This chapter provides an overview of the Chinese national innovation system (NIS). It links the synthesis report and the thematic chapters and serves as an introduction to the latter, which treat in greater detail the development of the Chinese innovation system and the key policy issues highlighted in this chapter. It first gives a concise picture of the institutional setup of the China innovation system: the main actors, the governance structure, and policies and instruments for stimulating R&D and innovation. Next, it provides an overall assessment of China’s progress in building innovation capabilities, based on aggregate national statistics and international comparisons of some indicators. The following section summarises the main objectives and priorities of China’s Mediumand Long-term S&T Strategic Plan 2006-2020, and the policy instruments and measures to be used to achieve them. The discussion then turns to the key policy issues and how to address them in order to further develop the Chinese innovation system. A final section is devoted to summing up.

In the innovation process, companies play the most important role in introducing innovation to the market (Schumpeter, 1912). In China, however, companies have historically been a weak part of the innovation system. In the planned economy, companies were essentially factories with very low research and development (R&D) input and innovation output. Public research institutions (PRIs) played the dominant role in innovation by conducting mission-orientated projects and R&D requested by business. The system was inefficient in terms of innovation outputs, and there was a huge gap between what the PRIs did and what firms needed (Liu and White, 2001). Industry therefore had to rely on imported technology to answer its needs.

During the past 20 years the Chinese government has implemented a series of policy measures in order to reform the science and technology (S&T) system. The first step was the issuance, in March 1985, of the Central Committee of Communist Party of China’s Decision on the Reform on Science and Technology System. The guiding principle is that building the economy should rely on science and technology, while science and technology should be oriented towards building the economy. The major measures aim to: reform the funding system by introducing competition;1 promote the commercialisation of technology by developing the technology market; introduce market mechanisms and adjust the organisational structure of science and technology; encourage co-operation among industries, universities and research institutes so as to strengthen firms’ capacity to develop and absorb technology; increase the self-determination of research institutes under the responsibility of the institute’s director; and reform the administrative system of scientific personnel.

Relations between science and industry (often abbreviated as ISRs: industry-science relations) encompass the interactions between higher education institutions (HEIs) and public research institutes (PRIs), which compose “science”, and the business enterprise sector, called “industry”. In a context of increasingly knowledge-based economic development, the creation, diffusion and use of scientific knowledge in the activities of enterprises (especially their innovative efforts) should be a key element in the performance of a national innovation system (NIS). Consequently, ISRs have gained importance in science, technology and innovation policy tools in most countries (OECD, 2002; Joanneum Research, 2001).

The geography of research and development (R&D), and of knowledge more generally, is changing. In the past, developed countries or regions – primarily Europe, North America and Japan – dominated global R&D activities; today developing countries are investing in and carrying out R&D on an increasing scale. Some of these countries also increasingly attract foreign investment in R&D. This trend is reflected in a growing share of academic publications and patents from the so-called developing world, but also in the increasing scale of R&D activities performed by foreign firms in countries such as China and India (Archibugi and Pietrobelli, 2003; Narula and Zanfei, 2005). The internationalisation of higher education and the greater mobility of professionals, many of whom circulate in the United States, Europe, India and China, have contributed considerably to the globalisation of R&D and of innovation (Walsh, 2003; UNESCO, 2006; Saxenian, 2006). Several recent surveys of multinational enterprises (MNEs) confirm this trend and identify China as one of the most attractive countries for future investment in R&D (A.T. Kearney, 2006; Thursby and Thursby, 2006; UNCTAD, 2005).

Human resources for science and technology (HRST, see Box 6.1) are essential for innovation and economic growth in two main ways. First, highly skilled people contribute to economic growth directly through their role in the creation and diffusion of innovations. Second, those with science and engineering (S&E) skills contribute indirectly, by maintaining society’s store of knowledge and by transmitting it to future generations. Research has suggested strong social returns to education and close links between formal education and innovation capabilities. Even though innovation requires many non-research and non-technological skills, there is an increasing demand for individuals with higher levels of education and advanced training in science and technology (S&T).

OECD countries are actively promoting public policies that strengthen regional innovation systems in order to boost economic growth. Innovation depends principally on the capacities of economic actors that either create demand for knowledge or generate such knowledge. The term regional innovation system (RIS) is used here to describe the interaction between these dimensions at the regional level.

In reviewing the key elements of the reforms of China’s science and technology (S&T) policy over the past decades, this chapter seeks to trace their evolution and to provide an understanding of the driving forces behind them. Reforms and policy developments in China are difficult to understand without reference to their grounding in ideology. The Chinese Communist Party’s S&T policy was based on the Marxist view of S&T (Gong, 1962).

It is widely acknowledged that innovative capacity is determined not only by a country’s research and development (R&D) system but also by the interplay of factors which enable knowledge to be converted into new products, processes and organisational forms which in turn enhance economic development and growth. Arnold et al. (2001) talk about “frameworks for innovations”. Silberglitt et al. (2006) link science and technology (S&T) capacity to “institutional” capacity, which they define as including “the quality and reach of governance in a country, a banking and financial system that works, an honest and functioning judiciary, and working educational and health systems”. The World Economic Forum attempts to measure countries’ overall competitiveness by looking at a number of indicators: institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency, technological readiness, business sophistication and innovation (World Economic Forum, 2006). Framework conditions have also been an integral part of OECD analysis of innovation systems and policy over the past decade. All recognise that the efficacy of the wider innovation system often hinges upon the quality of framework conditions and the capacity to ensure an innovation-friendly environment in both core R&D and in more peripheral parts of the economy.

Innovation governance refers to the institutional structures and processes through which governments influence the efficacy of the innovation system. It has become an important concern in many countries in view of the increasing complexity of steering, coordinating and managing the overall national innovation system (NIS). A recent OECD study (OECD, 2005a) gave broad empirical evidence of the challenges governments face as they seek to upgrade and readjust governance structures to adapt to new external and internal pressures. Innovation governance is an essential component of a national innovation system for stimulating innovation but it also determines and influences how well governments can adapt and learn in the process of policy making and implementation. Improving innovation governance is also an important aspect of the search for more coherent policies in dynamic and more complex economic environments.

This chapter aims to provide as comprehensive a picture as possible of China’s research and development (R&D) programmes. It focuses on those run by the Ministry of Science and Technology (MOST) and the National Natural Science Foundation of China (NNSFC) and on the Knowledge Innovation Programme of the Chinese Academy of Sciences (CAS).1 MOST has implemented around 15 different programmes since the 1980s and the NNSFC, created in 1986, has set up various types of instruments which are generally gathered under the heading of programmes.