By Lv Wei
Research Report Vol.20 No.1, 2018
As stated in the report delivered at the 19th National Congress of the Communist Party of China, in developing a modernized economy, we must focus on the real economy and work faster to build China into a manufacturer of quality and develop advanced manufacturing. The manufacturing industry is the mainstay of the real economy. As China’s economy has been transitioning from a phase of rapid growth to a stage of high-quality development and the manufacturing industry has entered a critical period of improving quality and efficiency, innovation has become an important driving force behind the transformation and upgrading of the manufacturing industry.
I. Characteristics of Innovation in China’s Manufacturing Industry
Currently, China’s manufacturing industry has entered a new stage of innovation. Enterprises now have greater capacity for innovation, shifting from technology introduction to independent R&D.Thedomestic technology supply capability has strengthened.Chinese enterprises are moving up from lowerend of the global value chain to the medium to high end, and the application of technology in some fields is already at the forefront of the world.
1. The manufacturing industry plays a leading role in technological innovation
In China, the innovation factors are being concentrated in enterprise, and theinput in innovation by manufacturing enterprises accounts for a high proportion. In 2016, the total R&D expenditure of enterprises above designated size accounted for 77.5% of China’s total R&D spending, and full-time equivalent (FTE) of their R&D personnel accounted for 78% of the country’s total.The number of patent applications filed by and that of patentsgranted to enterprises accounted for more than 60% of the country’s total. The R&D spendingand FTE of R&D personnel ofmanufacturing enterprises above designated size made up 87% of the total of domestic enterprises, with a share of 96.7% and 95% in industrial enterprises, respectively. According to the business innovation survey by the National Bureau of Statistics (NBS), in 2016, 36.1% and 22% of enterprises above designated size achieved innovation and technological innovation, while the proportion was 9 and 11.1 percentage points higher for manufacturing enterprises, respectively①.
2. Innovation activities of the manufacturing sectorare concentrated in high-techindustries
In 2016, the average R&D intensity of major enterprises in China’s manufacturing sector was 1.01%. Specifically, those with R&D intensityof over 1.5% were concentrated in high-tech and medium-high-tech industries including rail, ship, aircraft, spacecraft and other transport equipment, instrument, medicine, computer, communications and other electronic equipment, special-purpose equipment, electrical machinery and equipment, and universal-purpose equipment manufacturing industries. Among them, the transport equipment manufacturing industry took top spot with R&D intensity of more than 2%. Almost all industries with R&D intensity higher than the average of the manufacturing sector and R&D spending of more than RMB10 billion were high-tech and medium-high-tech industries, such as computer, communications and other electronic equipment, electrical machinery and equipment, automobile, universal-purpose equipment, special-purpose equipment, medicine, transport equipment, and instrument manufacturing.
3. IndependentR&D spending makes up the majority of innovation expenditures, and the capacity of domestic technology supply is increasing
By innovation expenditure structure, R&D spending makes up the largest part of innovation expenditures, followed byspending on technicalequipment and software, external technology, and external R&D. In 2016, R&D spending accounted for 63.7% of the total innovation expenditures in the manufacturingsector, technological equipment and software expenditure 28.8%, external technology expenditure 4%, and external R&D expenditure 3.4%. Compared with 2014, the share of R&D expenditure increased by 6 percentage points in the innovation activities of the manufacturing industry, while the proportion of expenditure on equipment and software purchase reduced by 7.2 percentage points, indicating that the technological transformation expenditure of enterpriseshas declined. This, on the one hand, is partly due tothe decrease in equipment investment brought by reduced capacity, and on the other hand, suggests that the upgrading of enterprises needs financial and policy support.
From the perspective of the source of technology, the manufacturing industry has shifted from relying mainly on technology import to independent R&D and purchase of domestic technology. From 2009 to 2015, the ratio of technology import expenditure to R&D expenditure of Chinese industrial enterprises decreased from 15.2% to 4.13%, while the ratio of domestic technology expenditure to technology import expenditure (hereinafter referred to as “domestic technology share”) increased from 39.5% to 55.53%. By industry, the domestic technology supply capacity of traditional manufacturing industries is strong, while high-techindustriesare relatively dependentontechnology import. The domestic technology share in about 50% of manufacturing industriesstands above 100%, and the ratio is 200% for the transport equipment manufacturing industry. The industries with domestic technology share of less than 40% are mostly high-tech and medium-high-tech industries, such as automobile, universal-purpose equipment, special-purpose equipment, and computer, communications and other electronic equipment manufacturing industries, as well as a few traditional industries including paper and paper products, food processing, and beverage.
4. Innovation models are increasingly diversified, and technology innovation and management improvement promote each other
Manufacturing enterprises have diverse innovation models, including technological innovation and management innovation. According to the results of the national business innovation survey, in 2016, 45.3% of the enterprises in the manufacturing industry achieved innovation, of which 33.1%succeeded in technological innovation (including product innovation or process innovation), 35% in management innovation (including organizational innovation or marketing innovation), and 23.2% in both technological innovation and management innovation. As can be seen, technological innovation and management innovation complement each other and jointly boost the competitiveness of the manufacturing sector.
By industry, the proportion of enterprisesengaging in technological innovation in high-tech and medium-high-tech industries is generally higher than that in traditional industries, and a higher proportion of enterprises conduct technological innovation compared to that of management innovation; in technological innovation, product innovation accounts for a higher proportion than process innovation. In contrast, among traditional industries, the proportion of enterprises making management innovation is generally higher than that of technological innovation, and the share of process innovation in technological innovation is higher. This shows that currently, high-tech industries mainly rely on technological innovation to enhance their competitiveness, and product competition is intense; with the weakening cost advantage and the higher technological level, traditional industries need not only to conduct technological innovation but also improve management to boost their competitiveness.
5. Collaborative innovation is mainly conducted by enterprises, universities and research institutes, and collaboration between the upstream and downstream parts of the industry chain is of great importance
According to the results of the national business innovation survey, collaborative innovation in the manufacturing sector is mainly concentrated in cooperation between enterprises, universities and research institutes and between upstream and downstream enterprises, and clients and customers play a pivotal role in cooperation of great value. As shown in Table 2, 24.3% of enterprises above designated size engaged in collaborative innovation in 2016, of which 54.5% worked with universities and research institutes, 43% and 36% with clients and suppliers, 18.2% with industry associations, and 14.2% with rivals. In cooperation of great value, the proportion of cooperation between suppliers and clients was higher than that of universities and research institutes. In cooperation between enterprises, universities and research institutes, enterprises conduct morecooperation withuniversities than with research institutes, which to some extent indicates the relatively high complementarity between universities and enterprises in R&D.
The main mode of cooperation between enterprises, universities and research institutes is to jointly carry out research projects. Personnel exchanges and establishment of joint R&D institutions are also important modes of cooperation. In 2016, among the modes of cooperation between enterprises, universities and research institutes, cooperation on research projects accounted for 66.7%, personnel of universities and research institutes taking part-time jobs in enterprises accounted for 31.5%, establishing joint R&D institutions in enterprises made up 28.7%, and establishing joint R&D institutions in universities and research institutes accounted for 10%②. The fact that R&D institutions are mainly based in enterprises is because enterprises can provide pilot test equipment, which is conducive to carrying out commercialization demonstration projects.
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