At the World Economic Forum’s Annual Meeting of the New Champions (AMNC) this year, Tianjin Mayor Huang Xingguo (pictured) discussed some key drivers of innovation—ideas, entrepreneurship, convergence. But he also brought forward what might be considered an underrated contributor: public policy.
Public policy—if not business-friendly and irresponsibly administered—can stifle an economy. But, if well-crafted and executed, public policy can just as easily enable a culture of innovation. It may be the unglamorous side of innovation—but a side that is critical all same and proving to be especially impactful in China.
Take entrepreneurship. For innovative ideas to be nurtured, entrepreneurs need to have a level playing field on which to launch their businesses and compete against large, established entities. That is, public policy must allow equal access to credit, fair competition, transparency of information for all, and the capacity to set up a business without excessive bureaucracy. But in China, entrepreneurs still face steep hurdles in this regard. State-owned enterprises have easier access to funding and continue to skew the competitive landscape1. In addition, setting up a business remains challenging: China ranks 158 on the World Bank’s 2014 Ease of Doing Business indicator on starting a business. In response to this, China has been streamlining business registration processes and, according to Premier Li Keqiang’s remarks at the AMNC, this has led to more than 8 million new businesses in 2014 so far.
Convergence is also an area in which China is seeking to improve. Collaboration among institutions of higher learning, private industry, and a free flow of information are key to encouraging innovation—as clusters such as Silicon Valley demonstrate. China has made concerted efforts to build clusters and special economic zones that promote the convergence innovation needs to grow. One of the first of these, the Shenzhen technology cluster—which includes companies like Huawei and Lenovo, a range of universities, and is located next door to Hong Kong—is now rivaling Silicon Valley in terms of international patents2.
To keep this momentum going, however, public policy must promote local and foreign direct investment in growth sectors of the future, such as advanced manufacturing, e-commerce, IT sciences, mobile technology, and life sciences. Part of this will involve China continuing its significant emphasis on promoting research and development: the Chinese government has steadily increased its targets for science and technology in its five-year plans (FYP), going from a target of 1.5 percent of GDP in its 10th FYP to 2.2 percent in its latest FYP (12th)3. But part of it will also involve stronger IP enforcement. Even Premier Li acknowledged that IP protection is critical to “stimulate the enthusiasm for innovation.” Listening to both Premier Li and Mayor Huang at the AMNC, it is clear that the Chinese government sees the value in business-friendly policy that enables innovation. If successful, China’s public policy may very well become an important conduit and, in the words of Premier Li, “the blood of innovation will flow unhampered.”
Gary Coleman is Managing Director, Global Industries, of Deloitte Touche Tohmatsu Limited. He is a member of Deloitte’s Global Markets Committee and is the lead partner in Deloitte’s strategic relationship with the World Economic Forum. Follow him on Twitter @gcoleman_gary.