China has the fastest growing economy in the world since the 1980s. A key driver of this exceptional growth is the country’s pragmatic innovation system, which balances government governance and market-oriented entrepreneurs.

This system is currently undergoing changes that could have profound consequences for the global economic and political order.

The Chinese government is pushing for better research and development, “smart manufacturing” facilities and a more sophisticated digital economy. At the same time, tensions between China and the West are straining international cooperation in industries such as semiconductor and biopharmaceutical production.

Taken together with the turmoil of the Covid pandemic and the particularly rapid and large-scale blockade of China, this development could lead to the separation of China’s innovation system from the rest of the world.

Balancing government and market

Current China “innovative machine”Began to develop during the economic reforms of the late 1970s, which reduced the role of state ownership and central planning. Instead, a place was created for the market to try new ideas through trial and error.

The government sets regulations tailored to the state’s goals and can send signals to investors and entrepreneurs through its own investments or policy settings. But in this situation, private business is pursuing opportunities in its own interest.

However, freedom for business may be diminishing. The government cracked down last year fintech and private lessons sectors that appeared to be inconsistent with government objectives.

The quality of construction along with the quantity

China ranks well in many innovation performance indicators, such as R&D spending, number of scientific and technological publications, number of STEM graduates and patents, and top university rankings.

However, most of these indicators measure quantity, not quality. For example, China has:

Adding “quality” together with “quantity” will be crucial for China’s innovation ambitions.

In the past, policies have aimed to “catch up” with known technologies used elsewhere, but China will have to shift its focus to developing unknown and emerging technologies. This will require greater investment in long-term basic research and reform of the research culture in order to tolerate failure.

Development of intelligent production

Chinese companies can now turn complex projects into mass production with high precision and unparalleled speed and cost. As a result, Chinese production is attractive to high-tech companies such as Apple and Tesla.

The next step is to upgrade to Intelligent Industry 4.0, in line with the main industries listed in the government Made in China 2025 drawing.

By 2020, China has built eleven “headlight factories” – smart reference manufacturers – the most from each country in the World Economic network of headlights“.

Building an advanced digital economy

Chinese giant technology companies such as Alibaba, Tencent and Huawei also use machine learning and big data analysis to innovate in other areas, including pharmaceutical research and autonomous driving.

In China, regulations on biotechnology, bioengineering and biopharmaceuticals are relatively relaxed. There is attracted researchers and investors to several leading biotechnologies “clusters“.

China’s population of more than 1.4 billion also means that even with rare diseases, there are large numbers of patients. Using large patient databases, companies are making progress in precision medicine (treatments tailored to the genes, environment and lifestyle of the individual).

The growing power of China’s major technology companies has prompted the government to intervene to maintain fair market competition. Regulations impose digital companies to share consumer data and consolidate critical “platform goods”, such as mobile payments, in their ecosystems.

International cooperation is key

As we saw in recent triumph of COVID-19 vaccinesglobal cooperation in research and development is extremely valuable.

However, there are indications that such cooperation between China and the West could be jeopardized.

The semiconductor industry – the production of chips and circuits that drive modern electronics – is currently global, but is at risk of fragmentation.

Chip manufacturing requires a huge amount of knowledge and capital investment, and while China is the world’s largest consumer of semiconductors, it relies heavily on imports. However, US sanctions mean many global semiconductor companies cannot be sold in China.

China is now investing huge sums in an attempt to be able to make all the semiconductors it needs.

If China succeeds in this, one consequence is that Chinese-made semiconductors are likely to use different technical standards from current ones.

Different standards

The different technical standards may seem like a minor issue, but it will make it difficult for Chinese and Western technologies and products to work together. This in turn can reduce global trade and investment with poor performance for consumers.

Separation of standards will widen the gap between Chinese and Western digital innovation. This in turn is likely to lead to further divisions in finance, trade and data.

In a time of heightened international tensions, both China and the West need to be clear about the value of international innovation cooperation.

This article by Marina Yue ZhangAssociate Professor of Innovation and Entrepreneurship, Swinburne University of Technology; David GunnVice-Chancellor, Development and Foreign Affairs and Professor of Innovation and Entrepreneurship, Saïd Business School, Oxford Universityand Mark DodgsonVisiting Professor, Imperial College Business School and Honorary Professor, School of Business, University of Queensland has been republished by The conversation under a Creative Commons license. Read on original article.

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