Moving Forward: China’s Plan to Innovation

One of China’s key objectives is to transit the economy from “Made in China” to “Created in China” . As costs increase and the Yuan strengthens, moving up the value chain will be of utmost importance in balancing the export-driven economy and securing China’s global competitiveness.
Progress is already visible: R&D spending and patent applications have risen significantly (although some critics attribute much of the latter to “junk” patents). China has already created the seeds of 22 Silicon Valley-like innovation hubs within the life sciences and biotech industries. One of the most impressive of these lies in Zhongguancun in northwestern Beijing – an innovative hotspot populated with countless research centers, tech super-companies, and start-ups.
Leadership has set clear, but challenging targets, which may prove difficult to achieve: to spend 2.5% of China’s GDP on R&D by 2020; to be among the top five countries with regard to number of inventions patented; and to have Chinese-authored scientific papers among the world’s most cited. In contrast to the market based innovation approach of other countries, where R&D is encouraged by taxation benefits and the market determines the winning technology options, the Chinese government has taken an active role in allocating funding to specific industrial segments and technologies. It has implemented a range of policies to enhance innovation,…


China 2.0

China transformed from a peasant society to the world’s second largest global economy within a single generation. With the opening of the economy and market reforms, entrepreneurial spirit has flourished: State-Owned Enterprises (SOEs) have been privatized, millions of Chinese have started new ventures, and China has taken advantage of its large labor force through low-cost manufacturing. But the PRC has come to a crucial juncture in its economic and social development. The current growth model is unbalanced towards exports and not sustainable in an environment of rising input costs. Thus, China’s growth in the next decade will depend on the country’s ability to move to the next stage of production through innovation and enhanced productivity and higher consumption through social stability.

Reform via a step-by-step approach

In order to maintain close control over this economic development, Chinese leadership first invoked a step-by-step approach to reforms, or as often summarized by the famous expression, “cross the river by feeling the stones”. On a trial and error basis, special regions were chosen for reform. If the reforms worked, they would be applied to new areas; if they failed they would be abandoned. This approach continues to this day.

The first economic changes, begun in the late 1970s, consisted of agricultural decollectivization by dismantling rural communes and giving entrepreneurs permission to start up businesses. Shortly thereafter, the area around Shenzhen (Guangdong province) was granted the status of a Special Economic Zone (SEZ) and thereby given favorable policies allowing for foreign trade and investments.

These reform approaches were almost instantly successful: China’s agricultural production soared, and Shenzhen became an economic powerhouse. Consequently,…


From Collectivism to Individualism

Under the planned economic system, most goods and services were distributed to various places of employment, called danwei. Apartment housing, welfare benefits, and even necessary items like sandals were all rationed in this manner. In general, the consumption of goods was highly regulated through government quotas and ration coupons and special goods such as bikes could only be bought with vouchers. Even if one had the money, no voucher meant no bike. These policies reduced socio-economic inequalities (except disparities between urban and rural regions) but also limited individualism. At the time, most of the population wore similar clothes, sported similar hairstyles, and rode the same bicycles.
Today, individualism has emerged as an important ideal and consumption has become


Demographic Dilemmas

China’s demographics have been largely influenced by the One-child Policy which slowed China’s population boom but also caused a gender imbalance through selective abortions. Today, China is facing the problems of an aging society, as life expectancy increases and birth-rates decrease. This will change the dynamics of China’s workforce and may challenge the competitiveness of their future economy.

One-Child Policy

Mandated nationwide in 1979, the One-Child Policy restricts Chinese parents to a single child, with limited exceptions. Couples who violate the regulation have to pay high fines and face the fact that their children will not be able to attend school unless the parents pay for it out of their own pocket.
Though criticized for its social implications, the policy successfully slowed down population growth. The One-Child principle has become understood as a necessary measure in Chinese society.
As the percentage of elderly Chinese citizens is growing rapidly, the leadership has begun…


Chinese Migrants: The Hukou System

The term hukou (pronounced who-koh) refers to China’s household-registration system, which defines access to welfare. Required by law since 1958, the system records every Chinese citizen as a permanent resident of a particular city or county. Before 1980, citizens were strictly required to stay in the neighborhood of birth and could not seek employment or education elsewhere in the country.
Dating back to China’s ancient ‘class-system’ permits, the hukou system was originally intended to register people and deliver them appropriate social services. A more lenient version of the regulations persists today, requiring any Chinese citizen staying outside of their hukou for longer than 3 months to apply for a temporary residency, involving a working contract and extensive paperwork. Rural migrants desiring to relocate to cities still encounter many difficulties including qualifications and contract hurdles.
“Illegal” rural migrants without a temporary permit, are fully in the hands of their employers…


Work Culture and Effective Management Style

China’s work culture is still strongly influenced by traditional Confucian values, even though newer generations of Chinese employees are beginning to challenge these old standards.
In earlier days, organizations tended to be built on loyalty, or guanxi (→ Social Concepts: Mianzi and Guanxi), rather than merit. The leader would choose staff according to personal and professional connections – people who the leader knew would be loyal. This provided leaders security in their position and ensured that strong subordinates would not attempt to replace them. Many local companies still operate in this manner. The concept may have lost some of its dominance, but personal loyalty still holds great influence in company life and is often valued more highly than company loyalty. Because of this, Chinese companies face a great risk when key personnel leave, since their colleagues often follow suit due to guanxi.
In China, hierarchy and title are highly respected in the workplace. The management style tends toward….