Chinese Five-Year Plans and Technology Policies

Planning is a key characteristic of China’s economic and social development. The Five-Year Plans of China aim to map strategies for future development, set targets, and arrange key national projects. The Plans are one of the few must-read documents for people studying China, including its technology policies.

In 1953, four years after the formation of the People’s Republic of China, the Communist Party of China (CPC) implemented its 1st five-year plan (1953-1957). By following the Soviet model and with aid from the Soviet Union, by the late 1950s China made substantial progress in fields such as electric power, steel production, basic chemicals, and machine tools, as well as in production of military equipment such as artillery, tanks, and jet aircraft.

The 2nd Five-Year Plan (1958-1962) aimed to expedite the country’s industrialization with an emphasis on heavy industry. The plan evolved with the Great Leap Forward (1958–60), which made aggressive efforts to reassign scientists to immediately useful projects, to involve the uneducated masses in research work, and to expand rapidly the ranks of scientific and technical personnel by lowering professional standards. The economic depression following the Great Leap Forward and the need to make up for the sudden withdrawal of Soviet technical personnel in 1960 brought a renewed but short-lived emphasis on expertise and professional standards in the early 1960s, and a period of economic adjustment between 1963 and 1965, which was not covered by any Five-Year Plan.

The 3rd and 4th Plans (1966 – 1975) covered the turbulent period of the Cultural Revolution. These two plans asked the nation to prioritize the defense industry in consideration of a possible major war, build the country’s economy on self-reliance, and speed up construction along the nation’s three most important frontlines (referring to national defense, science and technology, and industrial and transportation infrastructure). Although the country made historic achievements in nuclear weapons, missiles and satellites, the Cultural Revolution eradicated distinctions between scientists and other types of labor, denying an entire generation access to university and professional training.

The 5th Plan (1976-1980) was initially developed before Mao’s death. After Mao’s death, the CPC put forward new principles of readjustment, reform, rectification and improvement, and started the job of resuscitating the economy. The 6th Plan (1981-1985) continued to enforce those principles, and, led by Deng Xiaoping, implemented the policy of opening up to the outside world. The policy was exemplified in science and technology policies, such as participating in international conferences, cooperating in projects with foreign scientists, and sending Chinese graduate students and senior researchers to foreign universities. In 1985, the CPC called for sweeping reforms of the science and research system by changing the method of funding research institutes, encouraging the commercialization of technology and the development of technology markets, and increasing the rewards for individual scientists.

The 7th Plan (1986-1990), again, spared no effort to enhance technological improvement. China’s initiatives to commercialize scientific and technical knowledge expanded rapidly amid considerable confusion, ferment, and turmoil. In 1986, the “National Hi-tech Research and Development Program” (863 Program) was launched, setting 20 goals in biology, spaceflight, information technology, among others. In the same year, the National Natural Science Foundation was established, explicitly modeled after the United States National Science Foundation. In 1987, the State Council announced that the majority of the applied scientific research institutes were to be incorporated into large and medium-sized enterprises to coordinate research with the needs of production. In 1988, the Torch Program was implemented, establishing nationwide a series of 53 high-tech development zones paired with business incubators.

During the 8th and 9th Plans (1991-2000), China’s modernization reforms reached a new stage, with emphasis on speeding up the establishment of a modern enterprise system. As result of these reforms, most Chinese scientific institutions have been encouraged to commercialize their research, and an increasing number of Chinese scientists have begun to go into business.

During the 10th and 11th Plans (2001-2010), economic structural adjustments were emphasized to optimize and upgrade industrial structures, adopt best-practice to invigorate China through science and education, and strengthen the global competitiveness of Chinese firms. Establishing export bases for new and high-tech products in selected high-tech industrial development zones became an important part of the government’s plan. Many high-tech projects were planned in the period. In the 11th Plan, the CPC called for stepping up the development of manufacturing industry and leveraging new technologies to develop China’s indigenous brands with proprietary intellectual property rights. The CPC also issued the Sci-Tech Development Guidelines, which gave priority to technological development in 11 major sectors and encouraged innovation that would raise the country’s competitiveness across the entire range of industries. Moreover, the government adopted preferential banking policies for promoting innovation and business start-ups, and pushed forward the building of a secondary stock market to accelerate the commercialization of science and technology.

The 12th Five-Year Plan (2011-2015) will be approved in March 2011. For the first time in history, China invites international expertise to advise on goals and policies of its Five-Year Plan. In the proposed Plan, China will nurture and develop seven new strategic industries with favorable policies in the next five years, including new-generation information technology, energy-saving and environmental protection, new energy, biology, high-end equipment manufacturing, new materials and new-energy cars. In addition, the country will no longer target the growth rate as its top priority in its industrial development plan, focusing instead on the quality and the profitability of industrial growth. In particular, China will encourage the use of high technology in its industrial development.

As illustrated in the past Five-Year Plans, Chinese planners have been trying to unify technology policy and economic policy, import and assimilate foreign technology, and overcome the problems of the separation of science, technology, and industry since the early 1950s. The commitment to these goals have been increasingly seen by Chinese administrators as requiring reforms in the operation of the economy and technology management. These initiatives will continue to be at the top of China’s planning agenda.

Source: http://en.ce.cn/subject/17cpc/index.shtml

China’s High-Speed Railways: A Work of the Ministry?

Earlier this year, in newspapers, on TV, and over the Internet, China’s state media triumphantly announced the country’s breakthrough in high-speed trains. According to reports from Xinhua, China’s state news agency, China now has the world’s “longest high-speed railway tracks, fastest high-speed trains (running at 380 km/h), and largest scale of high-speed railway under construction”.

How have foreigners responded to these announcements? In March, soon after the Chinese media blitz, Japanese business executives criticized the Chinese for “steal(ing) technology and compromis(ing) safety (in speedup)”. In April, newspapers like The New York Times worried about IP issues as China was expected to export its high-speed trains. In October, when the California governor Arnold Schwarzenegger was on a shopping tour to buy low-costs Chinese bullet trains, The Financial Times wrote a long editorial piece on “how China digests (or steals?) the technology” (October 8). However, none of these responses questioned the content of the Chinese claims. Indeed, China’s leadership in high-speed railway systems seems to be well-founded.

The fear is that the Chinese will take over one industry after another by implementing similar “digesting” strategies, defined by China’s Ministry of Railway as improving and innovating on the basis of imported foreign technologies. Those who are familiar with China’s history of technology development over the past thirty years would cast doubts on such a quick conclusion. From the late 1980s, Chinese officials began to talk about the so-called digesting strategies, based on imitating the successes of Japan and South Korea. Yet, from automobiles to pharmaceuticals to semiconductor chips, many of China’s expensive state projects have failed.

It is rare for the technology import and digest projects to be conducted by a strong arm of the government. In the case of rail transport, however, the Ministry of Railway owned the country’s entire railway system, plus dozens of super-large state-owned train makers with annual sales of billions of RMB. The railway system is essentially a national monopoly, which enabled it to act like a business group in collectively and aggressively bargaining with foreign partners, Germany’s Siemens, France’s Alstom, Japan’s Kawasaki Heavy Industries, and Canada’s Bombardier. Lured by the world’s largest high-speed railway market, the four foreign companies compete with each other so fiercely that they are all suspected of transferring to the Chinese more of the advanced technologies than they had agreed to provide.

In many other technology-digest projects conducted by weaker ministries, China’s decentralized development pattern gave enormous incentives to local governments to foster growth, but it also created too much governmental competition, manifested in greater concessions to attract multinationals. Such competition generally undermined the state’s ability to leverage China’s big market in bargaining with the powerful multinationals. Before the success of high-speed railways, the norm of the Chinese state technology-digest projects was to pay a lot and only get a little.

The other difference in railways is the technological sophistication of the Chinese firms involved. Historically most Chinese state-owned enterprises (SOEs) were badly managed, at least before the major restructuring of SOEs in 1998. Many of the SOEs involved in state projects had little capability to learn new skills or engage in technology upgrading. But railways were different because of a history of attempts to learn from abroad. As early as 1990 the Ministry of Railway began sending engineers to France and Japan to learn the high-speed technology. The first Chinese home-grown high-speed model was a system called “Spring City” developed in 1998 in a state lab located in a ministry-owned SOE. The “Spring City” engineering team was subsequently involved in developing the China Star of 2002 and in later technology transfer programs. As a result, a few of the SOEs in railways were technologically quite sophisticated before entering the digest project.

In sum, the main reason for China’s success in high-speed trains is the Ministry of Railway’s system of innovation.

Promoting Innovation at the Expense of Indigenous Firms?

On April 9th, the Chinese Ministry of Science and Technology (MoST) website announced a new draft plan for accrediting “indigenous innovation products”, covering a range of high-tech sectors including computers, telecom equipment, automatic office equipment, software, new energy, and energy efficiency devices. These accredited products will enjoy priorities in Chinese government procurements. After being excluded in the initial accreditation plan issued in 2009, foreign companies had been complaining ever since. This time, however, there are two significant changes in favor of multinationals: the accredited products must possess “intellectual property rights” and a “registered trademark” in China rather than the previous accreditation criteria of “indigenous intellectual property” and “indigenous brand”.

The draft plan is complementary to the State Council 2010 Circular No. 9 issued on April 6th, which aimed at encouraging R&D investment of multinationals in China through series of favorable polices including cheap land, tax holidays, and financial liberalization. MoST’s latest accreditation plan is, however, a major setback for many Chinese indigenous companies in the growing government procurement market for high-tech products, estimated to be over one billion dollars per year. Since multinationals are more competent in the market of technology-sophisticated products, the 2009 accreditation plan intended to expand the market share of local firms by giving them privileged access to government procurement contracts. So far, it is not clear whether multinational corporations have directly influenced this year’s draft plan, or whether MoST is pursuing a deliberate strategy that de-emphasizes indigenous innovation for the sake of leveraging access by multinationals to the Chinese market in exchange for technology.

What is clear is that the Chinese state is inclined to abandon government procurement as a policy tool to promote indigenous innovation. That having been said, the Chinese government has spent billions buying underdeveloped products from local firms such as CPU, office software, etc, which still remain commercially uncompetitive and technologically backward. There were even worse scenarios in which large local PC vendors acted as middlemen between the Taiwanese OEMs and the Chinese government, with their huge profits from the procurement market only resulting in diminished productive capabilities. Nevertheless, procurement money can be of great importance for financing innovative firms; prime examples are Huawei and ZTE in the Chinese telecommunication industry. Procurement money provides possibilities for firms to endure the high fixed costs of technological catch-up until they can succeed in generating the high quality products at low unit costs that define innovative success. But such possibilities may be about to disappear.

This article has aslo been published on the ChinaAnalysis Monthly Newsletter Issue 22, May 2010.