Chapter 2 The urgency for implementation of independent innovation strategy in China

2.1 The practical enlightenment of “market for technology” in China

Since the reform and opening up, the Chinese government has introduced the important strategy and policy of “market for technology” to change the situation of backward technology in most industries. The so-called “market for technology” means obtaining advanced foreign technology for China's national enterprises at the cost of allowing foreign investors to sell large quantities of their products, to win the project bidding, and to establish sole proprietorship or partnership in China. China has been implementing the strategy and policy of “market for technology” for 20 years. Now foreign investors are involved in many industrial fields and their market share shows a growing trend. Therefore, it is not difficult to understand the urgency for enforcement of the independent innovation strategy in China by rethinking the positive and negative effects of “market for technology” in the progress and development of industrial technology.

2.1.1 Positive effects of “market for technology” on the innovation of Chinese domestic enterprises

By implementing the strategy and policy of “market for technology,” the innovation of domestic enterprises has the following positive effects.

(1) Promoting technological development and improving the management level of many industries in China.

In industries such as the automobile, the generator, program-controlled switches, the mobile phone and the computer, “market for technology” can provide the industries with technological learning and accumulation of experience, improve the overall technical capability of these industries, and promote their development. Due to the force of political pressure and market interest, the technology for investment of foreign enterprises is often more advanced than the technology for sale. So some domestic enterprises have managed to master the advanced technology at a lower cost and in less time by implementing the “market for technology” strategy. Some technologies even fill the national gap and narrow the gap between domestic and foreign technology, which has laid the foundation for the development of related industrial technology in China. For instance, cooperating with the world's advanced automotive manufacturers has helped Chinese auto manufacturing enterprises to gradually master the technological methods and the process of vehicle design and production; moreover, it has also helped Chinese auto enterprises to accumulate valuable experience to exploit for independent innovation. “Market for technology” has promoted the development of many industries in China and it has also improved the management level of Chinese enterprises. One of the most important advantages of the cooperation between local capital enterprises and foreign enterprises is the advanced foreign management experience we have learned. It plays a very important role in improving Chinese enterprises' production, management abilities, and management level.

(2) Promoting the accumulation of industrial technical experience and the training for a skilled workforce

For example, the computer, the mobile phone, the auto and other domestic industries lacked necessary experience in technology and production. Accumulation of experience is very important. In the process of “market for technology,” in order to make Chinese domestic enterprises or joint ventures produce qualified products, foreigners provide multi-layered training for Chinese staff, so as to guarantee that they have at least the capacity to use the equipment and produce normally. If there had not been an accumulation of cooperative study through the telecommunications research institute for more than ten years, it would not have been possible for Datang Corporation to rapidly develop the digital program-controlled switches after the American enterprise ITTI had provided their integrated circuit technology; without the accumulation of experience in producing computers, Lenovo and other PC companies would not have been possible to master computer technology quickly. Thus, the accumulation of experience regarding industrial technology is a necessary condition for industries to develop and for technology to progress. At the same time, due to the cooperation between domestic enterprises and foreign capital within the “market for technology” policy, a large number of experienced employees were trained, who systematically received the technical training or worked together with foreign experts, acquiring valuable experience from them. In short, due to cooperation, many Chinese technicians get practice and enhance their skills and therefore are able to replace or partially replace foreign experts in carrying out the corresponding work.

(3) Promoting the development of domestic industry and guiding the innovation of domestic enterprises

The implementation of the “market for technology” strategy has reduced some barriers for some foreign industries (such as the auto industry, the electric generator industry, and others) for entry into China, which gives Chinese national enterprises the opportunity to understand the world, the management experience and the advanced technology of developed countries. The entry of foreign capital has intensified industrial competition, enhanced the sense of crisis of Chinese enterprises, and stimulated them to improve their concept of management and their level of technology in order to perfect their products and services. It has also broken the monopoly of foreign products in some product fields, which has thus made it possible for foreign companies to export their technology to China. This plays an important role in the establishment and development of Chinese local enterprises. At the same time, joint ventures and cooperation with foreign investors have also helped some domestic industries to extend their industrial chain. Especially the increase in production and localization rate provides a broad market for the downstream enterprises of some industrial chains. According to experts' estimation, direct degree of association between the value of the auto industry and that of other related industries is 1∶2, and the indirect degree of association reaches 1∶5. The production value of the auto industry can bring a growth of 2.5 times the actual value of related industries. If the auto industry increases by 1 yuan, it will bring the upstream industry an appreciation of 0.65 yuan, and the downstream industry 2.63 yuan. All these aspects give a certain guidance to the innovation of Chinese domestic enterprises.

2.1.2 Negative effects of “market for technology” on the innovation of Chinese domestic enterprises

The implementation of the “market for technology” strategy and policy has the following negative effects on the innovation of Chinese domestic enterprises.

(1) Making some local enterprises strongly dependent on foreign technology

Although the policy of “market for technology” has brought some advanced technologies to China, it has made some local capital enterprises dependent on foreign technology. Especially, there has only been some marginal technology transfer of foreign enterprises to some industries. We did not obtain or master core technology. What we can only do is to buy foreign products or technologies once in a while. After the establishment of joint ventures, some domestic enterprises even closed the original research institutes and abandoned the original research efforts. At the same time, some leaders overrated foreign technology, resulting in the tendency of some domestic owners to choose foreign technology and equipment in project bidding. This further increases domestic enterprises' dependence on foreign technology.

(2) Not conducive to cultivating independent brands

Under the format of “market for technology,” China has established numerous joint ventures. These enterprises often import foreign technology, equipment, and even production lines. They use cheap Chinese labor and natural resources to produce. Many joint ventures, such as Shanghai Bell, Shanghai Volkswagen, etc., use their foreign partner's brand rather than establishing an independent brand because of their own weak brand recognition and contract limitations. Obviously, this is not conducive to cultivating the brands of local enterprises.

(3) Increase in enterprise operating costs and decrease in innovation investment

Since China implemented the “market for technology” policy, originally many local enterprises hoped to “exchange the market for technology.” Some enterprises gave up the market and worked with foreign capital, but they did not get the advanced and applicable technology they had hoped for. As a result, these enterprises had to turn back to their own development of required technologies, which not only increased their operating costs, but also weakened their ability for innovation investment. There are also some enterprises, which have obtained the foreign advanced and applicable technologies but made no effort to implement and adopt foreign technology. Thus, they have fallen into the vicious cycle of “introduction-falling behind-reintroduction-falling behind again.” On this background, in order to keep their technology on par with their competitors, many enterprises have had to pay for the introduction of technology or equipment from abroad every few years, which further weakens their ability in innovation.

2.1.3 The effect of “market for technology” requires independent innovation

Historically, the policy of “market for technology” was in accordance with the general law of market economy; “market for technology” has successful examples in foreign countries. Japan and the Republic of Korea had practical experiences of “market for technology”after World War II (see the following sections). In particular, the “market for technology” strategy went along with China's condition of seeking development after the implementation of the reform and opening up from the late 1970s to the early 1980s. At that time, for 10 to 20 years, a lot of industries in China fell behind European countries, America, Japan, etc. The gap was even greater in some industries. After the opening up, competing with their foreign counterparts, the enterprises had to make every attempt to bridge the technology gap. After they failed in purchasing foreign technology directly, the policy of “market for technology” became the inevitable choice at the beginning of the 1990s. Of course, the implementation of “market for technology” had different results in different industries. The reasons are the difference in policy and supervision of the relevant governmental departments and the difference in the implementation of the policy in different enterprises. Some deviations also appeared in the implementation of this strategy and policy. However, at the present stage, China needs to develop through independent innovation.

(1) At the beginning of the 21st century, the Chinese central government duly proposed the strategy of independent innovation

In the process of “market for technology,” some developed countries are hindering our development of technology. At the same time, excessive dependence on the technology of developed countries also intensified the contradiction between demand and supply of technology in China. Although the globalization of the economy and the internationalization of S&T are increasingly deepening, the international flow of S&T resources is becoming increasingly commonplace; the basic attitude of developed countries towards the implementation of a technical lock-in against China will be hard to change for a long time. “Batumi” and later the “Wassenaar Arrangement” are the cases at hand. The channel for China to obtain advanced technology from the outside is getting narrower and narrower. In this context, China needs to adjust the “market for technology” strategy, which means continuing to obtain foreign technology and making a greater effort to meet the need for technology in the process of economic development through independent innovation. Based on this, the independent innovation strategy proposed by the Chinese central government at the beginning of the 21st century is providential. It is also in agreement with the fundamental realities of the country after over 30 years of reform and opening up.

(2) Independent innovation does not exclude the continued use of advanced foreign technology in view of the benefits it can bring us

The implementation of the independent innovation strategy in China is not aiming at rejecting the advanced foreign technology which can benefit us. To be exact, what we should do is to seek a more favorable balance between independent innovation and the use of advanced foreign technology. In some fields which are related to national security, the foundation for economic and social development, and the international industrial competitiveness and core technology, we must insist on independent innovation; in the field of non-common and non-core technology, we should actively make use of international technological resources. For the resource allocation of independent innovation and the use of international technology, on the one hand, we should allocate more resources to independent innovation; on the other hand, in the process of using international technological resources, we should also give more resources to the link of implementation and adoption rather than that of introduction. Only when the technology has been truly adopted and transformed to the technological ability of our local enterprises and institutions, can we talk about re-innovation and connecting the international technical resources and independent innovation effectively, so as to promote China's sustainable development for a long time.