Lotus Hill Park Tells Stories about Reform and Opening-Up
China's decades of efforts in supporting R&D has yielded fruitful results but more needs to be done to become a tech giant
Luigi Gambardella
Luigi Gambardella serves as president of ChinaEU, the business-led International Association. He is currently head of european Affairs of Open Fiber, the new Italian ultra-broadband network owned by ENEL and Cassa Depositi e Prestiti (CDP). From 2011 to 2014 he has chaired the executive board of the European Telecommunications Network Operators' Association (ETNO).
Urban parks tell the history and stories of their cities. The Parc du Cinquantenaire, or Park of the Fiftieth Anniversary, just a stone's throw from the EU headquarters in Brussels, showcases Belgian pride of independence and keeps a watch on the twists and turns of EU integration. Some 10,000 km away in China's southern city of Shenzhen, there is a park where there sits a bronze statue commemorating a Chinese statesman whose political legacy transformed China from an impoverished country into an economic powerhouse.
The Lianhuashan Park, literally the Lotus Hill Park, is one of most-visited places in Shenzhen where one can enjoy views of the city. On top of the 106-meter-high hill, the large sculpture of late Chinese politician Deng Xiaoping carries great meaning. Deng made the decisive and far-reaching policy of “reform and opening-up” 40 years ago and Shenzhen was chosen as China's first special economic zone to pilot the policy.
The story began in December 13, 1978, when Deng initiated market economy reforms with his famous speech, “Emancipate the mind, seek truth from facts, and unite as one to face the future”, at the closing session of that year's Central Work Conference which made preparations for the Third Plenary Session of the 11thCentral Committee of the Chinese Communist Party that immediately followed.
To a European, China was then a remote, mysterious country;China-EU relations were limited despite the two sides establishing diplomatic ties in 1975. At the onset of the reforms, China was also among the poorest nations.
China's official data showed the country's gross domestic product totaled 364.5 billion yuan in 1978, or some $150 billion at the prevalent exchange rate, accounting for about 2 percent of the world total.
Since adopting market reforms in 1978, China has shifted its economy from centrally-planned to market-based and has recorded an average annual GDP growth rate of nearly 10 percent over the past 40 years, marking the fastest sustained expansion by a major economy in history.
In 2010, China passed its neighbor Japan as the world's second-largest economy, behind only the US. It is foreseen by many to be the world's largest economy by as early as 2030.
China's economic clout has grown notably. In 2017, China's GDP exceeded $12 trillion, making up 15 percent of the global total. Furthermore, China's massive economy continues to grow at a fast pace, with some analysts predicting that China's GDP will reach over $13 trillion in 2018, roughly the size of the economies of Japan, Germany, the United Kingdom and India combined.
Although trade and the economy have remained the focus of China's policy, the technology sector has experienced unprecedented growth alongside the country's dramatic transformation.
Deng's famous remarks in 1988, that “science and technology are productive forces”, have brought a great change. Since then, the Chinese government has greatly bolstered the development of science and technology to give them full play.
The rapid growth in technology has emerged in recent decades following China's unveiling in 2006 a long-awaited medium-term plan to develop science and technology, a roadmap specifying 16 major engineering projects including design of large aircraft, moon exploration and drug development.
As a result of China's push for innovation-driven development, the country's spending on research and development has rapidly grown. In 2017, China's total spending on R&D hit an estimated 1.76 trillion yuan, or some $279 billion — a year-on-year increase of 14 percent and a rise of 70.9 percent from 2012.
R&D intensity, the ratio of R&D expenditure compared to GDP, is an important indicator. China has registered increasing R&D intensity in recent years and has kept overtaking other countries or regions.
Currently, China stands second in global R&D spending, after the US. In 2015, China's R&D intensity surpassed that of the EU but still lagged behind major industrialized countries including the US, Japan and Germany.
China's decades of efforts in supporting R&D have yielded fruitful results, especially over the recent five years: high-speed rail, the quantum communication satellite, space missions, supercomputers, the C919 jet, the Beidou navigation system…you name it.
My own travels between Europe and China helped me realize that, in many areas, China has leapfrogged the EU. Ubiquitous mobile payments via Wechat or Alipay make many Chinese first or second-tier cities cashless; e-commerce giants create shopping carnivals, hitting billions of dollars of sales in seconds while competitive deliverymen manage to ring your bell within hours after you order online.
A fact that Europeans should accept is that, in the digital sector, China is the future. Here is why:
China has successfully developed a digital society that Chinese are well adapted to. There are more than 800 million internet users out of nearly 1.4 billion people in the world's most populous country; China's social media giant WeChat has over 1 billion monthly active users; China's giant digital market goes beyond cities and has steadily expanded to wider rural areas as a result of better internet infrastructure and delivery. The Nasdaq-listed Pinduoduo, China's home-grown online group discounter, has emerged as a new e-shopping giant and is backed by numerous customers from low-income Chinese rural areas. It is evident that the Chinese digital market, the largest in the world, is diversified and dynamic.
Furthermore, more heavyweight Chinese technology companies are set to emerge. China's internet giants BAT, or Baidu, Alibaba and Tencent, plus China's second-ranked e-commerce player JD.com, are already among the world's top ten internet companies, while the other six companies are all from the US; sadly there are no European companies on the list.
In a new wave of Chinese startups, many have evolved to become unicorns which have raised billions of investments. They cover a wide range of businesses from FinTech, transport, logistics and healthcare to robotics, education, media and entertainment.
Cutting edge Chinese tech companies are able to quickly grab market share and bring changes to traditional giants. For instance, Starbucks' rival in China, Beijing-based start-up Luckin Coffee, has pushed Starbucks into coffee-delivery service, a hard-to-imagine model. By lowering prices, Luckin Coffee is expanding the niche market and bringing the once symbolic elite drink to more customers in the land of tea.
China's market reforms have enabled many Chinese enterprises, such as Luckin Coffee, to become successful. In turn, Chinese companies shore up the majority of China's R&D spending and are set to bolster further marketization and the business ecosystem.
China now has its own strength to generate many industry leaders and is set to be a game changer in the global arena. For instance, in 5G. China once lagged behind other advanced coun tries in 2G, 3G and 4G, but now Beijing has great potential to lead in the next-generation core network with joint efforts from the government, academics and industries.
The reality is that China is a leader, not a follower, in many tech areas. The country has contributed over 30 percent to the world's 5G standard and has led about 40 percent of the 5G standardization research items in 3GPP, a body that governs global cellular standards.
Regarding artificial intelligence, China has formulated a national priority and strategy, and the country is already leading in areas such as big data and facial recognition. China's Sensetime is now the world's most valuable AI unicorn worth over $4.5 billion.
During my trips to China, it is interesting to see that Chinese cities, not only first-tier cities such as Beijing, Shanghai and Shenzhen, but also many provincial capitals, small cities or towns, are competing to lead in the tech sector.
Guiyang, capital of southwest China's Guizhou Province, aims to be a “big data valley”. It is host to Apple's first data center in the country and has attracted other players such as Alibaba, Tencent and Huawei. The local government expects the big data industry to reach a total revenue of 100 billion yuan ($16 billion) by 2020.
Tianjin, a northern port city neighboring Beijing, plans to set up a fund worth 100 billion yuan ($16 billion) to support the AI industry while Shanghai, Beijing and Guangzhou implement their own policies on AI.
Smaller cities or towns are seeking other chances. Wuxi, one of China's wealthiest cities, plans to build a hub for the Internet of things industry and has seen more than 200 IoT projects come to fruition; Wuzhen, an ancient water town just outside Shanghai, has hosted annual world internet conferences since 2014.
Chinese cities, no matter big or small, are keen to become “digital” as the digital sector becomes one of the driving forces of growth. In China as a whole, the digital economy accounted for 32 percent of GDP in 2017.
What China has achieved over the past 40 years is a miracle, not only economically but also technologically. Sticking to the reform and opening-up policy will continue benefiting China and the rest of the world. At the same time, there are several areas China can work on to catch up or maintain its position.
China needs to fix its tech vulnerabilities, for instance in chips. The reality check came following the US sanctioning Chinese telecom company ZTE. The crisis should be a reminder for China that there is a long way to go before the country's technology sector is strong enough to reduce heavy dependence on the US in semiconductors.
A similar risk lies in industrial robots, which are essential for smart manufacturing, a key target for manufacturing giants including China, Germany and Japan. China has for years been the world's largest market for industrial robots; however, a lack of talents and core technologies pose severe challenges as the country currently holds less than 1 percent of patents in industrial robotics.
Although Chinese products are available everywhere in the world, China still doesn't yet have the capability to produce a top-flight aircraft engine and lags behind in a number of other core technologies.
China should inject more momentum into R&D and further increase R&D intensity. More supportive policies should be provided to tech companies and talents. China should also leverage more resources for basic research, which is key to develop China's own technological edge.
Moreover, against the backdrop of unilateralism and populism, China should further implement the opening-up policy and enhance technology ties with other countries. For instance, the ambitious Belt and Road Initiative, aiming to create greater trade, infrastructure and people-to-people links among Asia, Europe and Africa, could be a perfect platform for China to further strengthen its ties with the outside world. Besides, efforts are needed to speed up the development of the “Digital Silk Road” for countries to cooperate to make technological breakthroughs in areas including 5G, AI, IoT, cloud computing and big data.
In this context, China and Europe should further advance their tech partnership, particularly in the digital sector. The combination of China's giant digital market and Europe's traditional vertical strength (such as in auto, robotics), is set to unleash great potential and benefits for their peoples.
In March 2018, a direct flight connecting Brussels and Shenzhen was launched by Hainan Airlines, marking better exchanges between the EU's headquarters and China's innovation hub; so the Parc du Cinquantenaire and the Lotus Hill Park should be the places to witness more frequent technology dialogues, interactions and digital links, and they should tell more EU-China stories.