China's S&T Policy: A View From Within

A report from U.S. Embassy Beijing December 1996

Summary: China takes stock of its path of development for the last forty-five years and the verdict is mixed. Nuclear weapons, delivery systems, artificial satellites, high energy physics, and hybrid rice are all solid achievements. But can their past achievements vault China into the 21st Century? In the view of China's leadership, the answer is no, unless China can absorb, internalize and develop an indigenous capacity to produce new technology that is competitive in the world market. Which tools ought it use? Some tried and true ones of the developed economies such as government support for basic research, looking for development in the private sector and use of venture capital to spur the transition of technology from the laboratories into the markets. End summary.

The Past -- Chinese S&T Achievements Since 1949

Fostering the growth of a great army of scientific and technical workers has been one of the principal aims of the Chinese Communist Party since the birth of New China in 1949. When the PRC was founded China had only 50,000 scientific and technical workers; with the return of prominent scientists from abroad during the early 1950s the PRC was able to establish 840 research organizations throughout China and increase the number of scientific and technical workers to 400,000. International isolation, the Great Leap Forward and the three years of difficulties (during which many research workers were hungry), the break with the Soviet Union, and then the ten years of disorder that was the Cultural Revolution severely damaged Chinese S&T.

Deng Xiaoping said "If since the 1960s China had not built an atom bomb, a hydrogen bomb and artificial satellites, then China would not have the important position it enjoys in the world today. These things reflect the ability of a nation are milestones in the development of a nation and a people." During the ten years of chaos that was the Cultural Revolution, China lost a golden opportunity for rapid technological development, for it was the during 1960s and 1970s that the economies of Japan, the United States and the four dragons of East Asia took advantage of high tech advances to achieve high rates of economic growth. Nonetheless, science and technology have advanced faster in China over the last 45 years than ever before. Despite many difficulties, Chinese science and technology workers have upheld the basic line of the Communist Party, have boldly explored new frontiers, put their ideas into practice, and laid the foundations for the development of science and technology as well as for the economy as a whole.

Chinese scientists have also made important contributions in the area of creating new, highly productive strains of hybrid wheat, in high temperature superconductivity, and high energy physics research done at the Beijing electron accelerator. Progress in agricultural science made it possible to boost Chinese grain production from l00 million metric tons in 1949 to 435 million tons in 1990 and meat production from 2.2 million tons to 28 million tons over the same period. After 1949 China made many kinds of foreign technology indigenous to China by creating its own research, development, design, and manufacturing systems in many sectors. Chinese medical achievements include an effective abortifacient drug (Chinese trichosanthes root), hepatitis B vaccine, and methods for early diagnosis of cancer of the liver or of the digestive tract.

The Present -- Chinese R&D Establishment Grows Under Reform and Opening Policies

The number of Chinese S&T workers had climbed to 18.6 million by 1994, over four times the number in 1978. Many private companies have their own R&D labs. Some once government funded research units now receive industry funding and work closely with other labs in industry and academia. International cooperation is a fast growing area for Chinese S&T. Chinese labs are involved in government to government S&T agreements with 83 foreign countries and with 134 countries and areas overall. Reform during the 1980s aligned research lab S&T work more closely with the needs of industry and encouraged labs to look to industry for funding. Earnings from the private sector helped to greatly improve research infrastructure and lab equipment. Today 80 percent of Chinese lab instrumentation date from the second half of the 1980s or later.

Thirty percent of the products made by China's machine and electronics industries today have reached quality standards achieved by manufacturers of the advanced countries during the 1980s. Many industries such as the electronic, electric power and chemical industries were able to bring the proportion of Chinese-made equipment used in these fields up to the 60 - 80 percent level. Improved technology makes Chinese products more competitive on world markets. Manufactures now total 80 percent of Chinese exports (compared with 49.3 percent in 1985). High tech exports now total 5.9 percent of all Chinese industrial product exports. China should boost this figure to 15 percent by the year 2000 and 25 percent by the year 2010.

The Present: S&T for Agriculture and Township Enterprises

In Agriculture as well, science and technology make possible large increases in production. The Chinese multiple cropping index (more than one crop per year) rose 27 percent between 1952 and 1993 -- this is equivalent to opening up new land to production. Current low efficiencies in fertilizer and water use show opportunities for making very large gains in productivity in the future. If we rely on science and technology, we can be optimistic about the future of Chinese agriculture.

Township enterprises face especially serious problems of low productivity, uneconomic small scale production, pollution and backward technology. The Spark plan launched in 1985 to bring S&T to China's vast rural areas had by 1994 trained over 2 million technicians and managers at 42 centers nationwide. The purpose of Spark is to help find work for the approximately 170 million person rural surplus work force and to assure the well being of the 80 million Chinese peasants who live in absolute poverty. Spark goals include achieving grain production of 500 million tons by the year 2000. One hundred Spark focus regions and 300 regional support industries were designated in order to spur the development of village and township enterprises.

The Torch plan grew out of a 1988 State Council Decision to accelerate the development of Chinese high tech manufacturing technology. By 1994 1940 national-level Torch research programs and 4750 local-level Torch research programs had been completed which resulted in increases in the value of industrial production totaling 142.7 billion renminbi along with 24.4 billion renminbi in tax and profits. The Torch development plan deploys S&T resources to help industry commercialize on advances in S&T. The value of industrial output at the fifty-two high tech industrial parks established throughout China has doubled almost every year since 1991. Production value reached RMB 78.9 billion (US$9.5 billion) in 1994. Fifty-two high tech industrial parks with a total surface area of 480.6 square kilometers built thus far had in 1994 a total high tech product production worth 79.8 billion renminbi, yielding profits and tax revenues of 10.4 billion renminbi. (Comment: The Torch program is specifically designed to raise the technological level of state enterprises. End comment)

The '863 Plan', China's strategic high technology research development plan, was created in 1987 to seek breakthroughs by concentrating efforts in several promising fields such as biology, aeronautics, information technology, lasers, automation, energy, and new materials. The 863 Plan is a large and complex project which brings together specialists in many fields on cross-disciplinary projects such as computer integrated manufacturing systems in order to reduce the technology gap between China and foreign countries.

Fossils and New Life Forms: S&T Lessons of the Last Forty-Five Years

What have the last forty-five years taught the Chinese people about S&T policy?

    • Carry out S&T work according to the basic line of the Communist Party.
    • Implement "Economic construction must depend on S&T; S&T work must depend upon economic construction". S&T work should be directed towards the needs of the economy; economic construction should actively support S&T".
    • S&T workers should expand links with the people and all sectors of society.
    • Hold fast to the lines "Cherish knowledge and cherish talent" and "Let a hundred flowers bloom and a hundred schools of thought compete".
    • Make use of the superiority of the socialist system by concentrating efforts on big projects.
    • Create more links between Chinese science and international science. Stay up to date on international science developments and use them to serve the needs of Chinese science and the Chinese economy.
    • Make decision making more scientific and democratic. Expand science policy research. Develop a comprehensive set of rules and regulations. Chinese science and technology needs to gradually shift to operating according to laws and regulations.

Into the Future -- Economic Reforms Needed to Promote Corporate R&D

In industrial science and technology, China needs to boost its ability to create its own technology and to effectively absorb foreign technologies. The contribution of S&T to economic growth must be steadily increased to assure China's future competitiveness in world markets. The government should restructure the economy so as to stimulate R&D work in the private sector. In the next round of private sector economic reform, the government should establish measures such as favorable tax treatment, depreciation, and incentives to encourage private enterprises to strengthen their S&T capacity. The Chinese government should promote cooperation between companies, including between private and state-owned companies, so that Chinese companies can withstand international competition better after WTO entry.

Into the Future -- Making Technologies Indigenous, Building Own Creative Strength

China has imported much foreign technology over the last 45 years but often has been unable to master and then improve on these technologies. As a result technology gaps have often widened rather than narrowed. China needs to change its technology import policy. Multinational companies are highly protectionist of their technology and prefer to sell obsolete, high pollution technologies to developing countries. When considering technology imports, the Chinese side should consider what China is learning. For projects already underway, plans should be made to gradually, stage by stage increase the proportion of raw materials and parts purchased in China.

Into the Future -- Imported High Tech and Know-how Must be Absorbable; If Not, Rejected

Merely buying advanced foreign products doesn't transfer to Chinese companies the technology they need to become more profitable and more competitive on international markets. The Chinese government intervene more frequently and effectively to ensure that imported technologies are absorbed, digested and an indigenous capacity to improve on the technology is created.

The goal should be making in China the materials and the parts needed for imported systems. The government should examine the technology digestion plan, the investment capital and the investors. Any technology import plan which does not contain a new technology absorption plan should be rejected.

China's industrial base is largely obsolete. Only ten percent dates from the 1970s or 1980s; about one-third is so old and inefficient it should be junked as soon as possible. Market reforms increase the pressure for the reform of industry -- a reform which must be made according to the dictates of market forces. Investments in new plant and technology are increasingly the responsibility of private companies and investors rather than that of the government. Government policies to promote technological reform should include low interest loans, tax incentives, and better macroeconomic management.

Into the Future -- Selective State Support of S&T

In line with the slogan "Anchoring one side while letting the other side be free", in certain areas such as the support of basic scientific which benefits the entire society government support is maintained, but in other areas the government "lets go" of the development of applied technologies which can be better supported and guided by the market. Scientific institutes should have full autonomy in their guidance of their own scientific research. Funding from private research contracts should gradually replace government funding to a large extent at many research institutes. Research institutes are creating more and more joint ventures with private enterprises and with foreign partners. About 4000 joint ventures of this kind existed in mid 1995, l0 percent of them with foreign partners.

Although the Chinese economy grows at the rate of more than eight percent annually, the rate of R&D spending must climb by 30 percent annually in order to hit the target of spending 1.5 percent of GDP on R&D by the year 2000. Currently the state provides half of all Chinese R&D spending. For China to achieve its R&D spending goals, the government must finance higher S&T spending despite financial constraints in other areas. Measures should be adopted to encourage and protect private investment (especially venture capital) in S&T. Special funds should be established to promote the incubation of new technologies. "Soft" no-interest loans to high tech companies from international financial organizations and contributions, both by Chinese and foreign organizations, as well as by private persons to high tech development projects are important sources of S&T investment capital.

Into the Future -- Venture Capital May Play the Trick

The two main obstacles to the transformation of Chinese S&T results into high tech industrial products are a poor system of product development and a shortage of capital. Inspired by the great success of the alliance of S&T workers with venture capitalists in U.S. high tech industry, China plans to encourage venture capital high tech companies in 52 high tech parks approved by the State Council. The rapid growth of stock exchanges in China, the development of comprehensive financial sector laws and regulations, and favorable tax treatment of investments in Chinese high tech companies are making investment in China more attractive.

Strategy: Specific Goals

Specific goals in many fields have been set, said the report:

    • Maintain annual growth rate of 8 - 9 percent annually.
    • Concentrate on maintaining growth in food and cotton production and aim at achieving 500 million ton level of grain production.
    • Achieve 1.4 billion ton production level of coal; boost electric production to 1.3 trillion kilowatts, increase use of electric power thermal cogeneration and nuclear power energy sources; achieve annual energy savings of 3 percent or better.
    • Create an integrated railroad, highway, waterway and air transportation network capable of transporting 2.1 billion tons of freight annually.
    • Increase steel production to 120 million tons or more; fertilizer production to about 120 million tons; and ethylene production to 4 million tons.
    • Increase the proportion of China's economic growth attributable to advances in science and technology from the 30 percent today to 50 percent.

Sustainable Development Strategy for Economy and Society

According the SSTC report, sustainable and harmonious development involves a wide range of issues. These issues include population, medicine and public health, rational utilization and conservation of natural resources, protection and management of the environment, ocean protection and exploitation, prevention of natural disasters, housing, rural development, recycling of resources, public safety and employment security, commercial distribution channels and service to the public, as well as work in cultural, travel, and historic preservation fields. For China better family planning, better, warmer and more energy-efficient rural housing, improved weather prediction to avoid disasters, improved waste water treatment and water purification to meliorate the fresh water crisis, clean coal burning technology, improve understanding and sustainable use of the ecologies of western regions such as Xinjiang must be among sustainable development priorities.

Policy -- Bring the Message of the Conference to the Country

Although science and technology has been contributing to Chinese economic progress, the part S&T plays in China's economic growth is still relatively small. The role of the leading government and party cadres is key. The leading cadres need to become younger as a group, gain a good understanding of S&T and to become more specialized. The leading cadres, when they return to their homes, should instill the spirit of this conference into each level of local leadership. Each level of the party and government must study the State Council "Decision on Accelerating the Progress of Science and Technology .. Everyone should bear in mind that "Science and technology are the chief productive force". 'We must in the spirit of Comrades Jiang Zemin and Li Peng, establish policies and design measures to accelerate the progress of science and technologies in our own regions and ministries. We should all do our part to achieve overall goals such as raising Chinese R&D spending to 1.5 percent of GDP by the year 2000.' concluded this section of 'Science and Education for a Prosperous China'.

Comment: How to Develop Indigenous Technology? Government Spark, 863 Programs Not the Answer

This section of the report, while gloating about Chinese science and technology achievements such as nuclear weapons and credits the Communist Party for their remarkable achievements, regrets the setbacks China suffered through the two decades of the Great Leap Forward and the Cultural Revolution. The contradictions of these two decades are especially poignant because while institutionalized S&T was making its greatest progress (nuclear weapons, strategic weapons, nuclear submarine program) the rest of the country was moving backwards even as the world enjoyed prosperity bred by technology.

In looking at the present, China realizes that the ten year old Spark program to bring modern technology to the agricultural and state sector as well as the 863 strategic program are not sufficient to propel China into the fiercely competitive international market and (once WTO entry has opened the Chinese market wider to highly efficient foreign companies) the much more competitive Chinese domestic markets of the twenty-first century. The sense of the document is that as China couples to the global economy, Chinese S&T structures must decouple from the State sector and become much more responsive to market forces. Under the new scheme of things ("Anchor at one end and let the other end be free") the role of the State is to support basic research (especially agricultural research) while the industrial sector largely directs and funds applied research.

The need for an indigenous self-propagating technological base is well understood. It is plenty evident that china is attempting to muscle technology out of joint ventures with foreign companies to achieve this purpose. In addition, china has consistenly rejected digestible technology that is offered which is appropriate to the chinese market in favor of technology that china cannot absorb and support (this is especially true in the automotive industry).

In Embassy's view, just bringing in cutting edge technology and even digesting it will not turn the trick. EST Counselor has seen perhaps close to USD$2 million dollars worth of sophisticated laboratory equipment in Chinese laboratories he has visited just sitting under covers used. China needs a combination of economic incentives that will reward efficient use of existing resources as well as incentives to reward innovative thinkers. Chinese society has a long way to go in this regard.

"Science and Education for a Prosperous China" Series

"Science and Education for a Prosperous China" 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.