Perhaps because these are not splashier, fundamental breakthroughs, the West tends to discount China’s high-tech achievements by ascribing them to copying or to protectionism. While these practices did give China’s economy traction early on, they are no longer the primary drivers of Chinese innovation, for the simple reason that such cruder types of opportunities have already been fully exhausted. Instead, China is replete finding new ways to monetise their services, attract customers, and encourage them to buy, which is a good thing for a country with the world’s highest saving rate and a global trade imbalance on the export side. What we’re seeing here is that when it comes to innovation, Chinese companies are remarkably clever at taking existing technologies and applying them in new ways, expanding them from one to N.
Although some may dismiss these adaptations and new implementations of existing technologies as mere tinkering, they are significant so long as they contribute to growth by increasing productivity and generating income, which is certainly the case in China. Electricity was a zero-to-one technology, for example, but its countless spin conditions our homes, have allowed us to be far more comfortable and more productive. Cheap smartphones loaded with features may not change the world like the discovery of electricity, but if these gadgets enable Chinese farmers in rural areas to get back on pricing and demand for their produce, they can lead to huge gains in people’s welfare. Under this broader definition of innovation, China can be counted as a highly innovative nation.
Perhaps because these are not splashier, fundamental breakthroughs, tech achievements by ascribing with first-of-their-kind companies, like Mobike for bike sharing; and Ant, the payment-cum-financial technology company that spun off from Alibaba, is easily the most innovative such company in the world. Even though TikTok is not the first short-video-sharing app, its AI-powered technology is the best of its kind in video feeds.
For decades, it was common practice for Chinese people to copy what they liked, a practice that emanated from within society rather than from the government. Replication has long been considered simply pragmatic, and widely accepted as a way of doing business and catching up. The first generation of Chinese internet companies in the early 2000s consisted of carbon copies of Western models: Xiaonei, a Chinese social networking site, was a pixel-to-pixel imitator of Facebook; the Chinese version of Yahoo! was Sohoo (later Sohu, where “So” refers to “search”); and China’s variant version of YouTube was called Youku.
Nor was the highest form of flattery limited to technology. The founder of Xiaomi (touted as the “Apple of China”) loves to wear black turtlenecks that unabashedly evoke Steve Jobs. The fast-food company KFC has multiple Chinese copycats with the same red-and-white logos, but branded slightly differently as MFC, KFD, or KFG. The Chinese car company Chery has a logo eerily similar to that of Nissan’s Infiniti. Not only was copying not considered disreputable, it was sometimes even a way of boasting.
I once met a local mayor who had encouraged building bridges across the small rivers flowing through his town, all of which were unabashed copies, including diminutive versions of London Bridge and the Golden Gate Bridge. The clubhouse of a golf course outside Beijing replicates a famous château in France. And a wealthy businessman once told me proudly that his residence was a precisely scaled model of the White House. But as the world snickered at such imitations, Chinese companies were catching up to global industry leaders, and in recent years started to surpass them. This same pragmatic attitude informed the Chinese state’s lax approach to enforcing intellectual property protections.
It’s also important to bear in mind that all economic success stories include a stage that involves copying and mimicking the technologies and products of industry leaders. Imitation is a basic aspect of nature and of economic life. No one would argue, however, that stealing British designs for looms and mills made America an economic superpower, or that copying turned Japanese companies such as Nintendo, Hitachi, and Sony into household names worldwide.
No economy copies its way to the top. And today we see the imitation phenomenon starting to run in a new cycle; now it is Chinese companies that are being copied, this time by their Malaysian, Indian, and Philippine competitors. Some technologies also prove difficult to copy.
In an attempt to accelerate its absorption of advanced technologies from the West, China implemented a long-standing quid pro quo strategy of “trading markets for technology.” When outside firms wanted to operate in China and take advantage of its lower costs and vast market, they were required to form joint ventures with Chinese companies, which often entailed sharing proprietary technology. In recent disputes over trade, the West has referred to this policy as “forced technology transfer.” The reality is a bit more nuanced: many multinational enterprises accept the arrangement, figuring out that they can invent new technologies fast enough to remain ahead of their domestic competitors and still earn lucrative profits in China’s vast market.
And although China benefited enormously from what it learned in this way, there was also a major flaw in this strategy: frequently China did not succeed in gaining access to the core technology it sought because foreign companies shared only the technology necessary for those products – or parts of products – manufactured locally in China; they withheld the master blueprint or critical information needed for fully independent production of a competitive product.
In the book China as an Innovation Nation, Professor Kaidong Feng describes how this policy of requiring foreign companies to share technology fell far short of its intended purpose. The automotive industry provides perhaps the best example. Chinese teams in the hundreds of joint ventures formed with foreign car companies did not even develop the capability to make high-quality engines on their own. Instead, it was purely domestic players like Chery and Geely that succeeded in cornering substantial market share.
Today, trading markets for technology have fallen from favour as a policy. Instead, spurred by geopolitical tensions and trade wars, China has shifted from importing technology to a strategy based on self-reliance. Tesla, for instance, which is producing a record number of vehicles from its Gigafactory in Shanghai, has full control of its technology and IP. There is nothing inherently wrong with technology transfers, so long as all parties involved are aware of the trade-offs and sign a mutually beneficial deal. As China becomes the leader in many novel areas of technology, the pendulum of technology transfers has begun to swing the other way.
Excerpted with permission from The New China Playbook: Beyond Socialism and Capitalism, Keyu Jin, Swift Press.
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