achieved Results

Give priority to technological development in some major sectors in the coming 15

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

Encourage enterprises to play a key role in innovation through their involvement in

Boost investment in science and technology.

Reduce Chinese reliance on foreign technology to below 30%.16

Sociedade Portuguesa de Inovao

Dragon - Sustaining Technology and Research

innovation conflicts with the national strategy of indigenous innovation. Strengthening

The Key Technologies Programme, launched in 1982, is aimed at focusing scientists

The National High Technology Research and Development Programme, known as

The National Key Laboratories Programme, launched in 1994, was designated to