CHINA: Innovation needed to preserve economic gains

China has worked small wonders to lever itself into position as the world's fourth largest economy, but its recent growth rates may not be sustainable. The key word now is "innovation". The Chinese government recognises this and has launched a national strategy to build an innovation-driven economy and society by 2020.

A new report from the Organisation for Economic Co-operation and Development (OECD) considers whether this can be done and what it will mean for China and the rest of the world.

The recent pace of economic growth in China is unsustainable because it requires too much energy and raw materials, degrades the environment, sets up regional and rural distortions and creates large migrant flows that strain the social fabric and the environment. At the same time, rising competition means that Chinese industry has to increase its competitiveness through use of technology, upgrade exports from low to high value-added and focus on innovative Chinese firms rather than foreign-owned subsidiaries.

But the Chinese still have a lot going for them, especially in science and technology where they are already world players, says the OECD: research and development spending has increased at a "stunning" annual rate of 19% since 1995 and at US$30 billion is the sixth highest in the world.

China now has the second largest number of researchers, after the US but before Japan. Its share in world scientific publications rose from 2% to 6.5% over the decade ending in 2004, and now ranks second only to the US in world publications on nanotechnology.

But this is not yet translating into higher output compared with OECD countries with similar levels of R&D. The OECD says this indicates "deficiencies in the current policy instruments and governance for promoting innovation as China continues to move from a planned economy to a market-based system".

If the government addresses these shortcomings by following international best practices, China has the potential "to develop a national innovation system that will be a powerful engine for sustainable growth and facilitate the smooth integration of China's expanding economy into the global trading and knowledge system", the OECD says.

alan.osborn@uw-news.com