China is evolving from the world’s factory to a crucible of innovation, rapidly approaching a world-class level in terms of both quantity and quality of research carried out. This carries profound implications for the competitiveness of Korea’s main industries and so-called growth engines.
The big strides in China are in response to the government’s push to nurture indigenous innovation in order to end dependence on foreign technology and to help shift the Chinese economy into more capital and technology-intensive industries. But the seeds of the R&D commitment were sown even before a national innovation development plan was unveiled in 2006.
Since 2000, the nation’s annual investment in R&D has expanded by 23 percent. In 2011, China is expected to rank second in terms of R&D investment based on purchasing power parity. In addition, China is benefitting from the largest national R&D workforce in the world, 20 percent of the world’s total R&D brain power.
In both quantitative and qualitative terms, China has shown an impressive performance in innovation. From 2007-9, the annual average number of Chinese articles published in international science and technology journals totaled 104,157, placing China second. As for the number of articles covered in the top 10 percent of international journals, China ranked fourth from 2007-9, up from 19th place in 1987-89.
According to a Total Factor Productivity analysis of approximately 1,200 companies each from China and Korea from 2001-9, Chinese companies’ annual average TFP growth stood at 4.46 percent compared to Korea’s 3.36 percent. If we assume Korea and China’s productivity levels were equal in 2001, China’s TFP growth was 20 percentage points higher than Korea’s in 2001-9. Technological progress accounts for nearly 90 percent of the TFP growth in China but only 63 percent in Korea. In particular, China is rapidly closing the technology gap with Korea’s mainstay industries such as electronics and automobiles. In new promising industries such as pharmaceuticals, solar power and electric automobiles, China’s technological capability has already overtaken Korea, leading the global industrial trend.
In the electronics industry, China has surpassed Korea in R&D investment. It also started to overtake Korea in terms of the number of Patent Cooperation Treaty filings in 2008. As for telecommunication equipment and smart home solutions, China is grabbing the lead in next-generation product development. And in the electric car industry, strong government support already has led to international standards being set by Chinese companies such as BYD.
Being sandwiched between advanced countries’ high-end products and emerging countries’ low-end products, Korea has tried to gain competitiveness advantages by maximizing its strengths as a “fast follower” that upgrades existing products but keeps costs in check. However, China’s low-price and high-quality products, thanks to its innovation capabilities, will likely enjoy an increasing presence in the global market and apply pressure on Korean products.
In response to China’s innovation strides, Korea needs to reestablish a national R&D system geared to maximizing its technological competitiveness. Rather than pursuing quantitative competition, Korea should pursue qualitative competition by supporting “star companies” or “star researchers.”
Meanwhile, by strengthening a link between R&D main performers such as universities, research institutes and companies, the utilization of research results should be significantly improved. Second, Korean companies quite simply need to outpace their Chinese rivals in the innovation race. Korea’s world-class operational technology and operating efficiency in mainstay industries need to be maximized and bold investments into future industries should be made.
Lastly, Korean companies should explore ways to utilize China’s top personnel related to key technologies.
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