European debates on EU–China innovation relations
There is an ongoing debate in Europe over China’s innovation capacity, which ranges across a spectrum from those who see China as a potential threat based on a view of innovation as a kind of zero-sum game between countries, to those who argue that China lags a long way behind, often for cultural or political reasons. In a report published in 2013, the UK-based non-profit organization Nesta identified five broad narratives about China’s innovation capacity:
- A potential science and innovation superpower, pulling ahead of the EU and US, as seen in the resources spent on innovation and indicators such as numbers of researchers or papers produced;
- A fast follower, which does not need to operate at innovation frontiers but can grow and innovate as a follower, while finding it difficult to escape dependence on others’ know-how;
- A giant with an Achilles’ heel, lacking the ‘open interaction’ needed for innovation and the legal backing for the protection of intellectual property rights, owing to an untransparent and authoritarian state;
- A techno-nationalist China, which engages in forced transfer of intellectual property, manipulates standards and regulations, favours its own state-owned companies, and as a result constitutes a threat to the EU and US; and
- A low-carbon pioneer, which targets investment in innovation in areas where global growth potential is strong (such as solar energy).
The conclusion reached by Nesta is a nuanced one: China excels at adopting technology and is a fast follower rather than a leader; Chinese research is at the frontier in some areas; but in general it remains much more dependent on connections to those elsewhere and lower down value chains than the country’s leadership would like. The report also emphasizes the role of ‘innovation in design, processes and organizational models in manufacturing and services which isn’t captured by the traditional measures of R&D’. This point aligns with the analysis on industrial innovation networks in a later section of this paper.
Over the past couple of years, however, there have been some shifts in mainstream European views of innovation in China. Most significantly, the assessment among the European business community there has become more critical, describing the current climate as somewhat in line with the ‘techno-nationalist’ narrative identified by Nesta. This is demonstrated, for example, in the 2016/2017 position paper on European business in China by the European Union Chamber of Commerce in China (EUCCC). In the context of questioning the commitment of the Chinese government to deliver the market-oriented reforms set out at the third plenary meeting of the 18th Central Committee of the Communist Party in November 2013, discussion of innovation is a major theme of the report. It recognizes that innovation is ‘a top government priority’, reflected in a 42 per cent increase in R&D spending between 2012 and 2015. But it contrasts the Chinese approach, which ‘prescribes specific technological pathways through which innovations should be attained’, with that in Europe, where governments facilitate, but the lead is taken by the private sector and universities, and key programmes such as Horizon 2020 are ‘open to participants from around the world’. The report reflects concern among European businesses in China that the direction of Chinese policy is towards a less open approach to innovation, noting that the term ‘indigenous innovation’ – largely avoided after 2012 – reappears six times in the 13th Five-Year Plan; the EUCCC argues instead that innovation ‘requires full connectivity with one’s industry globally and unfettered access to information regarding the latest developments within it’.
Over the past couple of years there have been shifts in mainstream European views of innovation in China.
The EUCCC’s report reiterates some of these concerns in discussion of the Made in China 2025 initiative. It comments that ‘although technological neutrality is key to encouraging innovation, the government has actually prescribed technological pathways, which significantly hinders companies’ ability to innovate’, and expresses concerns that subsidies under the initiative will lead to overcapacity, while noting that the Chinese government has said that implementation will be left to the market. The EUCCC is further concerned that European and other non-Chinese businesses – which have a ‘deep understanding of the industries covered [by the initiative]’ – are not able to participate in technical committees that assist in the formulation of standards. It argues for equality in treatment, including inclusion in the National Innovation System. It further supports OECD advice that the ‘R&D driven by the private sector tends to have better innovation outcomes’, and argues for more encouragement for ‘entrepreneurial Chinese enterprises’ and SMEs. In support of its concerns, the report notes a decline in the number of European businesses with an R&D centre in mainland China that are planning to expand their operations. Chinese approaches that target sectors and technologies differ from, for example, German targeting of innovation solutions such as improved processes. Similar themes appear in the most recent EUCCC report.
Some recent planned or actual Chinese investments in Europe have come under the spotlight in some European countries. The €4.5 billion acquisition of German robotics manufacturer Kuka by Chinese white-goods manufacturer Midea attracted substantial media coverage because of the perceived threat to Germany’s Industry 4.0 strategy, itself a partial inspiration for the Made in China 2025 initiative (though in different industrial and economic contexts). There is also growing sensitivity in the US and Europe about Chinese ambitions in the semi-conductor industry; the US administration rejected a Chinese company’s bid for chip equipment maker Aixtron in late 2016. Given the role of technology acquisition through outward investment in Made in China 2025, these developments have sparked debate in Europe about additional screening mechanisms for inward foreign direct investment (FDI). In his State of the Union 2017 address, EU Commission President Jean-Claude Juncker proposed a new EU framework for investment screening.
At the same time, other examples show the positive potential for jobs and investment in Europe by innovative Chinese companies. Huawei’s investments in the UK include cooperation with the University of Surrey on a 5G innovation centre (£5 million), projects with the University of Cambridge and other ICT partners, the creation of 130 jobs in a Global Finance Centre of Excellence, and £1.3 billion for investment and public procurement over 2013–17. Other innovative Chinese companies have also expanded in Europe, such as ZTE, Haier and Sany.