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40 Years of Technological Innovation in China:
A Review of the Four-Stage Climbing Track
Jiasu Lei
*
,
§
, Ying Liu
†
, Yaoyuan Qi
*
and Qingzhi Zhang
‡
*
Center for Enterprise Growth and National Economic Security Research
Tsinghua University
Beijing, P. R. China
†
Institute of Science and Development
Chinese Academy of Sciences
Beijing, P. R. China
‡
School of Public Policy and Management
University of Chinese Academy of Sciences
Beijing, P. R. China
§
leijs@sem.tsinghua.edu.cn
Received 10 May 2019
Accepted 20 May 2019
Published 2 August 2019
Abstract. This paper combs the landscapes of China's technological innovation practice during the
40 years of reform and opening up, and describes it as \Four-Stage Climbing" that is, \Learning–Intro-
ducing–Supplying Stage" (LIS Stage), \Introducing–Imitating–Improving Stage" (III Stage),
\Integrating–Boosting–Creating Stage" (IBC Stage), and the \Innovating–Iterating–Promoting Stage"
(IIP Stage). It also explains the background of each stage and its speci¯c innovation model. Furthermore,
the paper emphasizes the main features, basic experiences and main lessons of China's technological
innovation practice during the past 40 years. This paper demonstrates that with the deepening of inno-
vation-driven development, especially in the ¯eld of \Innovation Leads Development" which is valued by
the country and industry, at this stage, it is urgent to pay closer attention to the following issues: ¯rst of
all, the possible changes in mechanisms of international innovation competition and cooperation under the
background of potential reconstruction for international governance; secondly, the occurrence and
realization mechanism of Leading Scienti¯c and Technological Innovation in the era of science and
technology, as well as the structural and institutional mechanisms of the national innovation ecosystem,
and also the ecological niche in which the future scienti¯c innovation subject and technological innovation
subject should be in the national innovation ecosystem; furthermore, the mechanism of innovation and
development for \science-based industries"; last but not the least, the logical construction of innovation
and development research under the Chinese context.
Keywords: Technological innovation; Chinese situation; four-stage climbing track; experience and
lessons.
§
Corresponding author
Journal of Industrial Integration and Management
Vol. 4, No. 3 (2019) 1950008 (22 pages)
#
.
cWorld Scienti¯c Publishing Co.
DOI: 10.1142/S2424862219500088
1950008-1
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1. Introduction
Over the 40 years of reform and opening up, China's science, technology and
economy have achieved great-leap-forward development, making it an important
nation with scienti¯c and economic power in the whole world (Zhong and Lei, 2017).
Nowadays, besides that many indicators related to technological innovation have
ranked in the forefront of the world, the National Innovation System has been
continuously improved, and the dominant and leading role of enterprises' innovation
has also been signi¯cantly enhanced. At the same time, the major achievements in
fundamental research and the breakthroughs in strategic high-tech ¯eld have been
emerging. In general, the industries in China have been led to middle-and-high-end
direction by technological innovations, and new kinetic energy industries have
°ourished (Guo et al., 2012;Lin and Lei, 2016).
Speci¯cally, ¯rst of all, China's total R&D expenditure increased from 9 billion
yuan in 1988 to 1760.6 billion yuan in 2017, ranking second in the world. Next, the
national innovation capability rose three ranks in the past ¯ve years, from the global
20th place in 2012 to the 17th place in 2017. Thirdly, the number of Scienti¯c
Citation Index papers directly re°ecting innovation achievements increased from
5,600 in 1988 to 324,200 in 2016, ranking second in the world. Fourthly, although the
patent system was not established until the 1980s in China, the application quantity
of domestic invention patents increased from 4,780 in 1988 to 1,381,600 in 2017,
ranking ¯rst globally. Also, the contribution rate of technological progress to eco-
nomic growth, which synthetically re°ects the e®ect of innovation, rose from 27% in
1985 to 52.2% in 2012, and then up to 57.5% in 2017.
From the path of China's technological innovation in the past 40 years, the
reasons for these achievements can be seen clearly.
2. The Basic Image of China's Technological Innovation for 40 Years:
Fourth-Stage Climbing Trajectory
From December 18 to 22, 1978, the Third Plenary Session of the Eleventh Central
Committee of the Communist Party of China was held in Beijing. Guided by the
historic policy of \shifting the focus of Party's work to socialist modernization" and
\reform and opening up," China has opened a great era of Reform and Opening Up.
Following the rural and industrial reform, China has begun the great practice of
technological innovation.
During the period from 1978 to 2018, China's technological innovation practice
has gone through four stages, climbing one step every ten years. As shown in Table 1,
from 1978 to 1988, the stage of technological practice can be called \Learning–
Introducing–Supplying Stage" (LIS Stage), including learning foreign business
essences and introducing foreign technologies to China. Secondly, from 1988 to
1998, it was \Introducing–Imitating–Improving Stage" (III Stage), that is, contin-
uously introducing and imitating from foreigners, and then iteratively promoting
the new products after Sinicizing. Thirdly, from 1998 to 2008, the period was
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\Integrating–Boosting–Creating Stage" (IBC Stage), which aims to seek indepen-
dent integrated innovation based on integrating the foreign technologies and bene-
¯ts. At last, from 2008 to 2018, it is \Innovating–Iterating–Promoting Stage" (IIP
Stage), that is, by carrying out more extensive independent research and develop-
ment and learning from foreign high-level innovation to iterate and enhance the
independent innovation results from the previous stage.
This judgment can be obtained from Fig. 1as what follows from 1978 to 1988, the
domestic R&D expenditure was basically equal to the amount of technology import
contract expenditure (converted into RMB), which showed the powerful technolog-
ical import intensity at this stage. In addition, many domestic R&D expenditures
aimed to absorb technology during that time, so the period from 1978 to 1988 could be
recognized as LIS Stage in the history of China's technological innovation practice.
As shown in Fig. 2, during the period from 1988 to 1998, the domestic R&D
expenditure and technology import contract expenditure were basically the same
among the earlier period from 1988 to 1991, while the technology import contract
expenditure exceeded the domestic R&D expenditure from 1992 to 1998. In addition
to the implementation of the policy of \Technology for Market" and the case evi-
dence of imitating and improving after 1992, it can be basically concluded that the
period from 1988 to 1998 was III Stage.
From 1998 to 2008, the domestic R&D expenditure signi¯cantly exceeded the
technology import contract expenditure in 2001. Since then, the domestic R&D
expenditure had gone up and reached 1.92 times the latter until 2007. With the
introspective discussion on the strategy of \Market for Technology" and the pro-
posal of \Independent Innovation Strategy," as well as many cases about
0.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
20,000.00
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Yea r
Research & Development (hundred million)
Fig. 1. The comparison of R&D expenditures and contracts amount of imported foreign technology
(1978–2017).
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independent innovation based on technology integration, the period from 1998 to
2008 can be basically identi¯ed as IBC Stage.
After 2008, domestic R&D expenditure grew from 2.45 times (2008) to 7.68 times
(2016) the amount of technology import contract (expenditure). At the same time,
after 2008, the proportion of R&D expenditure equivalent to GDP continued to
exceed 1.5%. In addition, many cases of \Iterative Promotion on the Basis
of Independent Innovation" proved that 2008 to 2018 was \Innovating–Iterating–
Promoting Stage" (IIP Stage).
3. The Explanation for the Fourth-Step Climbing Trajectory
of China's Technological Innovation
From 1978 to 2018, China's technological innovation has reached its current prog-
ress through four stages of development. Nowadays China has the ability to compete
with developed countries in at least 20% of the areas, and keep abreast of developed
countries in 30% of the areas, but is still catching up with developed countries in 50%
of the areas. The four stages can be called \Four-Step Climbing" as a whole, and
correspondingly, the road of technology innovation can be called \Four-Step
Climbing Trajectory". However, if from the point of other emerging countries eager
to learn from China's experiences, the \Four-Step Climbing Trajectory" also could
be recognized as \Four-Step Climbing Pattern." Instead of saying that we came step
by step, it is better to say we struggled to climb up. And the hardships are only
known clearly by the Chinese. Here, we may explain the four stages.
In Table 1, the period from 1978 to 1988 is LIS Stage in the history of China's
technology practice. Firstly, it means making up for the shortcomings of economic
supply; secondly, it aims to make up the shortcomings of innovation ability.
The theme of this stage is \Learning, Introducing and Supplying."
0.00
0.50
1.00
1.50
2.00
2.50
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Year
R&D expenditures as of the total GDP (%)
Fig. 2. The trend of R&D expenditures as of the total GDP (%) (1978–2017).
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The background was that the Third Plenary Session of the Eleventh Central
Committee of the Communist Party of China was held in Beijing from December 18
to 22, 1978. The central theme of the plenary session was to discuss \shifting the focus
of the Party's work to socialist modernization." It also made a historic decision on
\reform and opening up," and initiated a new process of rural reform (Li, 1990). With
the gradual progress of reform and opening up, China and developed countries have
carried out unprecedented personnel exchanges, academic exchanges and business
exchanges. During this period, especially in foreign countries, scienti¯c and techno-
logical information and consumer goods of household appliances entered China
through various channels (still scarce imports and returns from abroad), and the
Chinese society soon saw a huge gap between us and the developed countries after
being isolated from the outside world for a long period. In addition to the desolate
situation of the whole economy after the \10-year Cultural Revolution," the main
industrial products (bicycles, watches, sewing machines) demanded by the people and
the grain, oil and cotton (including cloth) needed by the urban residents must be
supplied by tickets. More interestingly, in 1986, the Hungarian economist Janosh
Kornai's Economics of Shortage was translated and published in China (Kornai, 1986).
The Chinese suddenly realized that \the economic situation we were in was called
shortage economy." Poverty gives rise to the desire for change. The great policy of
\shifting the focus of the Party's work to socialist modernization" put forward at the
Third Plenary Session of the Eleventh Central Committee has rapidly become the
\source power" of China's technological innovation practice in the \great era of reform
and opening up."
During this period, there were two main channels of domestic technological
innovation: ¯rstly, by going abroad and inviting foreign knowledges. That is, gov-
ernment o±cials, business leaders, scientists and technicians went abroad to study.
At the same time, foreign governments and enterprises send people to China to seek
cooperation opportunities and markets. Secondly, the other channel is the intro-
duction of foreign technology. In that period, the domestic government and enter-
prises had more contacts with the business ideas, development ideas and
technologies from foreign market economy, as well as the strong desire to change the
Table 1. Four stages climbing and innovation process.
Stage Period Process
Learning–Introducing–Supplying 1978–1988 Learning foreign business essences !introducing
foreign technologies to China !home manufacture
Introducing–Imitating–Improving 1988–1998 Continuously introduces !imitate and improve !
iteratively promote the products
Integrating–Boosting–Creating 1998–2008 Integrating technology !integrated innovation !
improvement innovation in China
Innovating–Iterating–Promoting 2008–2018 Independent research and development !learning
from foreign high-level innovation !iterate and
enhance the independent innovation results from
previous stage
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situation of \shortage economy," which has triggered the \blowout demand" for
domestic enterprises to learn and import the foreign advanced technologies.
Typically, from September to November 1980, the First Machinery Industry
Department signed a \technology transfer and purchase contract for parts and
components of turbogenerators and boilers" with WH (Westinghouse) and CE
(Combustion Engineering Company) of the United States, and purchased 176
technologies from them (William, 1988).
Thirdly, the forerunner foreign-funded enterprises found China's fast-growing
market, and actively sought for joint venture and co-operation opportunities to set
up factories with Chinese enterprises in China, aiming to produce new products
which adapt to the Chinese situation. Under these circumstances, we rapidly made
up for the shortage of supply on some domestic industries. The typical case is that, in
1985, the co-operation between German Volkswagen Corporation and Shanghai
for producing Santana cars. Interestingly, Volkswagen found that there were only
four parts that could be used in Santana cars, those were tire, horn, antenna and
tag, which only accounted for 2.7% of the total cost of a car. Soon after, the sino-
foreign joint venture launched the product nationalization process of Santana cars
(Fu, 1992).
Fourthly, centering on speeding up the development of household appliance
manufacturing industry, the introduction of foreign advanced household appliances
production lines has been booming in China. Nine Refrigerator Production Lines
were introduced, which mostly were the results of military enterprises engaged in
military–civilian integration and conversion (Kageyama, 1982;Yujiro, 1986).
In Table 1, the period from 1988 to 1998 was the III Stage in the history of
China's innovation, with its core features as \Introducing, Imitating and Improve."
Not only a sample imitation, but more importantly was the improvement after
introducing, as well as the development of a better product. Especially, during that
period, the practice of \Market for Technology" accelerated the introduction of
technology and also deepened the imitation and improvement. Table 2reports that
Table 2. China's technology introduction from 1989 to 1998.
Year Contract amount (ten thousand US dollars) Contracts (pieces)
1989 292,320 190
1990 127,399 103
1991 345,923 359
1992 658,988 504
1993 610,943 493
1994 410,576 444
1995 1,303,264 3629
1996 1,525,700 6074
1997 1,592,312 5984
1998 1,637,510 6254
Data Source: China Science and Technology Statistical Yearbook, 1991 to 2000.
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both the amount of contracts and the pieces of contracts had increased signi¯cantly
during this period.
At that time, in order to realize the transfer and transformation of domestic
scienti¯c research achievements and the industrialization of foreign high-tech ap-
plicable technologies in China, in May 1988, the State Council approved the
establishment of China's ¯rst national high-tech industrial development zone,
Beijing Haidian High-tech Industrial Development Pilot Zone (the predecessor of
Zhongguancun Science Park) in May 1988.
In 1992, facing the economic sanctions imposed by the West and the \temporary
hesitation" in the process of the domestic reform and opening up, the chief designer
Deng Xiaoping, resolutely made a \Southern Tour." Since then, the government has
begun to clearly advocate the implementation of the \Market for Technology" policy.
In 1993, the Central Committee of the Communist Party of China issued the
\Decision on Several Issues Concerning the Establishment of Socialist Market
Economy System," which clearly de¯ned the objectives and measures for the
construction of a socialist market economy system with Chinese characteristics.
In 1999, the Central Committee held the ¯rst National Conference on Techno-
logical Innovation. President Jiang Zemin, General Secretary at that time, clearly
put forward that China should rely on scienti¯c and technological progress and
innovation to improve the quality and e±ciency of economic growth, and also
put forward that China should really form an e®ective mechanism to promote
technological innovation in the whole society (Lei and Du, 1993;Fu and Lei, 1996).
All these e®orts have created a positive policy environment for enterprises
to introduce technology, imitate and improve, as well as cultivate their own tech-
nological innovation ability through imitation and improvement.
The main measurements at this stage were as follows: First, the new products
hosted by foreign-funded companies created new demands in China.
Typically, as representative of new products of sino-foreign joint ventures and
cooperative companies, Santana further stimulated the rapid formation of domestic
car and household appliances markets.
Second, under the \Market for Technology" policy, more domestic enterprises
joined the wave of technology introduction; at the same time, in order to generate
new technology with their own intellectual property rights and update existing
products iteratively, some enterprises began to improve the technology introduced in
the previous round. The most typical example was of \Nine Refrigerator Production
Lines" mentioned earlier.
Among them, three refrigerator manufacturers paid attention to imitate and
improve product design after introducing foreign production lines, so that there were
three most prominent production lines in the market at the same time; after intro-
ducing the technologies, three other enterprises only improved several technological
links, thus barely maintained market share; while the remaining three enterprises did
not make any improvement, and market share declined sharply as a result.
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All of these led more enterprises paying greater attention to improvement based
on imitation and striving to accumulate their innovation ability in the process of
imitation improvement (Kenney, 1986;Coombs et al., 1990;Schumpeter, 1990).
In Table 1, from 1998 to 2008, China's technological innovation practice moved
to the IBC Stage. Its core features were \integrating internal and external tech-
nology and interests, seeking independent integrative innovation, and improving the
enlarged application of foreign innovation in the Chinese scenario."
After years of practice of \Market for Technology" since 1992, we obtained many
technologies from abroad, either by purchasing technology or authorization, or by
establishing Sino-foreign co-operation, joint ventures, or through FDI spillovers. But
these also made many enterprises heavily dependent on foreign technologies, and
some enterprises even canceled their R&D institutions after establishing joint ven-
tures. At the same time, because some enterprises are superstitious about foreign
technologies, they preferred to choose foreign technology, including equipment in
technology procurement competitions, which reduced the opportunities for domestic
enterprises and institutes to participate in technology supply competition, and im-
provement in the competition. At the same time, limited by geographical conditions,
economic level, cultural concepts and degree of openness, the number and quota
of importing foreign technologies in the eastern open and reform areas were obvi-
ously more than those in the Central and Western regions. As a result, the tech-
nological level gap between the Eastern, Central and Western regions was further
widened because of the \Market for Technology," which a®ected the coordinated
development of the Eastern, Central and Western regions, as shown in Fig. 3.
Therefore, around 2000, a heavy debate started on the pros and cons of \trading
domestic market for technology." During this period of time, a basic consensus,
though in di®erent formats, was that we did gain some technologies using the
0
200000
400000
600000
800000
1000000
1200000
1400000
Eastern Region Central Region Western Region
Data Source:China Science and Technology Statistical Yearbook 2006.
Fig. 3. The di®erence in amount of imported technology contracts among regions.
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method, which had enabled us to establish a potent modern industrial system within
20 or 30 years. But, we had also developed a dual reliance on Western technologies:
on the one hand, we are still relying on foreign nations as we are not technologically
advanced enough; on the other hand, by turning core technologies into patents and
industrial standards, foreign companies have managed to lock China's industrial
development into ¯xed technical paradigms and paths. So, we must adjust guidelines
of trading domestic market for technology, by continuing to obtain urgently needed
foreign technologies while resorting to independent innovation to ease the pressure
caused by a short supply of China's own proprietary IPs. In 1995, \independent
innovation" was ¯rst brought forward in the \9th Five Year Plan." The 15th
National Congress of CPC called for \improving the independent innovation
capabilities." After the Chinese embassy in Yugoslavia was bombed by the US, and
China's accession to WTO in 2000, Chinese companies started to use acquired
foreign technologies to compete with foreign companies, which further stoked the
sense of urgency within China. Shortly after that, the central government issued the
Medium to Long Term Plan for Promoting Development of Science and Technology,
elevating independent innovation to be a national guideline.
Approaches to boost independent innovation then was mainly through: (1) Im-
proving three models of independent innovation, namely original innovation, inte-
grated innovation and digestion-re-innovation; (2) Relying mainly on technology
integration, or using technology integration to promote innovation in other ¯elds,
such as mobile phone, computer, SPC exchange, automobile, high power generator,
high speed rail and major electromechanical system, given China's situation as a late
mover in fundamental research.
Among these e®orts, one key example is the start of China's high speed rail
industry through technology integration based on independent integrated innova-
tion (Cheng et al., 2011). In 2004, we started to import foreign technologies. In 2007,
high speed rail was put into operation. In the three years, China's e®orts were
focused on technology integration based independent integrated innovation. On the
basis of such progress, the \973 National Plan" of 2007 ¯nanced three high speed rail
related projects, namely high speed rail safety operation, high performance anti-
friction bearing, and basic high speed rail mechanics, which proved to be extremely
important for following high speed rail researches. Another typical case is China's
auto industry that also started to embark on the path of independent integrated
innovation (Lei et al., 2016). Assisted by such e®orts, China's auto export exceeded
import for the ¯rst time in 2005. In 2006, China produced 7.279 million automobiles,
a year on year increase of 27.6%, among which 3.869 million were sedans, increasing
39.7% over the previous year. More interestingly, by the end of 2006, Brilliance
Group signed with HSO, a key European logistic ¯rm, an agreement to export
158,000 Brilliance sedans within a ¯ve-year period, marking that Made-in-China
autos started to ¯nd their way into developed markets. In 2007, Brilliance signed
another deal with Russia's Empire Trade Group to export 80,000 Jinbei vehicles,
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worth USD1.6 billion to Russia. With the emergence of internet entrepreneurship,
business model innovation has been attached with unprecedented importance.
In Table 1, the period from 2008 to 2018 was \Innovating–Iterating–Promoting
Stage" (IIP Stage) in China's technological innovation practice. The core feature
was to emphasize the implementation of extensive independent research and learn
from high-level foreign innovation, ae well as rapidly iterate to improve the existing
achievements and capabilities of self-innovation.
The background of this period was that, ¯rst of all, domestic R&D investment
accounted for more than 1.5% of GDP in 2008. Secondly, the process of the new
round of worldwide industrial revolution accelerated at that time. It was estimated
that the developed countries in Europe and the United States would basically
complete the industrial revolution between 2025 and 2030 (Chen and Xie, 2018).
There were also some signs showing the new industrial revolution in China. In March
2011, the 12th Five-Year Plan put forward the policy of vigorously cultivating and
developing strategic emerging industries. Thirdly, in July 2012, the Central Com-
mittee convened the National Conference on Scienti¯c and Technological Innova-
tion. At the end of that year, the 18th National Congress was held. President Hu
Jintao, the General Secretary at that time, put forward the idea of \Building an
innovative country and an innovative system with Chinese characteristics, relying
on innovation to drive development." In 2014, Premier Li Keqiang made the
\Innovation and Entrepreneurship" deployment on behalf of the State Council. At
the meeting of Chinese Academy of Sciences and Chinese Academy of Engineering
held in June 2014, General Secretary Xi Jinping clearly put forward the strategy of
\Implementing Innovation-Driven Development." Fourthly, in November 2015, the
Central Committee of the Communist Party of China issued the Recommendations
on the 13th Five-Year Plan for National Economic and Social Development. All of
these have guided China's technological innovation practice from the previous stage
of \integration to promote self-creation" to the threshold of \self-creation and it-
erative upgrading."
The main approaches at this stage are as follows: (1) Based on extensive inde-
pendent R&D and drawing lessons from foreign high-level innovation, enterprises
and industries should speed up the iterative upgrading of previous independent
innovation (especially independent integrated innovation). (2) Innovation based on
Internet plus arti¯cial intelligence, green technology, new materials and new energy
is becoming more and more active. Financial innovation is particularly prominent.
During this period, the number of patent applications for inventions in China has
increased dramatically, and the number of new inventions granted annually has also
increased considerably, as depicted in Fig. 4.
Among them, the iteration promotion of independent integration innovation,
high-speed rail is an example. As mentioned above, from 2004 to 2007, the fun-
damental domestic high-speed railway development is \independent integration
innovation based on technology integration." Therefore, on the basis of the
National 973 Program in 2007, the National Natural Science Foundation of China
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began to subsidize substantially the related research in the ¯eld of high-speed rail in
2008, aiming at overcoming the technical bottleneck of industrial development in
the ¯eld of high-speed rail. By 2010, there were 26 related research projects in the
¯eld of high-speed railway funded by the National Natural Science Foundation of
China. This has played an important role in speeding up the iteration promotion of
independent integration innovation in the high-speed railway sector. The innova-
tion based on Internet plus arti¯cial intelligence, green technology, new materials
and new energy is almost \all over the mountains," and many typical practices take
place in \double creation," especially BAT (Baidu, Alibaba, Tencent) and Jing-
dong e-commerce. Financial technological innovation mainly occurs in the speci¯c
business of many industries, such as e-commerce, commercial banks, securities,
insurance, etc. Even ticketing systems of transportation departments and certi¯-
cate systems of large institutions (including universities), such as work permits,
meal cards, student ID cards, etc., have joined the ranks of \¯nancial technological
innovation." There are even some preliminary applications of arti¯cial intelligence
technology (Wu et al., 2011;Yang et al., 2016).
Overall, through the four stages mentioned above, China's technological inno-
vation practice has begun to demonstrate a picture of: the dominant position of
enterprises in innovation has obviously taken shape; the \dual innovation" among
the whole society has become increasingly active, and the philosophy has been deeply
embedded in public's mind; the interaction of technological innovation, institutional
innovation, business model innovation and organizational innovation has intensi¯ed;
and technological entrepreneurship has become increasingly mature. It is an im-
portant way to realize technological innovation, and the innovation ability of some
industries has been continuously improved. China is becoming an innovation-centric
nation.
-50,000.00
0.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
350,000.00
400,000.00
450,000.00
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Year
Number of patents granted: InvenƟon Patent (unit)
Yearly increment of invenƟon patent granted (unit)
Fig. 4. The trend of China patents granted (1985–2017).
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4. The Main Characteristics, Experiences and Lessons of China's
Technological Innovation in the Past 40 Years
4.1. Main characteristics
Looking through the 40-years' practice of technological innovation in China, three
distinct characteristics can be found.
(1) China has formed innovative methods and systems with distinctive
characteristics. Learning, imitating, improving, integrating, iterating and enlarging
the application of typical foreign innovations in Chinese scenarios are all e®ective
innovative methods. Both elites and grassroots could become innovators. Typically,
Ren Zhengfei, Liu Chuanzhi, Robin Li and Pony Ma are all elite innovative inno-
vators with profound professional knowledge, while Jack Ma graduated with a En-
glish major and was a English teacher in college before starting his career, as a
grassroots innovator who went on to create Alibaba which had global in°uence.
From the other aspect, both state-owned enterprises (especially central enterprises)
and private enterprises (especially \Shanzhai" private enterprises) may become the
main innovators. Private small enterprises that imitated products at earlier stage
might become the key subject for independent innovation after experiencing the
process of studying, learning, imitating and improving. There were many typical
cases in coastal areas. At the same time, many scienti¯c research institutes and
universities have increasingly become sources and incubators of innovation and
entrepreneurship. After 40 years of experience, the government has increasingly
become an important promoter of innovation in the industry. The role of promoter
depends not only on the guidance of planning and ¯nancial support, but also on the
creation of a \more appropriate innovation environment" for innovators through
institutional and policy changes.
(2) Both private high-tech enterprises and central enterprises have become
powerful innovation forces. After 40 years of hard work, for China, private enter-
prises contributed more than 50% of tax revenue, more than 60% of GDP, more than
70% of technological innovation, more than 80% of urban labor employment, and
even more than 90% of new employment. At the same time, central enterprises
which could be reliable monopoly, actually become a steady force for innovation.
Taking State Grid Corporation of China as an example, the number of patents has
ranked ¯rst among central enterprises for seven consecutive years since 2011. By the
end of 2017, it has accumulatively owned 73,350 patents and 69 national science and
technology awards, including 2 special awards under the national science and
technology progress award, 7 ¯rst prizes and 60 second prizes. The company has won
91 Chinese patent awards (including 7 gold awards) and 20 awards for China
standard innovation contribution.
Moreover, Central enterprises have become the main subject and dominant force
of innovation. These can be broadly categorized into three types: ¯rst of all, private
central enterprises, such as China Merchants Group, which have been established for
over a hundred years, whose original innovation genes were activated by the reform
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and opening up. Secondly, military enterprises, such as China Aerospace Science and
Technology Corporation (CASC), China Electronics Technology Group Corpora-
tion (CETC) and China North Industries Group Corporation Limited (NORINCO
GROUP). After the reform and opening up, they had a breakthrough in innovation
when transiting from military-oriented to civilian-oriented, before returning to
mainly military industry innovation in the late 1990s. Thirdly, newly established
central enterprises, such as State Grid, State Investment, CNOOC, China Mobile
and other enterprises, which have stood at a high level of innovation from the start
(Peng and Lei, 2011).
In particular, some state-owned enterprises have taken the lead in the innovation
of high complexity products in the world. Such as \Fengyun series meteorological
satellites" developed by Aerospace Science and Technology Group, which are widely
used in ecological observation, disaster prevention and mitigation, climate change
and other important ¯elds. \Beidou-1, the ¯rst generation of Beidou navigation and
positioning system" made China the third country with autonomous satellite navi-
gation system after the United States and Russia. The UHV transmission system
developed and widely used by State Grid Corporation has become the world's
highest voltage transmission technology, representing the highest level of interna-
tional high voltage transmission technology research, equipment manufacturing and
engineering application. The \wind–solar storage and transmission demonstration
project" which was also developed and constructed by the State Grid Corporation
has become the ¯rst large-scale comprehensive development project in the world
with wind power, photovoltaic power generation, energy storage system and intel-
ligent transmission in one. The key technologies and applications of China Mobile
Group's fourth generation mobile communication system (TD-LTE) integrated the
core technology of TD-LTE with LTEFDD and promoted a uni¯ed global 4G
standard. At the same time, it defeated the US WiMAX standard and became the
mainstream international standard for the ¯rst time.
Especially after the implementation of the policy of independent innovation in
2005, many state-owned enterprises' innovative abilities have been in the advanced
level or even ahead of their international counterparts in some areas. On the one
hand, the Civil Central Enterprises have developed from using foreign technology to
being parallel or even leading with its international counterparts, such as the UHV
long-distance transmission technology of State Grid Corporation. On the other
hand, the innovation of the Military Central Enterprises has enhanced the national
defense security capability and provided the fundamental guarantee for our army to
cope with the modern combat style of \beyond visual range and accurate strike" by
the army of developed countries.
(3) Universities and institutes become innovative knowledge sources and inno-
vation incubators. Over the past 40 years, with the construction of 211, 985 and
\double-top universities," more than 240 industrial departments and institutes have
been transformed into high-tech enterprises in the last century, and the National
Knowledge Innovation Project has been implemented by the Chinese Academy of
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Sciences. Scienti¯c research institutes and many universities have increasingly be-
come innovative knowledge sources and incubators of innovation and entre-
preneurship. In terms of knowledge sources, taking SCI papers as an example, there
were only 0.56 million papers from China in 1988, while there were 324.2 million in
2016, ranking second in the world. Meanwhile, universities and research institutes
accounted for a considerable proportion of the increasing number of patent appli-
cations and authorizations for inventions year by year after 2008. All of these pro-
vided the basic and fundamental \knowledge source" for enterprises' independent
innovation (Zhang et al., 2018). As far as the incubation of innovation and entre-
preneurship is concerned, more than 3000 public universities, 985 universities and
211 engineering universities in China have generally established specialized institu-
tions for technology commercial o±ces, science and technology industry parks,
counseling and service for teachers and students to innovate, and even directly
incubate many high-tech enterprises.
4.2. Basic experience
(1) The Realization of Innovation. 40 years of technological innovation practice
has proved that small innovation depends on iteration, that is to say, ¯rstly making
the simpli¯ed \minimal product," and then through multiple iterations, making it
the best product in the context of current technological progress. Such as Tencent's
WeChat and MI's mobile phone. Big innovation depends both on integration and
iteration, that is to say, in the early stage, the most basic technology should be
integrated and made into minimal products, and then the products can be made into
the best product under the background of current scienti¯c and technological
progress through multiple rounds of \integrated iteration." Large-scale system in-
novation depends on the guidance of national strategy. For example, the develop-
ment of laser phototypesetting system of Peking University (Wang Xuan), Tsinghua
Isotope Container Detector (Lei et al., 2015), Dawning Large Parallel Computer of
Chinese Academy of Sciences, high-speed railway of railway department and early
warning aircraft of China Science Group are all guided by relevant national strat-
egies, with inclusion of planning and the support of funds. In addition, China's
independent innovation must be integrated into the international environment to
learn the experience and technology from leading countries for developing faster and
farther. In terms of the types of innovation activities, practice has proved that
entrepreneurship is a feasible way of innovation, and internal entrepreneurship is an
e®ective way of enterprise innovation, transformation and upgrading.
(2) The Subject and Ecology of Innovation. From the practice of technological
innovation of state-owned enterprises (especially central enterprises) and private
enterprises (especially Shanzhai private enterprises), large and small enterprises
both have their own advantages in innovation. For example, large enterprises have
strong ability of multi-domain and systematic innovation, and are also good at
resource mobilization, raising and integration; even within the same group
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enterprise, the subsidiaries which on the branches downstream of the industrial
chain can act as the \¯rst customers" of innovative products for the branches and
subsidiaries upstream of the industrial chain, and by the \internal market test" to
promote the iteration of upstream branches and subsidiaries. By promoting and
improving the innovative products of upstream sub-companies and subsidiaries to
eventually go out of the \Internal Virtual Market" of group enterprises, and ¯nally
enter the \Real Market" to realize their commercial value. As long as small enter-
prises could cultivate unique core competence, focus on innovation in a few areas,
hold core technology and pinch key customers, as the \hidden champions" which
revealed by Professor Simon of Harvard Business School (Simon, 2009), they would
be good at enlarging the \vision of new product," further develop \cross-industry
customers" and may also achieve good business returns. By linking these two types
of enterprises, we can put an end to the question \whether large enterprises are more
conducive to innovation or small enterprises" which was questioned by Schumpeter,
Drucker and Mans¯eld and has been entangled in the ¯eld of innovation economics
for many years (Schumpeter, 1934;Mans¯eld, 1986;Drucker, 1994). At the same
time, as the gathering area of innovative enterprises, high-tech zones and Science
and Technology Parks really stimulate and promote the innovation of enterprises by
their unique cultural atmosphere, rather than the preferential policy from the gov-
ernment, which has been tested by practice in many national high-tech zones and
science parks.
(3) The Performance and E®ect of Innovation. Firstly, within a certain scope of
investment scale, the investment returns of iterative innovation and integrated in-
novation are increasing. Iterative innovation is the essence of \Lean Innovation." It
brings about increasing returns on innovation investment, which has been widely
recognized by common." Increasing returns on investment in integrated innovation"
was ¯rst discovered by professors at Harvard Business School in the 1990s, which
was further supported by the 40-year practice of technological innovation in China.
In the 1990s, many professionals and academics were amazed at the phenomenon of
\the critical point of diminishing marginal bene¯ts of investment" in some high-tech
industries in the United States, Japan and South Korea. According to the research
carried out by Mark Iansti and Jonathan West of Harvard Business School, the key
lies in the implementation of \E±cient Technology Integration" by enterprises in
these industries. Therefore, they believe that technological integration is the key to
improve the e±ciency of R&D and production e±ciency of enterprises, and
launching new products which are welcomed by the market. In particular, research
on the global computer industry by Marco Iansti and Jonathan West has found that,
since the 1990s, market advantages have often been controlled by companies that are
good at choosing and integrating technologies, rather than those that are the ¯rst to
develop them. Especially with the increasing number of technologies available for
enterprises to choose, the \Technological Breadth" of product designing and
manufacturing has been greatly expanded, while the life cycle of products has been
greatly shortened. As a result, all of these force enterprises to put technological
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integration into schedule and realize the commercialization of new technologies with
the help of technological integration at a faster speed.
In China's 40-year technological innovation practice, the development of
Tsinghua Isotope Container Detector, High-speed Railway Departments and
China's Science and Technology Early Warning Aircraft has achieved relatively
ideal bene¯ts. In these processes, integration innovation (innovation based on
technology integration) is also an important \Revenue Source."
Secondly, innovation implantation growth is an important source of high-quality
economic growth, which is mainly achieved by \taking the lead in innovation as an
engine, imitating the expansion of innovation, promoting innovation iteration, and
smoothing the growth °uctuations" and so on. Furthermore, innovation-driven
development depends on \science and technology grows into the economy, innova-
tion plants into growth, entrepreneurship promotes development."
4.3. Major lessons
(1) Institutional environment determines the occurrence and realization of in-
novation. Practice over the past 40 years has shown that the economic and insti-
tutional environment of a particular economy (such as a city) can make innovators
(the recipients of the system) satis¯ed and unchanged. At least three conditions
should be met:
First of all, it is di±cult for both the decision-makers and the recipients of the
system to obtain additional bene¯ts by seeking rent. Secondly, the income of the
creators of wealth, especially the innovators, should be higher than the average
income of the society. Thirdly, people do not have to dispute over tri°es for devel-
oping and do not have to bear too much transaction costs. If the institutional
environment mentioned before is called \Satisfactory Equilibrium" institutional
state, then in this environment, the transaction cost of innovators engaging in
innovation activities is lower, and the net pro¯t of innovation is larger, so the
innovation level of the whole society will be more active. After the reform and
opening up, Shenzhen's economic and institutional environment is in such a state, so
the local technological innovation is more active than other provinces and cities. If
the institutional environment of a particular economy is unsatisfactory and people
cannot improve it, it can be called \Unsatisfactory Equilibrium" institutional state.
In this environment, innovators will be inevitably unwilling, unable, or even choose
to run away, and then, the group of innovators will shrink gradually, and innovation
activities will be more di±cult to activate. After the reform and opening up, some
mainland innovators left their hometowns for Shenzhen, that is, the institutional
environment of hometown is in a state of \Unsatisfactory Equilibrium." If the in-
stitutional environment of a particular economy is \unsatisfactory, but may be
improved," it can be called \Unsatisfactory and Unbalanced" institutional state. In
this institutional environment, some innovators will wait while other innovators will
use \Rent Seeking" or \Pseudo Innovation" to seek extraordinary interests. Over
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the past 40 years, some mainland innovators have resorted to \Rent Seeking"
or \Pseudo Innovation" to seek bene¯ts, that is, because the local economic insti-
tutional environment is in a \Unsatisfactory and Unbalanced" state. Based on the
above, in order to deepen innovation-driven development, local governments must
focus on fostering a \Satisfactory and Balanced" system ecology by deepening re-
form in the future.
(2) Innovation and development of \Science-based Industries" are still lacking.
From the perspective of \Knowledge Source" of industrial innovation and devel-
opment, many industries can be divided into \Science-based Industry" and
\Technology-based Industry." The innovation and development of the former fre-
quently depend on new scienti¯c discoveries, while the innovation and development
of the latter depend more on technological progress (Lei and Lin, 2014). At present,
\Science-based Industries" have risen rapidly in many developed countries, and
become their new international dominant industries and their unique international
competitiveness. At the same time, in the past 40 years of reform and opening up, we
have achieved a consensus worldwide that in catching up with the developed
countries in the ¯eld of \Technology-based Industries." The gap between the de-
veloped countries in such industries is getting closer. However, in the ¯eld of
\Science-based Industries" such as bioengineering, chemical basic materials, chem-
ical pharmaceuticals and microelectronic devices, we have not achieved remarkable
results in catching up with similar industries in developed countries (Zhang and Lei,
2015;Zhang and Lei, 2018). First, limited to national strength, the state's invest-
ment in basic scienti¯c research is inadequate, accounting for only about 5% of R&D
expenditure, while the proportion in developed countries such as Europe and the
United States is 18–20%. With less investment in basic science, the progress of
scienti¯c research is inevitably less, and the innovation of \Science-based Industry"
lacks domestic knowledge supply. This fundamentally hinders us from catching up
with developed countries and a®ects the fundamental transformation of China's
industrial structure (Yang and Lei, 2016). Therefore, in the future, we urgently need to
increase investment in basic science, reform the system of basic scienti¯c research, se-
riously focusing on \making up lessons," and actively promoting the innovation and
development of industry based on science, in order to promote the fundamental trans-
formation of industrial structure in China and catch up with the developed countries.
(3) The occurrence of \Leading Innovation" and the urgent attention of its
realization mechanism. According to the \Internal Role" of speci¯c innovation in
economic and social development, innovation can be divided into \Leading
Innovation" and \Non-leading Innovation." The former inherently has the function
of triggering new innovation imitating and leading the direction and process
of economic and social development, while the latter cannot. Such as the Laser
Typesetting Technology of Wang Xuan of Peking University and the Electronic
Typewriter of Sitong Company, which appeared almost at the same time in the 1990s,
the former (Laser Typesetting Technology) has changed the traditional typesetting
and printing, changed the text style of input and output by computer, changed
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the press and publishing industry, and also changed our word processing habits.
This is called \Leading Innovation." The latter (Sitong Electronic Typewriter) only
brought many typewriting stores in the streets and alleys; while with the advent of
personal computers, it was quickly eliminated. This is \Non-leading Innovation."
Leading innovation itself will lead to economic and social development and future
innovation. Therefore, in order to deepen innovation-driven development, the
government should mainly encourage and support \Leading Innovation," while
\Non-leading Innovation" would be selected or even eliminated by the market.
Nowadays, the government generally encourages innovation, which cannot lead
development and only waste the scarce governmental resources. When we talk about
\Innovation Leads Development," we should rely on more \Leading Innovation"
rather than on all kinds of innovation.
(4) The importance to cultivate domestic market demand for innovative
products. Innovation is about industrial development. But after the formation of
innovative products, if there is a lack of domestic market demand, without excep-
tion, such innovative products will soon die. The photovoltaic equipment
manufacturing industry in China in the past few years were profound lessons.
Firstly, the government strongly encouraged enterprises to innovate, accelerating
the development of industries and enlarging quantities of exported products. How-
ever, until 2014, because foreign countries restricted the export of photovoltaic
equipment to China, enterprises such as Shangde in Wuxi and Saiwei in Jiangxi,
which grew rapidly earlier, declined in succession. One major reason could be the
lack of activities to cultivate the domestic market. Therefore, in order to guide
enterprises to innovate and promote the development of new industries in the future,
besides the independent innovative products being purchased by the government as
far as possible, there must be corresponding market policies to cultivate the down-
stream market for the new products of innovative enterprises. In the ¯rst half of
2018, China's GDP was about 6576 billion in US dollars, while the EU countries
realized about 9428 billion in US dollars and the US GDP was 10,100 billion in US
dollars. During that period, China's GDP was equivalent to 69.75% of the EU's GDP
and 65.11% of the US GDP. If we can cultivate the domestic market for our inno-
vative products, there would be no fear any more when we face the attraction of
innovation products exporting from the EU and the United States (such as anti-
dumping, anti-subsidy, or restrictions on technical trade measures).
(5) Continuous encouragement for certain industries will lead to \Industrial
Disasters." \Encouraging Policy" is kind of \Policy Tool" to promote and support
vulnerable emerging industries in urgent need of development. However, if the en-
couragement is excessive in the early stage of industrial development, it will inevi-
tably lead to low-level overcapacity and excessive competition, which will even lead
to a premature end. If the country as a whole has overcapacity in this industry, the
central government's incentive policy is not adjusted in time, and the local gov-
ernment continues to encourage the development of the industry, it will inevitably
lead to further \Industrial Disaster" of excess capacity, vicious competition and no
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pro¯t for enterprises. It seems that after 2000, the National Development and Re-
form Commission (NDRC) has sent many messages warning that some emerging
industries, such as Photovoltaic Equipment Manufacturing and Alumina Industry,
are over capacitated. But in these cases, some local governments are still encouraging
local governments to work harder and faster around these industries. At this stage,
in order to cut excessive industrial capacity, we have to make great e®orts in these
industries. Therefore, in the future, on one hand, the central government depart-
ments should make timely adjustments to the relevant policies to encourage the
development of new industries; and on the other hand, the local government should
pay special attention to the industrial early warning signals issued by the central
government, and adjust the local industrial development policies and plans at
any time.
5. Conclusion: The Current Urgent Concern
In the previous section, the basic images of China's technological innovation practice
of reform and opening up are sorted out and described as \Four-step Climbing,"
which are LIS Stage, III Stage, \IBC Stage," and \Innovating–Iterating–Promoting
Stage." This paper explains the background and speci¯c innovative models for every
stage, and combs the main characters, basic experience and lessons for China's
technological innovation during the past 40 years. Based on these researches, it is
believed that with the further development of innovation, especially on how science
and technology lead development, the government and the academic should pay
more attention on the following issues.
Firstly, at the international level, with the further development of trade frictions
between the United States and many other countries as a backdrop, especially with
China, there would be a great chance to adjust the global governance structure and
the cooperative and competitive machines of international innovation. Furthermore,
it will be helpful for China to identify the new international environment for pro-
moting independent innovation in recent years, and prepare some relevant response
plans in advance.
Secondly, at the national level, with the increasing preference and attention of
domestic high-level and industry for \Innovation Leading Development," only
leading science and technology innovation can objectively form the leading mecha-
nism for economic and social development and the occurrence of new innovations.
The development of science and technology has entered a big science and technology
era. At this stage, ¯rstly, there is urgent need to pay attention to the occurrence and
realization mechanism of \leading science and technology" in the era of big science
and technology. The second is to pay closer attention to the structure and institu-
tional mechanism of national innovation ecosystem in the era of big science and
technology. The third is that if the ¯rst two are clari¯ed and the related system
reform and mechanism shaping are actively promoted, \innovation leading devel-
opment" may become a natural follow-up action, that is, by virtue of the \inherent
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attribute" of \leading innovation," innovation may lead development actively and
e®ectively.
Therefore, the division and coordination of national science and technology pol-
icies, as well as the position of the subject of scienti¯c innovation and technological
innovation in the national innovation ecosystem, should be the key issues concerned
by the government, industry and academia in future.
Thirdly, at the industrial level, because the innovation and development of
\Science-based Industry" is our \shortcoming," and the basic scienti¯c achievements
have their own unique laws in commercial and social application, we should strengthen
the mechanism research of innovation and development of \Science-based Industry" at
this stage. At the same time, in view of the fact that the practice of the early indus-
trialized developed countries such as the United States showed that \Science-based
Enterprises" played a unique role in the innovationand development of \Science-based
Industries," so we should pay more attention to \Science-based Enterprises" at this
stage. Meanwhile, in view of the unique pattern of the innovation and development of
\Science-based Industry," and the unique role played by the \rapid response mecha-
nism of civil-military integration" in the innovation and development of \science-based
industry" in developed countries, we also need to pay close attention to how the \rapid
response mechanism of civil–military integration" promotes the innovation and de-
velopment of science-based industry under the background of China.
Fourthly, at the methodological level of technological innovation research,
although domestic research on technological innovation began in the early 1990s, it
still follows Schumpeter's innovation economics, Rendwell National Innovation
System, Mans¯eld Descriptive Statistical Analysis, Porter Logical Structure Model,
Drucker's imaginative logical deduction in methodology. However, there is still a
lack of e®ective methods to reveal the institutional environment of technological
innovation and the law of innovation practice in China. We also need to pay
attention to the problem of \Logical Construction of Innovation and Development
Research in the Context of China."
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