Innovation Systems Guangdong, China and the World. Consultancy Report to the Governor of Guangdong Province

Transcription

1 From the SelectedWorks of Li Tang 2007 Innovation Systems Guangdong, China and the World. Consultancy Report to the Governor of Guangdong Province Rainer Frietsch Henning Kroll Li Tang Available at:

2 Innovation Systems Guangdong, China and the World - From an outside perspective Hans-Jörg Bullinger Consultancy Report to the Governor of Guangdong Province October 2007 Editors: Rainer Frietsch Henning Kroll Li Tang

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4 Index Index 1 Introduction The Innovation System Approach R&D Activities and High-Tech Industries Scientific Performance of Guangdong Province Technological activities and technological profiles Strength and Weakness of Guangdong Challenges of German innovation policy Summary and Conclusions References I

5 Index List of figures Figure 1: The Actors of Innovation Systems and Their Relations... 2 Figure 2: Figure 3: Research and Development Personnel and Funds in Institutions of Higher Education in Guangdong... 6 R&D Expenditure in the High-Tech Industry of Guangdong Province... 8 Figure 4: Guangdong Postgraduates in Thousands: Figure 5: Profiles of Scientific Specialisation of China and Guangdong, Figure 6: Growth of national patent applications of selected regions 2006 (1998=100) Figure 7: Technological specialisation profiles of China and Guangdong, List of tables Table 1: Intramural Expenditure for R&D by Performing Actors... 5 Table 2: Intramural Expenditure for R&D in High-Tech Industry (2005)... 7 Table 3: Regional S&T Statistics for LME in the Guangdong Province... 8 Table 4: Table 5: Table 6: Absolute and relative numbers of scientific publications, Industry Involvement in Scientific Research: Guangdong vs. China ( ) International co-publications of Guangdong Province with selected regions/countries, Table 7: National patent applications of selected regions, Table 8: Absolute and relative numbers of Transnational Patent applications, II

6 1 Introduction Introduction Guangdong province, the so-called "fifth dragon of Asia" has been in the forefront of China's economic reforms since implementation of the open-up policy in China, for a variety of reasons. When profiling its fast economic development, we can identify three main driving factors. The first and foremost factor is government preferential policies. Serving as the open window and experimental land of China's reform open policy, the Chinese central government has granted Guangdong considerable economic and financial autonomy. For example, among the first five special economic zones (SEZs), three are located in Guangdong 1 (Lu and Wei 2007). The geographical proximity to Hong Kong is another widely recognized factor driving the Guangdong area, especially the Pearl River Delta (PRD) economic development. The "inextricably intertwined" (Enright, Scott et al. 2005) cultural closeness, the common language Cantonese, combined with industry compensability makes Guangdong a "backyard workshop" of the "front shop". The third widely recognized driving factor is the tremendous foreign investment flow to Guangdong since the mid 1980s. According to the statistics from Guangdong Statistics Bureau, in the period of , about one third of FDI to China went to Guangdong province. These factors stimulated Guangdong's rapid economic development in the past and have made it the richest province in China today. Today, however, in the context of increasingly fierce competition both domestically and globally, the influences of past driving factors are diminishing, and Guangdong needs innovation, the new catalyst to re-energize its economy. The province of Guangdong is among the main drivers of economic development in China. With only 7.0% of the total population and only 12.2% of total GDP, it is the source of 31.3% of all Chinese exports. In its relative importance for the development of the Chinese economy, it is second only to the Yangtze River Delta (including the municipality of Shanghai and the provinces of Zhejiang and Jiangsu), with a GDP share of 22.3% and an export share of 38.1%. At the moment, however, the province's economic success on the international markets is not necessarily driven by innovative activity in the enterprises, which is reflected in the comparatively low input in technological development, i.e. the comparatively low share of intramural expenditures on R&D in the national total, to which Guangdong contributes only 10%, less than its share in overall economic activity. Currently, both the Yangtze River Delta and certainly the Beijing capital region are far more research-oriented, not only in relation to their economic strength, but also in absolute terms. The structure of this paper is as follows. After a brief introduction to the Innovation Systems approach and its empirical implications, the report picks up the traditional innovation process sequence for analytical purposes and presents indicators ranging from R&D, over scientific publications, patent applications, before it sheds some light on innovation policy and concludes. We have taken an outside perspective on the Guangdong innovation system and tried to compare it on a national and international level. The selection of indicators is based on experiences from similar reports for Germany. 1 The three Guangdong cities are Shenzhen, Zhuhai and Shantou. The other two SEZs are Xiamen (Fujian Province) and Hainan Province. 1

7 The Innovation System Approach 2 The Innovation System Approach For a very long time innovations were regarded as an exogenous factor in the analyses of the economic development of nations or regions (Abernathy, Clark 1985; Parayil 2002; Sundbo 1995). The residual of the economic growth variable in most economic models that could not be explained by the traditional factors labour and capital were attributed to technical progress. So innovation was just a residual. Starting with the new approaches of the New Growth Theory, innovation and technical progress were "endogenised" (Barro, Sala-i-Martin 1995; Lucas 1988; Romer 1986; Romer 1990). At the same time, models to describe and explain innovations and the innovation process, respectively, were rather simple and assumed a linear or sequential process, ranging from R&D expenditure, technical inventions, development of marketable products to the diffusion of these goods and products. After this, a new linear and sequential process starts. Though this simple model of the innovation process is still very helpful for analytical purposes, it does not by far reflect the reality of research labs, nor does it cover the recent findings of modern innovation theory. As a consequence, more complex and non-linear models were introduced (Kline 1985; Kline, Rosenberg 1986). Figure 1: The Actors of Innovation Systems and Their Relations Demand Consumers (final demand) Producers (intermediate demand) Framework Conditions Financial environment; taxation and incentives; propensity to innovation and entrepreneurship; mobility... Industrial System Co-evolution Education and Research System Political System Large companies Mature SMEs Intermediaries Research institutes Brokers Professional education and training Higher education and research Government R&I policies New, technologybased firms The potential reach of public policies... Public sector research Governance Infrastructure Banking, venture capital IPR and information Innovation and business support Standards and norms Source: Kuhlmann & Arnold (2001). The Innovation System approach contradicts the traditional assumption of a linear innovation chain starting from R&D, to innovation, via diffusion to economic growth (Grupp 1998; Schmookler 1966; Verspagen 2004). This model has direct implications how the innovation process is seen, but which is not only restricted to its description(edquist 1997; Lundvall 1988; Lundvall 1992; Nelson 1993; Nelson, Winter 1982). Based on this heuristic, innovations are embedded in the political, social, administrative and economic system. Next to the direct economic actors like companies or associations, several actors influence the outcome of the innovation system. It addresses various dimensions of the industrial, the education, and the research system. To satisfy the concept of systems of innovation in a more comprehensive way, framework conditions such as the financial environment, mobility issues, the demand of enterprises and private consumers, general attitudes towards new technologies or the various elements of the political system need more attention. Furthermore, the attention is directed towards 2

8 The Innovation System Approach some elements of the infrastructure, such as the provision of venture capital, the conception of intellectual property legislation or the role of norms and standards (see Figure 1). The same applies to the role of intermediaries between the industrial and the research system or public research and innovation policies. At the same time the potential reach of innovation policy is identified and defined, so that the setscrews of public policy are an explicit part in this heuristicbased on this heuristic, some fundamental assumptions and implications for the analysis of innovation can be derived. First, there is no singular and exclusive causality or impact of economic (or social and cultural) factors on innovation performance. Rather, innovations take place embedded in social, institutional, organisational, political and economic framework conditions that all more or less affect the outcome. At this point a proximity to the Evolutionary Economic Theory (Foster, Metcalfe 2001; Mokyr 1990; Nelson 1995; Nelson, Winter 1982; Saviotti, Metcalfe 1991), as well as to the New Institutional Theory (North 1990) is arguable. Secondly, there is no optimal and single path to innovation success and recursive processes are underway, a finding which is also proved empirically (e.g. Ophem et al. 2002). Thirdly, learning processes and path dependency play an important role in this approach (Dosi 1982; Ruttan 2001). The innovation activities do not only depend on external or exogenous factors, but also on the activities, decisions, competences and investments of the past. What will be done tomorrow is highly dependent on what was done yesterday and what is done today. This latter analytical perspective is directly opposed to the decision-making processes modelled in the traditional Neo-Classical Economic Theory. Both Dosi (1982; 1984) and Lundvall (1992) and many others after them have stressed the role of technological paradigms resulting in so-called "trajectories", which are paths of technological development. Innovations are built on existing knowledge and experiences. Not only knowledge is cumulative, but also innovations. This discussion leads directly to questions of absorptive capacities (Cohen, Levinthal 2004) these are the capabilities of understanding and using the scientific and technical findings of others and knowledge transfer (Schmoch 1993; Teece 1977; Vuola, Hameri 2006), for example from universities and public research institutes to innovative companies that develop marketable products and services. Here, the outstanding role of human capital, with solid and high-quality qualifications, is evident. Furthermore, the cumulative character of knowledge and innovation points to the division of labour between branches, companies, regions and even countries, which result in specialised scientific, technological or economic profiles. In his seminal work, Ricardo (1996) emphasised the meaning of specialisation on the production of certain goods to reach efficiency gains from synergies. Today we know in addition that is it also necessary and efficient to focus one's own efforts to absorb, provide and make use of existing knowledge to push technical, social and economic change further. Within this theoretical framework this should have become clear from the above discussion the outcome and performance of the Innovation System is not only dependent on the core factors like R&D expenditure or the number of high-tech companies. Rather, many factors and actors are responsible for the success of the innovation endeavour. And the potential reach of public policy does not end at tax incentives, but covers more general aspects like regulations, innovation culture, provision of excellent public research, setting the curricula for schools and universities or simply creating an innovation-friendly environment for incubators and innovators. Three key-lessons can be learned from the Innovation System approach for the current innovation policy of the province of Guangdong. Firstly, to ensure the sustainability of current economic development and to lay the foundations for continuing competitiveness of the province, policy makers need to foster the manifold strengths of the region while simultaneously addressing its remaining weaknesses. The design of successful innovation policy cannot be a simple undertaking to be tackled by a specialized department with a small set of policies. Rather, innovation policy requires a comprehen- 3

9 The Innovation System Approach sive set of policies addressing multiple issues in the fields of a) education, b) research, c) financial policy/tax policy, d) framework legislation and e) industry policy in a holistic and integrated manner. Secondly, until the late 1990s it was possible for public policy makers in China to directly conduct innovation policy by public research institutes and large state-owned enterprises and to focus on the allocation of funding to a limited number of directly selected large projects. The low number of innovation activities were easy to grasp and manage. A consequence of the emergence of the private sector as a major source of progress in the Chinese innovation system and an increased importance of indigenous innovations, the challenges that China's political actors face nowadays have changed significantly. Main drivers of innovation policy in the private sector are now beyond the immediate reach of governmental agencies or can more effectively be tackled by indirect policy measures. This holds true for the small- and medium-sized enterprise sector as well as for large Chinese and multinational enterprises. The Innovation System approach stresses that political actors can more effectively influence this part of the economy through the development of intermediaries that broker public research results to the company sector and agencies for the distribution of subsidies in a competitive, application based process. Finally, the Innovation Systems approach backed by empirical data and experiences from many countries underline that innovative enterprises will not necessarily react very strongly to simple measures such as the provision of tax incentives as for the firms these provide only limited strategic advantages. Due to the close interplay between the regional framework conditions and actual research and development potentials in regional firms and institutes successful innovation policy will have to follow a double strategy. On the one hand it needs to focus on soft factors such as the establishment of a regional culture of innovation, i.e. on the creation of a broad awareness for and openness to the needs of innovative enterprises. On the other hand it needs to focus on the provision of hard factors, e.g. the regional provision of application-oriented technology supply through public research institutes and the provision of a sound human capital base. These two policy strands are the cornerstones of constant and sustainable success of innovation performance. 4

10 R&D Activities and High-Tech Industries 3 R&D Activities and High-Tech Industries R&D activities are the basis and foundation of innovative processes, defining the allocation and distribution of resources. Expenditures on R&D, as well as R&D personnel, are the key indicators for the assessment of the innovation orientation of nations or regions. Though the absolute amount of money allocated for R&D is highly dependent on the scientific and technological structure of the economy and the innovation system in particular, as different propensities and different necessities for R&D investment exist. While high-tech areas require by definition larger shares of investment in R&D, low-tech fields may still be innovative. However, R&D-intensive technologies or sectors and high-tech areas in particular are of outstanding interest in the analysis of innovation systems, as the basic assumption is that high-tech is in increasing international demand and serves growing international markets and at the same time requires competences, skills and capabilities that other nations or economies do not have to the same extent and therefore allows to gain comparative advantage and long-term success to secure high income and welfare. Structure and Key Actors of the Provincial Innovation System Other than the Beijing capital region and to a distinctly lesser extent than the Yangtze River Delta, R&D in the province of Guangdong is based on activities in the enterprise sector. On the contrary, the relative contribution of higher education institutions remains below the national average and amounts to only half the share that it contributes in Beijing or the Yangtze Delta. On the financing side, the importance of the business sector is underlined by the fact that government funding for S&T which amounts to 45.2% in Beijing and a remarkable 23.1% on national average, while only 10.1% in Guangdong. This tendency, however, can also be observed in the Yangtze Delta, which also remains below the national average, if not to the same extent. Table 1: Intramural Expenditure for R&D by Performing Actors Total (billion Yuan) Independent Research Institutions (share) Large and Medium-Sized Enterprises (LME)* China total % 51.0% 6.0% Beijing % 10.4% 9.6% Yangtze River Delta % 58.6% 9.5% Guangdong % 74.0% 5.0% Higher Education Institutions * Chinese surveys only cover LMEs (firms > 300 employees, >40 million Yuan assets and > 30 million Yuan sales) on an annual basis. Small enterprises that account for about 8% of national R&D activities are only covered every 5 years. Source: China Statistical Yearbook on Science and Technology Time series data show that the dominance of the industrial sector in Guangdong has continuously increased. While in the course of the last fifteen years expenditures for public research have been increased more than fourfold, expenditures for technological development in the large and medium-sized enterprise sector have risen close to 50- fold. Notably, also, investment in research in higher education which had grown only moderately in the early and mid 1990s, increased remarkably in the last five to ten years, likely due to the establishment of the Shenzhen Virtual University Park. 5

11 R&D Activities and High-Tech Industries The remarkable increase in investment from "other" sources may indicate rapidly increasing investment in science & technology by smaller and medium-sized enterprises that do not fit into the official LME classification, which however, cannot be claimed with certainty due to the limitations of the data. Figure 2: 16,000 Research and Development Personnel and Funds in Institutions of Higher Education in Guangdong 1,600 14,000 1,400 12,000 1,200 number 10,000 8,000 6,000 1, (million Yuan) 4, , Number of Research and Development Personnel Funds for Research and Development Subjects in Current Year (million Yuan) Internal Expenditures on Research and Development (million Yuan) Source: Own diagram, based on Guangdong Statistical Yearbook In the business enterprise sector, Guangdong is the leading centre of innovative development in China, outperforming the Yangtze River Delta with regard to nearly all indicators, except for "intramural R&D expenditure" and "output value of new products" where both are a close match. In general, it can be stated that one fourth to one third of all R&D activities in the Chinese industrial high-tech sector are located in the province of Guangdong. Remarkably, the share of expenses for labour is 50% higher in Guangdong than the national average. This proves the high demand for highly qualified people and also points to some possible shortcomings of these qualifications. If the supply does not fit the demand both in terms of quantity or quality one reaction of the labour market is an increase of the wages and labour costs. Unsurprisingly, Guangdong does not display any specialisation in the aeronautics field, since the Chinese military-industrial complex is located in other parts of the country e.g. the Northeast. With regard to 'Computer and Office Equipment Manufacturing', 'Medical and Pharmaceutical Products as well as Measurement Equipment', its specialisation is less pronounced than that in the provinces of the Yangtze River Delta and even Beijing. In contrast, the province of Guangdong displays a high specialisation in the area of 'Electronic and Telecommunication Equipment', in short, the ICT manufacturing sector. 6

12 R&D Activities and High-Tech Industries Table 2: Intramural Expenditure for R&D in High-Tech Industry (2005) Total (million Yuan) Medical and Pharmaceutical Products Manufacturing Aircraft and Spacecraft Electronic and Telecommunication Equipment Computer and Office Equipments Manufacturing Medical Treatment Instrument and Meter Manufacturing China total 36, % 7.7% 64.7% 12.0% 4.6% Beijing 2, % 10.8% 43.5% 30.6% 8.5% Yangtze River Delta 10, % 0.5% 63.0% 15.1% 7.3% Guangdong 12, % 0.2% 88.1% 7.5% 2.1% Source: China Statistical Yearbook on High Technology Industry The specialisation in certain high-tech sectors is particularly evident with regard to intramural expenditures for R&D and patenting. Regarding export revenue from "new products" (as defined by Chinese statistics), in contrast, deviations from the national average are generally far lower. Again, this points to the fact that the economic success and export performance of the Guangdong province even in the field of activities labelled high-tech for statistics neither necessarily depend on high industrial expenditures for R&D nor on a high degree of generic technological capability as evidenced by patenting. Structure of R&D Expenditure in the High-Tech Industry of Guangdong Province According to data from official statistics displayed below, expenditures for the import of technology still play a major role in innovative activities in the High-Tech Industry in the province of Guangdong. Taken together with the expenditures for the assimilation of (likely imported) technology they surpass the amount of funds allocated to technical innovation. The acquisition of domestic technologies, in contrast, continues to play a minor role even though it has more than doubled in recent years. Consequently, it appears that Guangdong remains dependent on international technology transfer to continue to upgrade its technological capabilities although these efforts are by now matched with a significant amount of endogenous R&D activity. Moreover, it remains questionable to what degree the categories "expenditures on technical innovation" and "expenditures on digestion and assimilation of technology" can really be unambiguously be interpreted as different. 7

13 R&D Activities and High-Tech Industries Figure 3: R&D Expenditure in the High-Tech Industry of Guangdong Province 2,500 2,000 million Yuan 1,500 1, Expenditures on Technical Innovation Expenditures on Digestion and Assimilation of Technology Expenditures on Imports of Technology Expenditures on Purchase of Domestic Technologies Source: Own diagram, based on Guangdong Statistical Yearbook Table 3: Regional S&T Statistics for LME in the Guangdong Province 2005 Internal Expenditures Expenditures for R&D Expenditures for New (million Yuan) for S&T Product Development Total Guangdong 29,736 18,039 21,079 Shenzhen 12,466 10,238 10,699 Foshan 5,093 2,774 3,173 Guangzhou 3,417 1,704 1,934 percentage of total 70.5% 81.6% 75.0% Zhongshan 1,613 1, Huizhou 1, ,283 Dongguan 1, Zhuhai Shaoguan Source: Guangdong Statistical Yearbook Unfortunately, data on the regional distribution of R&D activities inside Guangdong province are only available for the LME sector. Nevertheless, those very clearly indicate a concentration of innovative activities on the cities of Shenzhen, Guangzhou and Foshan and their vicinity. With regard to nearly all indicators, these three cities account for more than two thirds (often more than three quarters) of innovative activity. Human Capital and Science Base The current status of the scientific and research base can not keep up with the pace of economic growth. There is no doubt that Guangdong province has made impressive progress in strengthening education and human capital illustrated by the number of postgraduates each year (Figure 4). However in terms of total R&D personnel as well 8

14 R&D Activities and High-Tech Industries as R&D/10,000 people, Guangdong lags far behind Shanghai and Jiangsu Province (Ministry of Science and Technology of the People's Republic of China 2004). For the numbers of higher research institution per million of population, Guangdong scores only 0.41, compared with 1.48 of Shanghai, 0.57 of Zhejiang, and 0.49 of Jiangsu. ( 广东科技厅, 2005).Guangdong province also lacks nationally renowned universities and research centres compared with Beijing and Shanghai (Arvanitis and Jastrabsky 2006). Among the most productive Chinese universities, Zhongshan University - also named Sun Yetsen University - is the only university in Guangdong province which appeared on the Top 20 Productive Research Institution list differentiated by 26 research fields (Frietsch, Tang et al. 2007)2. In addition, the researchers most needed for Guangdong's high-tech and advanced manufacturing are graduates majoring in science and engineering. However, Guangdong has only four comprehensive and S&T-based universities, compared with 12 in Shanghai, 18 in Jiangsu province and 8 in Zhejiang province. Its undergraduate enrolment in science major studies is below the national average. In terms of the overall education level, such as the percent of people possessing more than a college degree, Guangdong is ranked below the national average. Such an insufficient supply of human resources cannot satisfy the demand of Guangdong's industry, and inhibits Guangdong's innovation capacity and sustainable economic development as well ( 蔡昉, 都阳, 高文书, 2004; Guangdong Statistics Yearbook, 2005). Figure 4: Guangdong Postgraduates in Thousands: Doctoral/Master students Total enrolment Doctoral student enrolment Master student enrolment Total enrolment at colleage level and above 0 Source: Guangdong Science & Technology Yearbook In addition to Zhongshan University, three institutes of the Chinese Academy of Sciences are also on that star lists. They are Guangzhou Institute of Soil Science, Guangzhou Institute of Geochemistry and Guangzhou Institute of Energy Conversion. 9

15 Scientific Performance of Guangdong Province 4 Scientific Performance of Guangdong Province The scientific performance of a country is an essential basis for its technological performance; therefore this topic is of special interest for the analysis of the technological competitiveness of nations or regions. A major contribution of science to technological development is the education of qualified staff whose quality substantially depends on the performance of research. The results of scientific research are also an important basis for technological development. However, the linkages between science and technology are often indirect and less obvious, as in many cases a distinct time lag can be observed between activities in science and their effect on technology. Scientific performance is difficult to measure, particularly as the structures in specific disciplines often differ considerably. The statistical analysis of scientific publications has proved to be meaningful, if they are conducted with a careful methodology.3 Country comparisons in science are generally conducted with the database Science Citation Index (SCI). In addition to the performance measures, we analyse international scientific co-operation, as it has played an increasing role in recent years. Table 4 displays the data on scientific publications for China, Guangdong and the worldwide publications in eight scientific areas covered by the Science Citation Index. As can be seen, Medicine and Biology are the largest fields worldwide among the eight areas under examination here. Both China and also Guangdong show the maximum absolute output in other fields, namely Chemistry and Engineering. However, the total output measured as the share of total worldwide publications of China is about 8.1% for the period , while Guangdong only contributes about 0.3% to the worldwide scientific publications. In relation to China's total scientific output, Guangdong only reaches a level of 3.5% on average, the maximum being 4.6% in Medicine and the minimum 2.3% in the field of Electrical Engineering. In Figure 5, the specialisation index4 is displayed a measure that allows the assessment of fields and countries beyond size effects. It reveals a relative strength of Guangdong in Materials Science and Chemistry, but also emphasises the weak position in Medicine and Electrical Engineering. In the area of Ecology (including Environmental Technologies), a positive value is reached and a higher specialisation of Guangdong than in China as a whole is evident. This might be an area of special interest for both national innovation policy as well as for the development of a stronger positive profile (see below). Although the growth of scientific output is impressive and many efforts have been made in this respect, the scientific foundation of Guangdong province is very small. This applies even more in the areas of technological and economic activities, namely Electrical Engineering, Computers and also Materials Science. As mentioned in the discussion of the innovation systems approach, the science system plays a very important and crucial role on the way to indigenous innovations, as they lay the foundations 3 For a deeper discussion of the methodology, please refer to van Raan (1988), Moed et al. (2004), (2006). 4 The specialisation index RLA (Revealed Literature Advantage) is defined as: RLA kj = 100 * tanh ln [(P kj / j P kj )/( k P kj / kj P kj )]. (1) with P kj indicating the number of publications of country k in field j. Positive values point to the fact that the field has a higher weight in the portfolio of the country than its weight in the world. Negative values indicate specialisations below the average, respectively. 10

16 Scientific Performance of Guangdong Province for future technological and economic success. From this perspective, it is even more alarming that considerable shortcomings are visible in Guangdong. And these might even increase in a mid- to long-term perspective as the trend both in China and worldwide favours innovation and knowledge-based production of goods and services. If Guangdong is not able to catch up to the worldwide level and quality, enormous disadvantages will be the result of this backlog. Figure 5: Profiles of Scientific Specialisation of China and Guangdong, Electrical Engineering Computers China Guangdong Optics, Measuring, Medical equipment Material Science Chemistry Mechanical Engineering, Physics Medicine, Biology Ecology, Geoscience, Other Source: STN: SCISEARCH; Fraunhofer ISI calculations. Another finding is that the industrial sector in Guangdong has been involved in knowledge production more than the national average level in most research fields, measured by publication authorship. This is especially true in the fields of optics, pharmacy and environmental engineering 5. Table 5 shows industry participation in scientific research in Guangdong and China in the past three years. In the research field of Optics, for example, the proportion of publications with coauthorship from an industry sector is more than 6 times the national average. With a further examination, we find that among those firms listed in the optics publication list, most are foreign-owned companies or joint ventures such as Comba Telecom System Holdings Ltd ( 京信通信系统控股公司 ), E-O National Co., Ltd at Huizhou ( 惠州市中科光电有限公司 ), et al. 5 The identification of industry sectors is based on authorship affiliation. We developed an industry thesaurus which clusters affiliation name ending with industry symbols such as "Corp", "Co.", "Ltd" and so on. 11

17 2 1 Table 4: Absolute and relative numbers of scientific publications, Electrical Engineering Computers Optics, Measuring, Med. equipment Material Science Absolute Numbers Chemistry Mechanical Engineering, Physics Medicine, Biology Ecology, Geoscience, Other Total Scientific Performance entific Performance of World 75,775 59, , , , ,006 1,110, ,132 2,728,463 China 1,999 1,528 3,114 8,088 14,973 15,768 12,066 6,377 63,913 Guangdong World 97, , , , , ,846 1,353, ,342 3,742,633 China 8,102 15,459 13,959 43,070 64,315 69,313 51,772 38, ,406 Guangdong ,254 2,577 1,930 2,359 1,428 10,741 Growth factors (comparison of the two periods) World China Guangdong Shares of publications in (in percent) China / World Guangdong / World Guangdong / China Source: STN: SCISEARCH; Fraunhofer ISI calculations.

18 Scientific Performance of Guangdong Province Table 5: Industry Involvement in Scientific Research: Guangdong vs. China ( ) CN IndustryCN IndustryGD IndustryGD Industry Research Field Publications Publ. in % Publications Publ. in % Electrical engineering Optics Thermal processes Civil engineering Mechanical engineering Materials research Environmental engineering Pharmacy Basic chemistry Average Biotechnology Geosciences Polymers Biology Multidisciplinary Computers Measuring, control Physics Food, nutrition Other Medical engineering Organic chemistry Ecology, climate Medicine Chemical engineering Mathematics Nuclear technology Source: STN: SCISEARCH; Fraunhofer ISI calculations. International research collaborations are of increasing importance, as in a world of complex science and technology the mandatory knowledge required in a modern research project can hardly be achieved by one institution or one research group only. As a result of this, also about 19% (20% in total China in 2006) of all scientific publications of Guangdong are co-authored with at least one international researcher. Table 6 contains the co-publications of authors from Guangdong province with international authors, differentiated by the eight scientific fields under observation here. The Asian-Pacific area this contains especially Japan, South Korea, Singapore, Australia and other countries of this region is the most important collaborating region for Guangdong province. However, also the USA and Europe, as the largest knowledgeproducing economies in the world, are of great interest for Guangdong authors. While the Asian-Pacific countries offer themselves as partners in many areas, but especially in Materials Science and Electrical Engineering, the USA is chosen in Medicine and Chemistry, and Europe is favoured in Computers and Mechanical Engineering. Germany as a part of the EU-27 region is of special interest in the area of Mechanical Engineering and also Materials Science. Both are areas of special interest in Germany and where both German researchers and German companies have a high international reputation. Making further use of these existing collaborative ties may offer positive effects for Guangdong as well as for Germany. 13

19 4 1 Table 6: International co-publications of Guangdong Province with selected regions/countries, Electrical Engineering Computers Optics, Measuring, Med. equipment Material Science Chemistry Absolute Numbers Mechanical Medicine, Engineering, Physics Biology Ecology, Geoscience, Other USA Asian-Pacific EU UK Germany Total Relative Numbers (in percent per scientific field) USA Asian-Pacific EU UK Germany Total Relative Numbers (in percent per region) USA Asian-Pacific EU UK Germany Total Total Scientific Performance entific Performance of Source: STN: SCISEARCH; Fraunhofer ISI calculations.

20 Technological activities and technological profiles 5 Technological activities and technological profiles The system of intellectual property rights is manifold and ranges from copyrights, trademarks, and design patents to utility patents for technical inventions. Further less formal mechanisms are often used in parallel or in advance of the protection by formal property rights. Among these are secrecy, lead start in the market, complex design, or complex technical specifications. Among the mechanisms of protection, patents for technical innovations play a special and crucial role, as the formal requirements for patent applications are the strictest ones, and the assertion of patents is backed by a strong legal framework. Starting from a simple legal perspective, patents give, for a limited period, an exclusive right of usage to the applicant to secure a quasi monopolistic revenue. From the perspective of analysing innovation systems, patents can be interpreted as an indicator of the codified knowledge of enterprises, and in a wider perspective, of countries. The focus of statistical patent analysis is directed towards technological innovations, especially visible in the manufacturing sector.6 It can be plausibly assumed that any patent application is preceded by mostly large investment in the research and development process (Grupp 1998: ; Kash, Kingston 2001). From this point of view, patents can be seen as a success or output indicator of research and development (R&D) processes (Freeman 1982: 8). On the other hand, most but not all technological inventions will flow into a product or process that will then be offered on national or international markets. Thus, patents can be also interpreted as an input indicator (or throughput indicator) with regard to future market activities of enterprises, sectors or countries and therefore act as an early sign for future competitiveness (Frietsch, Schmoch 2006). National Patent Applications The analysis of national patent applications at the State Intellectual Property Office (SIPO) identifies Guangdong as the province in China with the largest absolute number of patents (see Table 7), far ahead of Shanghai, Beijing, but also ahead of larger provinces like Zhejiang or Jiangsu. However, when the data is analysed in a more differentiated fashion, some shortcomings and disadvantages of Guangdong province become evident. Invention patents are of higher technological and also economic value (on average) than utility or design models. On the one hand, this is due to the technical content and the preceding R&D processes. On the other hand, invention patents follow international standards and can at the same time be applied in other countries or at other patent offices, offering access to larger international markets. Only about 23.5% of the total number of patent applications (more than 90,000) from Guangdong province in the year 2006 involve invention patents. This is even below the total Chinese average of 26% and far behind other provinces and municipalities like Beijing (53.6%) or Tianjin (37.5%). The explanation of this might be manifold and is first of all related to the shares of multinational companies located in the regions, as they have on average much higher shares of invention patents than national applicants. Anyway, the fact is that research that results in the application of invention patents is less frequent in Guangdong than in many other regions. Although the share of invention patents 6 As to the appropriateness of patents as a technology indicator, see Schmoch and Hinze (2004) and the references cited there. 15

21 Technological activities and technological profiles originating in Guangdong (17.5%) is the largest among all regions and municipalities in China, while for example Beijing only contributes by 11.6%. But this should not obscure the fact that given the differences in size Guangdong is far behind the expectations and far behind its meaning derived from the total number of patent applications (19.3%). Like its low share in intramural investment in R&D, the comparatively small amount of patent applications in the Guangdong province mirrors the comparatively low overall relevance of the industrial sector for the national innovation system in China. Guangdong is outperformed by Beijing and the Yangtze River Delta (mostly Shanghai) largely because a lot of patenting still results from government-sponsored R&D. Public research still contributes about one half of overall domestic patenting. Concerning the high-tech industries, however, Guangdong can be considered the centre of innovative activity, since in this field it concentrates close to half of all national patenting activities. Scientific publication activity, in contrast, remains negligible, pointing once again to a severe and persistent weakness with a view on academic research. The dynamics of patent applications in Guangdong are clearly above the total Chinese average (see Figure 6). The absolute number of total patent applications originating in Guangdong is more than 6 times the number in the year 1998, while the numbers originating in total China are only about 5 times higher than at the end of the previous century. However, in the same period other regions and municipalities increased their output even more, for example, Shanghai, Jiangsu or Tianjin. And most of these regions this was shown above have much higher shares of invention patents than Guangdong. Table 7: National patent applications of selected regions, 2006 Absolute Numbers Relative Numbers (in percent) Total Invention Utility Design invention per of total of total region invention patents Beijing Tianjin Shanghai Total Liaoning Guangdong Sichuan Hong Kong Henan Hubei Jiangsu Shandong Chongqing Zhejiang Fujian Source: SIPO; Fraunhofer ISI calculations. 16

22 Technological activities and technological profiles Figure 6: Growth of national patent applications of selected regions 2006 (1998=100) Shanghai Jiangsu Tianjin Zhejiang Guangdong Chongqing Shandong Total Beijing Fujian Hong Kong Source: SIPO; Fraunhofer ISI calculations. Transnational Patent Applications The examination of Transnational Patent applications these are patent applications that were filed at the EPO or under the PCT procedure reveals the technological competitiveness on an international level. Usually, applicants and inventors have a strong home advantage at their home office, as this covers the market of first and foremost interest. To overcome this home advantage bias and to make international comparisons possible, the concept of Transnational Patents was suggested (Frietsch, Schmoch 2007; Patel, Frietsch 2007). As can be seen in Table 8, the absolute numbers of patent applications are still very low for China as well as for Guangdong, but the growth rates are again very impressive. While the total number of Transnational filings in the period is about times higher than in the period , the numbers for China and Guangdong are between 6 and 246 times higher though some of them starting from a very low level. It is very interesting to note especially against the background of a general scientific weakness found above that Guangdong is very active in High-tech areas and here especially in Leading-edge technologies.7 These are technological fields of high R&D-intensity and where technical knowledge and research capacities are decisive factors for competitiveness. However, this finding fits with findings on the R&D expenditure as well as with the fact that the industry has a science linkage, which is above the Chinese average. 7 The High-tech areas are defined as the share of turnover that is on average re-invested in R&D, based on empirical findings and international conventions (Grupp et al. 1996; Legler, Frietsch 2007). High-tech can be differentiated by High-level and Leading-edge technologies, where High-level technologies reach R&D investment shares of %. Leading-edge technologies usually require investments of more than 7.5%. 17

23 1 8 Table 8: Absolute and relative numbers of Transnational Patent applications, Electrical Engineering Instruments Chemistry Mechanical Engineering Absolute Numbers Other High-level technologies High-tech Leading-edge technologies Total High-Tech less R&D intensive Technological activities and hnological activities and tech- Total China Guangdong Total China Guangdong Growth factors (comparison of the two periods) Total China Guangdong Shares of Transnational patents in (in percent) China / World Guangdong / World Guangdong / China The High-tech areas are defined as the share of turnover that is on average re-invested in R&D, based on empirical findings and international conventions (Grupp et al. 1996; Legler, Frietsch 2007). High-tech can be differentiated by High-level and Leading-edge technologies. Source: STN: EPFULL; Fraunhofer ISI calculations.

24 Technological activities and technological profiles Especially in Electrical Engineering and here more precisely in the area of Information and Communication Technologies (ICT) Guangdong has an outstanding national and international position. More than 45% of total Chinese patent applications at the Transnational level originated in Guangdong. This is even more surprising as the scientific foundation in the related fields Electrical Engineering and Computers was not among the strengths of Guangdong. Figure 7 summarised these findings based on the specialisation index that allows the comparison of relative strengths and weaknesses beyond size effects. In Electrical Engineering and as a consequence in the aggregated levels of Leading-edge technologies and High-tech areas, a very strong and pronounced positive specialisation is visible for Guangdong. And this value is far ahead of the specialisation of total China. On the other hand, the values of the other areas show an extreme negative specialisation, which indicates a very focused and narrow technological basis. Though the ICT sector serves large and growing markets and is one of the most important drivers of economic progress, a monolithic technical orientation is a risk and entails a strong dependency on this single technological area. In times of economic downswing for example, as happened at the beginning of the new century a broader technological or sector foundation may help to reduce the risks and may prevent possible shocks from impacting the national/regional economy. However, the very positive and impressive indicators of Transnational patent filings should not obscure the underlying structural shortcomings. For the moment the technological strengths and the success also in international markets validate the innovation policy and the existing structures. In the long run, a broader scientific and technological orientation and a clear innovation orientation is a mandatory prerequisite for national and international success. This means that more universities and research institutions need to be engaged in high quality research as well as in knowledge transfer to local companies, who themselves have to engage in R&D on a broader scale. Figure 7: Technological specialisation profiles of China and Guangdong, Electrical Engineering Instruments Chemistry China Guangdong Mechanical Engineering Other High-level technologies Leading-edge technologies Hightech less R&D intensive Source: STN: EPFULL; Fraunhofer ISI calculations. 19