Technological innovation is often seen as a measure of international economic vitality. From the airplane to the iPhone, inventions have long been a source of pride for Americans. But looking to the future, what could be in store for the world’s second-largest economy?
China’s explosive economic growth has drastically changed its influence in the international business spheres. The country is mostly known as the “factory of the world,” and the Chinese government has been looking to reverse this trend by increasing the percentage of its GDP dedicated to research and development, increasing its number of patent applications and decreasing its dependence on foreign technology. And yet the Chinese face massive competition and enormous barriers to domestic innovation. Apple’s iconic iPhone is made in China but designed in California, clearly illustrating where the two nations currently sit in the innovation chain of command. The question that remains is whether or not the Chinese government can allow for every step of technological production – including the cost intensive research and development stages – to occur in China.
The biggest roadblock for technological innovation in China stems from the issue of control over intellectual property. The current Chinese model for economic growth relies on using innovation generated by expensive research and development done elsewhere and then using the nation’s colossal manufacturing capabilities to create products on a massive scale at a low cost. The problem with this is that it creates a strong disincentive for Chinese firms to innovate. The overwhelming majority of firms are not willing to accept the risk of failure by trying something new when they know they can duplicate something that already works.
So far, this method has proven itself to be a smart model for a country that wants to use a comparative advantage found in cheap labor to achieve maximally efficient economic growth. Research and development is expensive and is much more developed in other countries. While China developing in this way is not necessarily a bad thing, the lack of copyright law in the country means many tech companies are simply unwilling to send the latest innovations to China. Companies know that once their ideas arrive, they diffuse and are copied by Chinese companies. This trend is slowly beginning to change, though, as economic development in China has given rise to some enormous companies that spend large amounts on their own research and face legal consequences in overseas markets should they be accused of intellectual property theft.
Anyone who observes the brands of technology people use in Asia will note the obvious prevalence and market share of Chinese tech firms like Huawei and Lenovo. Phones from these Chinese firms approach iPhone-like levels in terms of number of devices in circulation. So if there are profitable tech companies with high sales, quarterly growth and a significant chunk of their budget spent on research and development, why is there still an innovation problem?
The answer stems from the fact that these big companies are following the same model that has driven economic growth in China since the dawn of the modern nation: produce cheaper, faster and (more recently) better than the competition. Huawei’s enormous list of products do not really bring anything new to the table, they just offer already-existing products at a lower price. Furthermore, it is actually in the short-term economic interests of each company to do just that.
Huawei is a name that many Americans might not even recognize. But looking into the future, if the economic giant can find a way to protect intellectual property and get rid of their skewed incentives against domestic innovation, it is very possible that we will see China pump out innovative products. How this will affect the world remains to be seen, but coming from the nation that brought you paper and gunpowder, I have a great deal of faith in the Chinese people to innovate and create products that the whole world can benefit from.
Henry Parrott is a junior in the School of Foreign Service. This is the final appearance of TECH TALK this semester.