China can enhance power of innovation through knowledge spillover

Source:Global Times Published: 2015-3-19 18:13:01

During the recently concluded two sessions, Chinese Premier Li Keqiang stressed that "we will seek innovation-driven development" while delivering the annual report on the work of the government.

Everyone is talking about innovation, from our premier to our students. We pay particular attention to it because we care about the future of China. We are now experiencing a slowing economic growth rate and a lot of people are talking about the middle-income trap.

While facing all the problems and challenges, innovation has become the optimal solution. However, how can we ask or expect people who just came from poverty to have the capability to innovate?

First of all, we can learn from the US, which has already maintained a high capability of innovation for many years, and will still be the leading country of innovation in the near future. Why? Because the US has institutions and institutional framework built by people who are willing to put money into new ideas, to encourage innovation, and protect people from the failures of innovation.

Thus, what we need is not only to encourage innovation in education, but also promote the institutional conditions for innovation, like capital markets, government policy and so on.

That is why one of the suggestions for our next five-year plan is to improve institutions for further innovation. Our country is not going to simply provide money, but improved institutional condition for innovative ideas.

Besides, innovation includes not only technology, but many other things, such as business model, management and new promotional techniques. We call that the extension of innovation.

A lot of companies thrive not because they have new technologies, but because they have new business models. Think about Alibaba, which doesn't have new technology, but has created a profitable business model.

Meanwhile, innovation includes two stages. One is innovation itself. The second stage is the spread over, or the extension of the new technology. At the second stage, what's important is not something new, but the application of the new things.

Take the China Wanda Group. It started with innovation, but it became a legend by duplicating the new business model in both shopping malls and real estates. This is also a process of innovation.

We should encourage both stages.

For developed countries like the US, there will be more original innovations, because they have the capability to do so. For developing countries, we may not have much original innovation, but we can apply the innovations of others as we have done for the past 35 years.

We learned the new technology and business models from other countries, and we transferred the innovations into our own ways. We call that the spillover effect on knowledge.

And that is what we need to keep doing in the coming decades - promoting applications of something new that was not created by ourselves.

Therefore, our structure of economy is and will be featured by higher application though less original innovation. This is a necessary process. Even in the US, a lot of companies are doing the same. As a developing country, China should continue to learn, to utilize the "advantage of backwardness," and the advantage of newcomers, to keep the economy growing, and to realize our dream of becoming an innovative country.

The article was compiled by Global Times reporter Li Aixin based on a speech by Fan Gang, a professor at Peking University and Chinese Academy of Social Sciences, during the BFSU-Harvard Forum held in Beijing on Tuesday. liaixin@globaltimes.com.cn

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