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By Long Guoqiang, Research Department of Foreign Economic Relations of DRC

Research Report No 5, 2009

Over the past 30 years since the implementation of the policy of reform and opening-up, China firmly seized the strategic opportunity of economic globalization by adopting the market for technology strategy through strongly attracting foreign direct investment. As a result, China, having introduced a lot of advanced technologies and equipment and dramatically improved technical equipment level of manufacturing industry, has grown to be a low-cost manufacturing power with the largest international competitive advantage. However, due to the strong trend of "introduction first, yet digestion, absorption and re-innovation second" in domestic enterprises, the technology spillover effects of foreign enterprises have not yet been brought into full play. Besides, domestic enterprises just begin to implement self-innovation and "go global" strategy by utilizing global resources, and their ability of self-innovation is expected to be further strengthened. In face of fiercer international competition, China must take full advantage of global resources and greatly enhance self-innovation, in order to continuously maintain competitive advantage in future global structure. Therefore, the strategy of opening to the outside world in the new era must unswervingly take the promotion of self-innovation as an important target.

I. Promoting Self-innovation through Opening to the Outside World

Economic development in China achieved major accomplishments during the past 30 years, creating another miracle in the history of world economic development. However, rapid economic growth has been mainly driven by factor input, which was an extensive pattern for economic development. As China's economic scale continuously increases, its economic development will face more severe limitations on resources, energy and environment in future. So it must fundamentally change its mode of economic development and truly transform into a pattern in which economic development is driven by innovation and improved efficiency. But the key point of changing the pattern of economic development lies in constantly improving self-innovation ability and increasing the contribution of self-innovation in economic development.

In retrospect of the modern and contemporary human history, it is full of ups and downs of the great powers. From the defeat of Spanish Armanda to the rise of British Empire of the Sun, from monopoly of the United States to the recovery of Japan and Germany from remains of war, there was not any emerging power that has risen from an isolated environment. On the contrary, they all rose through self-innovation by fully absorbing technologies from advanced countries. After World War II, many developing countries have become emerging economies, which are continuously shortening the gap between their technological level with the world advanced level and become emerging powers that cannot be neglected in international competition. Only by promoting self-innovation while opening to the outside world can they achieve these splendid accomplishments. International experience shows that opening to the outside world is a shortcut for late-comers to rapidly catch up with the world advanced level and realize great-leap-forward development.

In retrospect of the industrialization process of China, opening to the outside world has played an important role in technological advancement. During the period of planned economy, China established a considerably complete modern industrial system by introducing advanced equipment and technologies from the socialist camp. Since reform and opening-up, China has introduced a lot of advanced technologies, equipment and management, becoming one of the low-cost manufacturing powers with the highest competitiveness in the world. Also, many sectors of manufacturing industry are equipped with world-class equipment and manufacturing capabilities.

In order to cope with the new situation of fiercer international competition, China must strongly promote self-innovation. Opening-up and development in the past 30 years has gained China global competitiveness in low-end manufacturing. Improving industrial structure and strengthening its position in global chain of division of labor is not only a requirement of implementing Scientific Outlook on Development and transforming the pattern of economic development, but also an inherent requirement of adapting to the new situation of global competition and realizing peaceful development. Enormous progress in global knowledge-based economy and emerging transnational industrial transfer forces developed countries to rely more on intellectual property rights to maintain their position in global division of labor. On one hand, developed countries constantly strengthen the protection of intellectual property rights worldwide to safeguard their vested interests. On the other hand, enterprises in developed countries, especially transnational companies, invest more in technological research and development to maintain their absolutely prominent position in intellectual property rights. Currently, 85% of global intellectual property rights are controlled by transnational companies in developed countries. Developed countries will continue to be technologically advanced for a longer period of time. As China is upgrading from labor-intensive link to technology-intensive link in global division of labor, it will be subject to more restrictions in intellectual property rights by competitors. Weakness in self-innovation ability and a lack of independent intellectual property rights is the biggest weak point of China to upgrade its position in division of labor. For DVD players made in China, about 1/3 of the export price is the patent fee payable to transnational companies. The example fully portrays the difficult situation that China faces in terms of intellectual property rights during the process of industrial upgrading. Additionally, as China's industrial competitiveness greatly increases in international market and the gap between its technical level and international advanced level is dramatically narrowed, transnational companies are targeting Chinese enterprises as their main competitors in future, which will cause bigger difficulties and higher costs for Chinese enterprises when they introduce advanced technologies and equipment. China used to bring in Shanghai Baosteel Group with world-class technical level from Nippon Steel Corporation, and now China is the biggest steel producer in the world. In face of the new situation, the remarks of a senior executive from a European steel company reflect the concerns of transnational companies about continuous technological transfers to China: "If we continue transferring new technologies to Chinese steel enterprises, we will lose the whole market." Therefore, China must greatly implement self-innovation to smoothly promote industrial structure upgrading.

China must take good advantage of global resources by focusing on practical utilization in China and meeting China's requirement through promoting self-innovation under the context of economic globalization. Fiercer international competition is a permanent driver for all countries to enhance technological advancement and improve global competitiveness. Gradual deepening of economic globalization intensifies global competition and enhances the driver for technological advancement. China's self-innovation aims at improving industrial technical level, continuously cultivating independent intellectual property rights and building new advantages in global competition. Economic globalization is a double-edged sword in terms of self-innovation for various countries, especially developing countries. On one hand, economic globalization provides a lot of new opportunities for developing countries to implement self-innovation. Besides, cross-border flows of global R&D talents, cross-border transfers of high-level manufacturing and R&D activities from transnational companies, advancement of information technology and dramatic decrease of the cost for information communication, cross-border mergers and acquisitions among technology-based companies and improved protection of intellectual property rights provide new opportunities for developing countries to take advantage of global resources to implement self-innovation. As a result, maximum results can be achieved with little effort through rational utilization and the concept of self-centeredness. On the other hand, loss of talents and technological information may intensify and the self-innovation ability may be weakened if it cannot make use of good advantage. Therefore, China should be brave to and learn how to better utilize global resources to implement self-innovation. If China implements self-innovation in an isolated environment with the fear of the impact of economic globalization, only half results can be achieved with twice effort, and the gap between international advanced level and its own will be enlarged.

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