Michael Sainsbury
March 9, 2016

China tech and the five-year-plan

China tech and the five-year-plan

Innovator in Chief: Xi Jinping has been driving tech and innovation policy

For all the talk from China’s leaders these past two-and-a half-years of economic reforms that will allow the market and private enterprise to have a larger role in the economy, the Communist Party still religiously produces a Five Year Plan: a central command-and-control program that harks back to Russia’s long, failed experiment with Communism.

The plan’s headline is a GDP growth rate of 6.5 per cent to help create the Party’s chief dream of a ‘moderately successful society.’

China’s new 5YP has also put an even tighter focus on innovation and science, its very own Malcolm Turnbull moment

“Innovation is the primary driving force for development and must occupy a central place in China's development strategy,” Premier Li Keqiang told the annual National People’s Congress, the country’s rubber stamp parliament when it began last Saturday for its annual 10-day session.

The 5YP should focus on growth quality and efficiency to increase innovation's contribution to economic expansion, Premier Li added.

While China’s 5YPs are notoriously thin on detail, Li announced that science spending would rise 9.1 per cent this year to Y271 billion yuan (US$41 billion) with the aim of reducing bureaucratic barriers for scientists, and improving environmental protection while curbing carbon emissions and other pollutants.

The new 5YP includes $23 billion in funding to give workers in older industries new skills suited to modern sectors such as information communications, renewable energy, new materials, aviation, biological medicine and intelligent manufacturing.

The impact of technology upgrading within production processes would increase both productivity and profitability of goods and services, economist Sara Hsu said in The Diplomat.

“This process is essential in catering to a more highly-skilled workforce that now largely balks at taking jobs in the low-skilled manufacturing sector,” Ms Hsu said. “Higher wages earned by skill-intensive jobs can be used to increase consumption, a major focus of the current administration.”

The plan also calls for making breakthroughs in core technologies, and aims to advance scientific research in areas like the evolution of the universe, material structure, origin of life, as well as brain and cognition work. It also calls for “vigorously initiating international major science projects.”

The plan has also promised to accelerate the Chinese government’s Made in China 2025 platform released last year.

Last March Premier Li launched the “Internet Plus,” program which aims to integrate big data, the Internet of Things, and mobile internet with manufacturing, as well as promoting e-commerce. Under this plan, the Internet is to be used to promote innovation and boost the primary, secondary, and tertiary sectors.

The Made in China program is worth watching. One of China’s catch phrases is ‘indigenous innovation’, that will cause some amusement , or perhaps anger those who have been watching China steal, copy and reverse engineer technology from the west, Japan, South Korea and Taiwan (countries that had executed similar IP transfer from the US and Europe.)

It has been happening since the wheel was invented, so let us not pretend it hasn’t.

China has had a particularly success with Huawei Technologies, which remains China’s stand out corporate boom in terms of the size and spreads of its global business and network contracts.

Together with Sweden’s Ericsson, it now sits at the top of the head of global suppliers of telecommunications infrastructure and service, as well an increasingly healthy and impressive mobile device division. It’s a combination of Ericsson, Lucent Technologies and Cisco Systems.

ZTE, Huawei’s smaller, long time home-grown competitor is also winning contracts all over the world and is increasing its handset market share.

Mobile device makers Xiaomi and Oppo are moving out of China into the rest of the world at much lower prices than Apple and Samsung. The buyout by Chinese firm Lenovo of IBM’s PC business has been a success, although the company has yet to make much of an impact on mobile devices as smartphones and pads.

Yet to prove itself as country where innovation flourishes, China knows it must do more – much more.

One area where China has in many ways led the world is FinTech.

This is where Malcolm Turnbull’s government’s is behind-the-eight ball. Its Damascene moment of embracing FinTech. If the aim of FinTech is to disrupt – with technology – traditional financial services companies, then China has been at the forefront of deploying FinTech.

This is Iargely due to timing and circumstance. Under its authoritarian system, part of which has strict controls on money flows investors have had – up until recently – very few option to invest their money. ‘

And up until recently banks were the only financial institutions where Chinese can invest their money (it’s either that or property).

The Australian government should note, as it pursues its Quixotic quest to dominate Asia in Fintech, two things about Chinas FinTech sector.

First, the vast majority of innovation and disruption in Fintech has been executed by the country’s well-funded internet giants such as Alibaba, Tencent – owner of social networking giant Weixin (that’s We Chat to you) – and search giant Baidu, all of which were seeking “adjacent” businesses as traditional web advertising and search revenues behind to flatten out.

These companies were amongst the startup group granted licences for online financial services, setting up investment funds that filled up very quickly. They offer a welter of other services such as the ability to transfer money without debilitating bank fees, myriad e-commerce projects and other financial offerings.

As noted earlier, few investments in small FinTech startups have produced such new innovation.

So, on paper at least, here comes innovative China.

But there are also increasing handbrakes on innovation too, such as reduced free speech in universities, a still nascent venture capital ecosystem, and a highly problematic stock market (to say nothing of debt-laden banks that are reluctant to issue loans to private enterprise and small startups generally.

And in terms of software and cloud based services, the dark threat of cybersecurity hangs over Chinese firms. One example has been the refusal of the US to install any Huawei equipment in its coretelecoms networks, a decision mimicked by Australia’s National Broadband Networks.

So expect more and improved technology from China.

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