Davies

China’s R&D Challenge: 

China’s R&D Challenge Ken Davies OECD Capital Movements, International Investments and Services Division “Globalization, Competitiveness and Workforce” Government University Industry Research Roundtable Meeting February 3-4, 2004 Washington, D.C.

Summary: 

Summary China’s long-term goals: where R&D fits in Why set up R&D centres in China? Why not? China-OECD co-operation on FDI policy Evaluating the challenge from China Meeting the challenge from China

China’s long-term goals: where R&D fits in: 

China’s long-term goals: where R&D fits in Rich and powerful [富强 fuqiang] Regaining China’s place in the world Moderately well-off society [小康社会 xiaokang shehui] Raising living standards Ensuring social and political stability Attract more and higher-quality foreign investment High-tech Greater value-added content R&D centres with foreign investment

Reasons for MNEs to open R&D centres in China: 

Reasons for MNEs to open R&D centres in China Adapting products to the Chinese market Different sizes Different tastes Cultural sensitivities Cost saving Lower salaries Lower land-use costs Local resources Educated labour Land Rapidly improving physical infrastructure Strategic base Close to other large markets in Asia

Obstacles to setting up R&D centres in China: 

Obstacles to setting up R&D centres in China Widespread IPR violation Counterfeiting Patent violation Inadequacies in the judicial system Shortage of trained judges Lack of judicial independence Corruption Local officials not impartial

China-OECD co-operation on FDI policy: 

China-OECD co-operation on FDI policy MOFCOM-OECD: long and fruitful co-operation. OECD-China conference on FDI in China’s Regional Development in Xi’an, October 2001. Foreign Direct Investment in China: Challenges and Prospects for Regional Development MOFCOM-OECD seminars at Xiamen Fair in 2002 and 2003. Global Forum on International Investment, Shanghai, December 2002.

OECD Investment Review of China:Progress and Reform Challenges: 

OECD Investment Review of China: Progress and Reform Challenges China has become the world’s largest recipient of FDI. But FDI inflows per capita are lower in China than in many other countries. FDI from OECD member countries is under-represented in China. The challenge is to attract long-term, high-technology, capital-intensives projects from OECD countries. The report charts China’s progress in developing an enabling environment for FDI and outlines policy options for the Chinese government to consider.

OECD Investment Review of China:Progress and Reform Challenges: 

OECD Investment Review of China: Progress and Reform Challenges CONTENTS Overview of progress and policy challenges. The role of FDI in China’s economic development. The regulatory framework for FDI in China. The legal system and FDI. The evolving competitive environment for FDI. The tax treatment of FDI in China. Bilateral investment treaties.

Policy options: 

Policy options Streamlining the FDI project approval process. Separating FDI approval from other operations. Reconsidering foreign ownership restrictions. Further opening of capital markets to FIEs. Increasing transparency. Improving the legal system. Develop an accountable and transparent legislative process. Strengthening intellectual property rights (IPR) protection.

Relevance to R&D centres: 

Relevance to R&D centres IPR protection essential for transfer of high technology Improved legal system necessary to ensure such protection Competitive environment facilitates restructuring Removal of ownership restrictions widens scope of FDI Transparent environment facilitates research activities Greater competition from FIEs will strengthen domestically invested R&D centres. Protectionism will weaken them.

Enabling factors for R&D centres: 

Enabling factors for R&D centres Relatively high level of industrial development Physical infrastructure Human capital Consumer sophistication Investment in education Centres of excellence for graduate education and research High standard of general education Clean and pleasant environment Freedom of thought and expression Regular academia<>industry interchange of ideas Full scope for market research activities A strong consumer market in which to test products

Evaluating the challenge from ChinaEnablers: 

Evaluating the challenge from China Enablers Economic growth High savings rate High investment rate

Evaluating the challenge from China:Drivers: 

Evaluating the challenge from China: Drivers Economic incentives/market share Patriotism/local pride “Wealth and power” Confucian continuity/providing for those who follow Putting something back (foundations/endowments) Success in attracting FDI embodying technology transfer

Evaluating the challenge from China:Limiters: 

Evaluating the challenge from China: Limiters Poor IPR protection Poor protection of individual rights Remnants of central planning mentality (project lists) Educational underperformance (low share of GDP Brain drain/reverse brain drain

The challenge from China:What we can do: 

The challenge from China: What we can do Liberalisation in China will improve its R&D capacity We can either: Change track and face trouble Welcome improved R&D capacity in China