By Xiong Hongru

Research Report Vol.18 No.6, 2016

Enterprise is the main venue where technology and economy work hand in hand. Innovation creativity and ability of Chinese enterprises are not only a key indicator of the quality and efficiency of innovation in China, but also an important gauge when analyzing the implementation effect of innovation-driven development strategy. Based on the results of “National Innovation Survey”¹ conducted by National Bureau of Statistics in 2015, this report analyzes the data and makes related comparisons, and summarizes the main features of, problems in, and reasons for enterprise innovation in China at present.

I.Enterprise Innovation in China Assuming Initial Scale

The rapid catch-up growth over the past 30 years has laid a good foundation for enterprise innovation in China. Since China enters the new normal, there is a remarkable rise in the number and percentage of enterprises engaged in innovation activities². This is particularly true in technology intensive industries. At the same time, various types of innovation activities are underway, and sources of information for innovation grow more. New generation entrepreneurs generally attach importance to the role of innovation.

1. Larger scale in enterprise innovation

From 2013 to 2014, a total of 266,000 out of 646,000 surveyed enterprises had launched innovation activities, accounting for 41.3%, which was a remarkable rise compared with the scale a decade ago³. For example, in industry, the percentage of enterprises engaging in innovation activities grew to 46.8% from 28.8% ten years ago, while the percentage of small businesses engaging in innovation activities also jumped to 43.1% from 25.2% a decade ago.

Technology intensive sectors saw most of the innovation by enterprises. Survey results showed that in the industries where over 1,000 enterprises had innovation activities, the following sectors had a proportion of innovative enterprises over 60%: equipment and instrument, pharmaceuticals, computer, communications and electronic devices, software and IT services, electrical machinery, and equipment manufacturing, etc.

2. Simultaneous launching of various types of innovation activities

At present, enterprises engaged in innovation of products, processes, organizational management and marketing methods accounted for 18.7%, 20%, 27.9% and 25.8%, respectively. This showed that enterprises not only attached importance to technology innovation, but also paid more attention to upgrading management efficiency, innovating business models and expanding innovation scope. Innovation activities took many forms from internal R&D (56.8%), equipment, machinery and software purchase (51.3%), to relevant training (45.4%) and market advertising (24%), which showed enterprises were committed to improving absorptive capacity and market capacity.

3. More varieties in the information sources for innovation

In the past, enterprises carried out innovation mainly by following and imitating what others did, and their information for product or process innovation mainly came from some foreign counterparts or international institutions, leading to inadequate original innovation, and low-level innovation. Today, clients, colleges, universities and research institutes, government departments, industry associations, the Internet and enterprises (groups) themselves are the sources of information for innovation, which greatly increases the potential of innovation.

4. New generation entrepreneurs on the rise with importance attached to innovation

The entrepreneurs were characterized by young age and high level of education. Middle-aged and young entrepreneurs under the age of 50 accounted for nearly 80% (77.4%). In some high technology or emerging industries, entrepreneurs under the age of 30 accounted for more than 15%. Entrepreneurs with associate diploma or bachelor's degree and above accounted for 81.9%; particularly, this group accounted for over 90% in large enterprises, state-owned enterprises and high technology industry engaged in innovation activities.

Most entrepreneurs attached importance to the role of innovation. Survey showed that 25.9% of the entrepreneurs believed innovation played “a great role” in the survival and development of enterprises, and 59.4% believed it played “a certain role”.

5. Innovation-driven market expansion of new products

From 2013 to 2014, 100% of the industrial enterprises which accomplished product innovation had “their own new products”, 62.2% had “new products in the market”, and 21.7% had “new products in the international market”⁴ . It showed market expansion of new products was the direct result from enterprise innovation at present. Meanwhile, revenue from new product sales reached more than 23 trillion yuan, 13.1% of the revenue from their main business.

II.Inadequate Creativity and Large Room for Improvement in Enterprise Innovation in China

Despite larger scale of enterprise innovation, the overall creativity is still inadequate in China under the pressing need of innovation-driven development in the new normal. Innovation activities are still limited to a small number of enterprises, which indicates a large gap between developed countries with innovation. The fact that there are not many prominent innovation effects dampens the enthusiasm for innovation. How different types of domestic enterprises and departments innovate varies greatly.

1. Low activeness in innovation with innovation ability below the international advanced level

From 2013 to 2014, although the proportion of enterprises engaged in innovation rose to 41.3%, this figure was still below the average, 52.9%, of the 27 countries in EU in 2008-2010. Similarly, only 26.9% of the enterprises were engaged in technology innovation in China, which was also below the proportions of Germany (55%), Japan (27.5%) and South Korea (37.2%).

There was also inadequate input intensity to innovation and poor innovation output. Compared with Germany, China’s innovation expense intensity in manufacturing was only 1.58% in 2015, far below the 4.5% of Germany; In addition, realization rate of technology innovation⁵ and contribution rate to revenue were not high. For example, realization rate of China’s manufactured products was 26.1%, less than the German level of 43.8%; sales revenue of new products in manufacturing accounted for 14.5%, also less than the German level of 23.3%.

2. Insignificant economic gains from enterprise innovation dampening innovation drive

Innovation has limited contribution to the profitability of enterprises. The 378,000 large industrial enterprises in the survey had an overall average profit margin of 6.22% from 2013 to 2014. Among them, those with innovation activities had an average profit margin of only 6.28%, while those without innovation activities had an average profit margin of 6.09%, which showed that those with innovation did not outperform those without innovation by a large margin in contribution to profitability. This can be attributed partly to the status quo that there is a lack of innovation drive. It can also be attributed partly to the fact that many enterprises have not yet in the development stage where they reply completely on innovation to outperform others. ...

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