Science and Technology Development in China,
and Expansion of Sino-Foreign Technology Cooperation

by

Yang Xianwu, Department of Policy,
Regulation and System Reform State Science and Technology Commission, Beijing

1. MAJOR ISSUES FACING CHINA'S SCIENCE AND TECHNOLOGY DEVELOPMENT

Not long ago, a landmark document C the Programme of the Outline of the Ninth Five-Year Plan for National Economic and Social Development and Long-Term Objectives for 2010 C was approved at the fourth session of the 8th National People's Congress (the Chinese Parliament). The programme set out the guiding policies and targets for China's national economic and social development in the next 10 to 15 years. It also laid down industrial development priorities, i.e. integrating the market mechanism with the central regulation mechanism, so as to enhance the development of agriculture, infrastructure and industries such as energy, transportation, telecommunications and raw materials, as well as other backbone industries such as machinery, electronics, petrochemistry, motor vehicles, construction and building materials.
To achieve the programme's targets, the Chinese Government will adopt the strategy of "revitalizing China through science and education" as its priority development strategy. This means that the Government is determined to transform quantity-oriented economic growth into quality-oriented growth so as to base sustainable economic development on scientific and technological progress through overall planning of science and technology (S & T) development and economic growth, and formulation of industrial and technical-economic policies. This requires the Chinese S & T community:
to pay particular attention to developing technologies and products required by economic development, and accelerate the commercialization of S & T achievements; to develop major technologies essential for national economic and social development; and in the light of the policy emphasizing national research and development (R & D) on the one hand and introducing foreign technologies on the other hand, to apply advanced manufacturing technologies to accelerating localization of major imported equipment and upgrading of existing equipment;
to develop high-technology and related industries; to be aware of international trends in hi-tech development; to make efforts in the hi-tech fields of electronics, information, biology, new materials, new energy, aviation, aerospace and ocean engineering so as to attain advanced international levels in some of these fields; and to apply hi-tech to transforming traditional industries; to strengthen basic research; to monitor worldwide developments; and to mobilize resources in key areas in order to achieve breakthroughs in fields where China has advantages.

The immediate tasks of China's S & T development include:

• Formulating national technology policies
  Technology policies have proved to be efficient measures enabling the Government to regulate technological and economic development at macro-level. Correct technology policies and strategies are critical for boosting economic growth and increasing national competitiveness. Many countries have their own technology policies and strategies, which differ from country to country because of one's different technological base, and economic, social and natural conditions.
  In the 1980s, China formulated its own technology policies in 14 different fields, such as energy and transportation. These policies have played important roles in guiding the major technical-economic activities of key technology R & D, technology upgrading and technology introduction. They had to be modified, however, to adapt to changes over time. Owing to reform and development in the past ten years, China's economic foundation, technological capacity and social conditions have all experienced great changes. The country's economic system has been transformed from a central planned economy into a socialist market economy. All these changes mean that the original technology policies can hardly meet the demand for development. It is therefore essential to formulate new policies based on China's status and world trends in technology development so as to address major problems such as the development targets of basic and pillar industries, the general direction of technology development and related operational channels and guarantees.
• Formulating national science policies
  Fundamental research is the source of all kinds of technological progress, and provides support for it. China is a large country and has an obligation to make its own contribution to the international development of sciences. It has in fact paid particular attention to fundamental research, and its expenditure in that field has been steadily increasing. However, since it is a developing country, China faces constraints in allocating financial resources, and its actual expenditure is far from sufficient. It must therefore promote fundamental research, mobilizing its limited financial resources in those fields where it has strengths so as to achieve as many breakthroughs as possible.
  The State Science and Technology Commission is formulating national science policies on the major issues related to fundamental research, such as priority research areas, organizational structure, human resources, management system and financial resource allocation. The aim of these policies is to make full use of existing human and financial resources in order to achieve the proposed breakthroughs.
• Promoting reform of the S & T management system

Compared with most countries, especially developing countries, China has relative advantages and great development potential. For example, it has about 25 million S & T personnel with a specialized technical background, including 2.3 million R & D personnel and 1.3 million scientists and engineers, and has an integrated R & D structure covering almost all research areas. Furthermore, the number of R & D institutes at different levels runs well into the thousands, with independent R & D institutes at county level or above amounting by themselves to more than 5,600.
What is unique in China is that most R & D institutes are dependent on the state budget and many R & D projects are unrelated to market-generated demands. To change this situation, China embarked on comprehensive reform of the S & T management system in the mid-1980s. This reform is aimed at transforming the old S & T system into a new one which is not only consistent with the inherent rules of S & T development, but also interactive with economic development requirements. On the basis of the progress made in the past ten years, future work will comprise restructuring of the S & T organizational system according to the principle of "stabilizing one end and freeing all the rest", which can be described as follows:

"Stabilizing one end". This involves the establishment of about 200 national R & D bases by upgrading and restructuring existing independent R & D institutes and university research departments. These R & D bases will be fully supported by the Government in terms of financial, human and material resources, and will confine themeselves to fundamental, hi-tech and significant non-profit research projects related to national interests. To sustain them in their respective fields of research, new management mechanisms will be introduced to encourage staff mobility and competitiveness.

"Freeing all the rest". By means of various economic and policy measures, the Government will encourage other independent R & D institutes to direct their research projects to market demands and to become profit-making entities. These institutes may identify their future development orientation on the basis of their own capacities. For example, they may transform themselves into:

- firms engaged in developing and manufacturing technology-intensive products; 
- limited liability companies, shareholding companies or state-owned companies under the Company Law;
- enterprise complexes by merging or allying themselves with small and  medium-sized enterprises (SMEs);
- enterprises' in-house R & D bodies through a full or partial merger; 
- Sino-foreign joint ventures by introducing foreign capital or partners.

• Fostering enterprises' technical innovation capacity
  Enterprises are the basic elements of the economy. Economic development is greatly dependent on whether a country has a group of enterprises pursuing technological progress. China has millions of enterprises of different sizes and with different characteristics. However, because of the planned economic system, hardly any of them were independent business entities but merely product processors with orders from the State. Since the transformation of the economic system, however, Chinese enterprises have had to transform themselves into independent manufacturers and operators, and have gradually learnt about the pressures of market competition and the significance of technological progress. Nevertheless, for historical reasons, Chinese enterprises C SMEs in particular C have only a very limited capacity for technological innovation. Thus, in addition to continuing with economic reform, the Chinese Government must stimulate enterprises to build their technological innovation capacities and become one of the main areas of technological development. For that purpose, a number of government departments will take joint action:
  - To help large and medium-sized enterprises (LMEs) establish in-house R & D units. There are about 20,000 LMEs in China. Although 80 per cent of them have already set up such units, few of them have sufficient technological innovation capacity. Efforts should therefore be made to encourage those LMEs to strengthen this capacity by increasing related expenditure, upgrading technical equipment, recruiting R & D personnel, and so forth.
  - To seek technical partners for SMEs or township-and-village enterprises (TVEs). The number of SMEs and TVEs in China runs into millions, and it is impossible and unnecessary for each of them to set up an in-house R & D unit. The Government therefore encourages them to establish joint R & D units by themselves, and helps them find long-term and stable cooperative partners in independent R & D institutes for technical support.
  - To promote the development of high/new technology-intensive firms and non-state-owned technology-intensive firms (there are currently about 50,000 of the latter across the country). China has established 52 national high/new technology development zones, containing about 10,000 technology-intensive firms. Both domestic and foreign investors are most welcome to run businesses in these zones, which have a good investment environment.
  - To financially sponsor R & D relating to fundamental, universal and critical technologies, as well as complete-set technologies. The Government has financially supported the establishment of several hundred engineering technology R & D centres, and encourages R & D institutes to join with enterprises in developing the necessary technologies.
  - To create a sound policy environment for S & T progress. This is the driving force for all kinds of enterprises to pursue such progress. Industrial and technological policies are currently being formulated so that by guiding investment the development of high/new technologies and related products can be actively promoted and the use of outdated technologies restricted or prohibited. In addition, efforts will be made to build an information network and a technology extension network so as to support enterprises' in-house development of technologies and products.
  
2. ESSENTIAL CONDITIONS FOR SUCCESSFUL TECHNOLOGY PARTNERSHIP
   As an effective measure for enhancing enterprises' capabilities for sustainable development and competitiveness, technology cooperation has become an important policy component in many countries to meet the challenge of increasingly fierce competition. Since the policy of opening up and reform was adopted, China has taken technology cooperation, either domestic or international, as a significant guarantee for attaining its ambitious economic development goals. To achieve the best possible results, the Government encourages partners to adopt creative methods and establish long-term, stable and mutual beneficially relationships. Of course, it allows cooperating parties to go their own way according to the specific situation.
   In the past ten years substantial headway has been made in technology cooperation, which has generated great benefits for China's development. According to estimates by the State Economic and Trade Commission, foreign capital totalling US$39.5 billion is expected to be invested in China in 1996 for technology partnerships, a figure 7 per cent higher than last year's figure. It is predicted that 80 per cent of foreign funding will be directed to China's coastal areas, about 10 per cent less than the previous year. This indicates that the focal point of foreign investment is shifting from the coastal areas to the central and western parts of China.
   There are naturally a number of prerequisites for successful technology cooperation. However, it is hard to reach any general conclusion because the situation of every country, region and partner involved is different. In the light of China's experience, the three requirements described below should be stressed.

• Creating a sound environment for technology cooperation at macro-level
  Technology cooperation is an important source of competitiveness. A sound environment should be created to ensure its success and further expansion. Indispensable components include the legal system, industrial and technological policies, as well as fiscal, tax and monetary policies.
  Legal system. Under the legal system, general regulations for technology partnership can be laid down, partners' basic rights and obligations identified and their lawful interests effectively protected. China has passed a series of laws to protect and promote technology cooperation, including the Law on Sino-Foreign Joint Ventures, the Law on Science and Technology Progress, the Technology Contracts Law and the Patent Law. All these laws have played key roles.
  Industrial and technological policies. By identifying which industries are priority ones, which are to be given incentives and which are restricted or to be phased out, these policies provide guidelines for partners to initiate specific projects. China has already formulated such policies. It is currently revising them in the light of economic and technological developments. Priority areas for overseas investment in the next 10 to 15 years include:
   - comprehensive agricultural development, and new technologies for improving crop yield and upgrading seeds;
  - infrastructure and basic industries for energy, transportation and important raw materials;
   - pillar industries such as machinery and electronics, the petrochemical industry and car manufacturing;
  - other technologies and projects, such as advanced technologies, and projects for export expansion, comprehensive use of resources and environmentally friendly development.
  Fiscal and monetary policies. These are the engine of technology partnership. The Government should give its full support to those R & D and productive activities that are consistent with national industrial and technological policies through financial or credit measures, and special tax policies. In recent years, China has taken various measures to stimulate R & D. These have ranged from launching national projects to support critical technology R & D, granting tax deductions and exemptions for income from technology cooperation, technology transfer and technology services, to offering preferential credit for promising R & D projects.
• Creating an attractive environment at micro-level
  Since there are disparities between different countries' development levels, or between different regions in the same country, it is necessary for many countries, particularly developing ones, to create a good local environment. In China's economic and technological development zone, for example, the micro environment should at least have: 
   - Special preferential policies. Since it is impossible to adopt preferential tax and trade policies universally, they could perhaps be applied in the development zones.
    - Good infrastructure. Although it may not be possible to guarantee efficient transport, telecommunications, and water and electricity supplies in a broader area, it is quite possible to improve them in the development zones.
  - Good customer-oriented services. These should be in the legal, financial and trade areas, as well as intermediate and information services.
• Selecting proper partners
  An appropriate partner is the key to successful cooperation. A good partner should: 
    - be engaged in the same or similar technology and product development fields, as this will ensure complementary advantages and common interests;
    - be capable of developing and manufacturing the products concerned;
    - have qualified personnel in the R & D, production and management fields.