Chinese Challenges in Absorbing and Producing New Technology

A report from U.S. Embassy Beijing  December 1996

Summary. China must overcome a formidable array of industrial S&T absorption and development weaknesses to prevent the technological gap between China and the advanced countries from growing still larger says "Science and Education for a Prosperous China" , a report prepared for Chinese communist party and government officials. Chinese industrial S&T challenges include poor organization, resource shortages, mindless directives to expand production at all costs, the divorce of S&T from manufacturing, insistence on importing technology which cannot be absorbed by Chinese industry at its present stage of development, military secrecy that prevents spinoffs of military technology from reaching the civilian sector, poorly educated workers, and demoralized, severely underpaid S&T personnel. However, the report fails to point out how China could circumvent these shortcomings by relying on the expansion of the private sector to make China an R&D power. End summary.

Poor Organization, Neglect, Resource Bottlenecks and Mindless Calls to Expand Production Cause China's R&D Weaknesses

According to the report, "Science and Education for a Prosperous China" China's economic development began relatively late, shortly after the Opium War of 1840. In 1949, industry accounted for only 12.6 percent of China's GNP and 2 percent of its work force. China chose to concentrate on the development of heavy industry. Unlike other rapidly industrializing countries, China has not been able to solve the problems of a weak industrial base beset by problems of transportation, resource, and energy bottlenecks. The low profitability, low efficiency and poor organization of its industrial structure have prevented China, unlike other countries, from solving heavy industry problems and moving on to focus on the development of light industry. Chinese industry has suffered severely as a result of directives from on high calling for production to be boosted to very high levels in a short time. The neglect of manufacturing technology and product quality development was the result. Moreover, companies had no autonomy and no responsibility for profits or losses. Companies took no risks and did not compete with other companies. Everyone ate from the "iron rice bowl".

Weaknesses: R&D Organization, Education, Communications, R&D Absorption Capacity

Chinese R&D is located in research institutes rather than in enterprises. In the USA, Japan, Germany, Taiwan and Korea 80 percent of all R&D spending takes place in the private sector while 8 - 13 percent is spent in government laboratories and 12 - 15 percent in universities. In China, enterprises have a far smaller share of total R&D spending. Since in China, most R&D work is done in research institutes, research and manufacturing have been largely separate. Only 27 percent of R&D spending is done by Chinese enterprises. This Chinese system, which divides research and production, is a heritage of the old, centrally planned economy. In the old state planning system, the vocation of enterprises was production while research was carried on in secluded research institutes. The only contact between the two was the sluggish and often clogged channel of the government bureaucracy. R&D therefore lost relevance to the needs of industry. Enterprises have relied on the power of administrative fiat to obtain resources which enable them to expand production. Largely absent has been a market-driven focus on new technologies which would enable enterprises to improve product quality as well as quantity, concluded the report.

Critical Chinese industrial R&D weaknesses, according to the report, include:

    • Poor technical skills of industrial workers. The low level of education of the Chinese work force is a big obstacle to the improvement of Chinese industrial S&T. According to the 1990 population survey, only 1.4 percent of the population has received higher education or is now a university student. The comparable figures for Japan, Korea and Taiwan Province are 14.3, 8.9 and 7.5 percent. China suffers from a shortage of technicians and the resulting watered down qualification standards for technicians.
    • Chinese enterprises too often focus on quick profit from imported technology, pay little attention to mastering the new technology and making it their own, says the report. Many enterprises are reluctant to allow other enterprises to join in cooperation with foreign partners. This sharply reduces China's ability to absorb new technologies. A new law helps finance projects which involve the absorption of new technologies by Chinese enterprises.
    • Poor technology absorption capability of medium and small entrprises. Chinese small and medium-sized companies spend only one-tenth as much (1.4 percent) as a proportion of their income on R&D as do foreign companies of comparable size.
    • Military secrecy prevents China's military-industrial sector from spinning off much of its advanced technological expertise to civilian industry.
    • Poor communications. Only 3.4 percent of the people in China have telephones. Trying to built a high tech country in the age of computers and information networks is impossible without an adequate information infrastructure. Thus, getting technology to village enterprises scattered across the Chinese interior is difficult.
    • Chinese has too few scientific and technical workers. In 1985 for every thousand workers, China had 5 S&T workers; the USSR had 97, the USA 60 and Japan 49.
    • Changes in the domestic and international situation have not allowed the successful implementation of even one of the four long-term S&T plans which China has drawn up since 1949.
    • Excessive focus on military technologies and too many and too detailed directives in the S&T field have wasted valuable S&T resources.
    • Attacks on intellectuals for their during the Cultural Revolution because of their "rightist" thinking have severely damaged S&T work and resulted in low morale among S&T talent. As S&T workers are often paid less than manual laborers, this has seriously damaged productivity and morale. The poor atmosphere also discouraged individual creativity and initiative. A recent survey of scientists and engineers at the Chinese Academy of Sciences showed that most people there do not believe that these problems cannot be solved in the near future.
    • According to China's International Technology and Economics Research Institute, Chinese technology imports as a proportion of total imports ran to about 5 percent annually during 1991 - 1993. Since 1979 the leading sources of foreign technology imports have been Japan, the United States and Germany. Japanese technology exports to China in 1993 totalled US $1.8 billion or about one-fifth of Chinese imports from Japan.

A Weakness: Insisting on Latest, But Hard to Absorb Technology

According to the report, the absolute preference on the part of many Chinese ministries and enterprises for the very latest and best technology over less advanced technologies which could be much more readily absorbed by Chinese industry has resulted in severe losses. As a result of this approach, readily absorbable technology which could produce important productivity gains is rejected in favor of advanced technology which Chinese enterprises are unable to exploit. Although China has the atom bomb, the hydrogen bomb and a space program -- and these are important -- the Chinese industrial manufacturing base is backward overall. Much money invested in S&T projects has been wasted on products which never left the display case because product development work was neglected. China has stressed importing the best technology to improve the level of Chinese manufacturing but has seriously neglected the work needed to digest this technology and make it indigenous to China. If China does not stress digesting and making foreign technology indigenous -- and then, having made the technology indigenous, going on to make improvements of its own -- China will always remain a mere importer of foreign technology concluded the report.

The Great Challenge China Faces

Before the Second World War, there were only a few industrialized countries. But since the war, many countries have industrialized, and some of them with breathtaking speed. China can now be said to lag seriously behind not only the advanced countries but behind many of the developing countries (such as Mexico, Singapore, Korea and Brazil) as well. During the 1970s and 1980s, the traditional labor intensive and capital industries such as steel manufacturing faded in importance to be replaced by knowledge-intensive industries. Most worrying of all is the new technologies of the futures will be much more easily absorbed by the advanced nations. The gap between the advanced and the developing countries is more likely to grow rather than to shrink in the coming years, concluded the report.

"Science and Education for a Prosperous China" Series

ìScience and Education for a Prosperous Chinaî written by the State Science and Technology Commission (SSTC) (overview) elaborates on the national science policy propounded in the CPC Central Committee and State Council "Decision on Accelerating the Progress of Science and Technology" and in speeches by President Jiang Zemin and Premier Li Peng Chinese S&T Policy: A View From the Top . Reports in this series summarize and comment at greater length this 400 page document written for Chinese Communist Party (CPC) and Chinese government officials. The reports summarize and analyze the economic, food security (including the Lester Brown "Who Will Feed China?" controversy and Chinese Critics Confront Lester Brown) , the challenges of absorbing and creating technology and military aspects of the new Chinese S&T policy which emerged from the May 1995 conference. The reports also summarize and analyze the environmental portion of the SSTC volume. The SSTC volume examines S&T lessons China can draw from the S&T policies of other countries as well as lessons China draws from its own S&T experience since 1949. The report Chinese S&T and the Challenge of WTO Accession reviews the effect of S&T on the risks and rewards China will encounter when it joins the WTO.