By Sun Zhiyan

Research Report Vol.18 No.3, 2016

Currently, under great pressure of economic downturn in China, in order to tackle various problems and difficulties in the economic transition, both developed and underdeveloped regions have to rely on innovation, and make it the core in their development plans. To promote innovation, different regions have increased R&D input, accelerated the construction of innovation parks, laboratories, business incubators, and introduced a series of incentive policies like tax and fiscal subsidy. All these policies and actions did encourage innovation but led to some problems in practice, such as intensifying competition for innovation resources among regions, disproportionate improvement in innovative ability in contrast with the increased innovation resources, and the failure of turning “innovation” to new driver for regional economic growth. As these problems prevent China from being more innovative and widen differences among regions in the process of transformation and innovation, it is urgent to optimize regional innovation policies and accelerate reform in relevant fields.

I. Prominent Problems in Boosting Innovation and Development in Different Regions

Comparing policies and measures to promote innovation in different regions, most regions still follow the idea of boosting regional economic development by attracting investment, namely, using “preferential policies to build a variety of innovation parks and then to attract projects”, which is a regional innovation model tailored to traditional industrialization and urbanization. This model unveils its shortcomings as it can hardly adapt to the new trend of innovation activities, under a new round of technology revolution and a more open regional economic system. 1. Lack of coordination among innovation policies in different regions will cause disordered competition and a divided market Since China’s economy enters the new normal, all regions hope to transform its development to be innovation-oriented, and accomplish more innovation achievements in a short time. In this context, they have introduced a large number of preferential policies, such as tax breaks, fiscal subsidy, and government procurement, all of which, for the sake of their own growth, aim to attract more high-quality innovation resources and projects, offering new impetuses of economic growth in the region. Regions will compete for limited innovation resources. The more pressure from transition, the more intensified competition will be. As a consequence, without proper regulation, such competition will be like vicious competition for general factors of production among regions in the past, which will cause improper allocation of innovation resources, affect the overall innovation environment, and prevent these regions from becoming more innovative.

2. All regions have unclear plans for innovation and development, and low efficiency of using innovation resources Though being aware of the importance of innovation and having proposed the goal of becoming an innovative province or city during the transition, all regions fail to understand the deep meaning of innovation and requirements of innovation activities. They neither study the general trend and rules of how to be innovative, nor fully use local quality innovation resources. In practice, they just duplicate the central innovation policies or blindly imitate the innovation and development model in some advanced economies. When it comes to innovation input, all regions focus on building infrastructure, introducing projects and talents. Thus plenty of scientific research facilities are built redundantly and used inefficiently. In some underdeveloped regions, labs or productivity promotion centers often undertake basic functions like property services, product and equipment testing, instead of clustering innovation resources and enhancing the ability to innovate. Some innovation resources, introduced at a high cost, find it hard to adapt to the local environment, and gradually become inert without playing their due role, which partly explains why some regions in China fail to be more innovative after much innovation input.

3. Regional innovation lacks coordination at the state level, unhelpful to regional coordinated development Innovation resources in China are allocated by industry or sector, and China has not specified responsibilities of regions with different development levels or types in the national innovation system. Regional innovation is carried out based on administrative regions, without effective coordination and balance at the national level. Thus, all regions innovate in the same way; innovation resources cannot be used jointly; elements of innovation like knowledge, technology and talents fail to flow among regions; innovation resources cannot be shared, and knowledge cannot be complemented. As a result, it is difficult to work jointly to promote major scientific and technological innovation, and strongly innovative regions cannot play a leading role, thus widening the gap of ability to innovate among regions. Big regional gaps will produce “polarization effect”. Therefore innovation resources will be more imbalanced in space, causing more serious regional disparity. In the long run, it will prevent China from being more innovative and implementing overall strategies of regional coordinated development.

II. Understanding the New Trend of Innovation Activities

As the economic system turns to be more complex, significant changes have taken place in innovation undertakers, meaning, spatial layout and organizational model. From what promotes regional innovation, attention should be given to three aspects as follows. First, innovation has been much more complex and uncertain. As innovation used to be based on a single technology, it depends on a combination of multiple technologies, with the rapid development of information technology and smart technology. For example, 3D printing is a new technology combined with a variety of advanced material technologies, heat treatment technology, and algorithms technology. Different combinations of technology will spawn new combinations of technology, making the technology system increasingly more complex. Hence, innovation becomes more difficult and uncertain, as if it is produced in the “black box” of multiple technologies. Second, innovation calls for more financial support. Innovation is more complex and difficult than ever, and the cycle of technological progress is shortened. It used to take at least 40 to 50 years for a new technology to play a role in the industry from its birth. For example, the electrification technology, showing up in the 1970s, did not show its impact on industry until 1920s. In contrast, according to Moore’s Law, modern information technology will be updated every two years. Owing to these factors, innovation needs more capital investment, and has decreasing marginal returns as it becomes more difficult. According to Deloitte’s estimation of return on R&D in 12 biological manufacturing enterprises, the rate has dropped from 10.5% in 2010 to 4.8% in 2013. Moreover, Volkswagen invested 34.38 billion euros in R&D from 2012 to 2014, with an average annual growth rate of 17.7 percent, while its profit grew at an annual rate of only 0.7 percent during the same period[]. ...

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