Letter IEDI n. 961–China: Rethinking Industrial and Innovation Policies
In an era of new technologies and profound global transformations, Chinese economic growth has been the subject of widespread international debate. A point often highlighted is the need to transform the impulses for investment in industrial physical capital into stimulus for innovation.
China's adaptation to this new context is the subject of the recently published "Innovative China: New Drivers of Growth" report, produced by the World Bank in partnership with the Development Research Center of China's State Council. This Letter IEDI analyzes two of its chapters, whose titles are “Reshaping industrial policies and supporting market competition” and “Promoting innovation and the digital economy”.
In the study, the World Bank suggests guidelines for changes in Chinese industrial and innovation policies that may also be of great value to Brazil. It is assumed that vigorous growth and a high per capita income status will, as in the case of market economies, result from China's ability to maintain high productivity gains through an emphasis on innovation.
In recent decades, the country has embraced a hands-on selective industrial policy that, by fostering a broad set of sectors and companies, to a large extent helps explain the success of its industrial development. However, as stressed in the study, once these policies are in place the incentives and political economy involved make adjusting or abandoning them difficult.
In China, there is already strong government guidance to promote science, technology and innovation. But, in the World Bank's view, there is still a need to foster greater competition in some sectors, so that companies, under competitive pressure, are more likely to innovate.
From this perspective, the Bank's suggestions include:
• Fostering greater market competition and allowing better alignment between central government policy formulation and local government implementation;
• Promoting sophisticated services, particularly the diffusion of the digital economy across the various service sub-sectors and their linkages with the industry;
• Supporting entrepreneurship and improving business environment;
• Reforming state-owned enterprises and ensuring fair competitive conditions for companies in the country.
At the same time, there is a need to refine China's extensive national innovation system. So far, it has prioritized the discovery of new technologies and innovations. In addition, the World Bank advocates accelerating the diffusion of these innovations in the country through R&D policies and institutions.
In other words, China's strong drive to expand its capacity for innovation in recent years is clear, but further efforts are still necessary to improve the quality and diffusion of new technologies, in the context of a growing digital economy.
To this end, the report argues that reformulating China's national innovation system must involve:
• R&D improvements, fostering a private-sector bottom-up approach, strengthening basic research and promoting collaborative research networks;
• Improving intellectual property policies;
• Improving innovation policies management to avoid institutional fragmentation, duplication and lack of focus or priority;
• Supporting the diffusion of digital technologies;
• Promoting and adequately managing data flows, which involve, among other challenges, the protection and regulation of personal data;
• Consolidating the infrastructure associated with information and communication technologies.
All of these aspects of the industrial policy and innovation agendas are part of broad guidelines for the reform of the Chinese economy and must be articulated within a set of country-specificities. The aim is to adjust the Chinese economy to the transformations in the international scenario, while also changing the domestic growth vectors as the country consolidates its position as a global power and a hub for the generation of new technologies.