This is the 10th installment in a series of interviews with scholars and experts on China as a resurgent Asian power that is changing the regional order. This installment looks into China’s industrial innovations. -- Ed.

China’s economy is transitioning toward a knowledge-based one through its constant pursuit of technological innovations, mitigating its notoriety for churning out low-quality and fake products, China expert Eun Jong-hak said.

The transition has been substantiated by China’s massive spending on research and development and the growing volume of scientific research papers, written by its promising scientists, the professor at Kookmin University’s School of International Studies told The Korea Herald.

“Innovation has been a buzzword in China’s industrial sector,” he said. “China is still far from the point where we can call it an innovation-centric economy, but it is quite notable that the word ‘innovation’ has surfaced as a new norm.”

The scholar said China’s efforts to achieve innovations have narrowed technological gaps between China and South Korea, posing a challenge to the latter’s export-driven economy. He proposed that Korean firms focus on “soft innovations” to maintain their technological advantages.

“Korean companies need to take into account the emotional, aesthetic and design aspects from the beginning of designing their products, rather than only focusing on the technological and functional dimensions which China itself has focused on with their immense research capacities,” he said, underscoring the need for soft innovations.

Touching on the emergence of China’s Internet-based firms like the e-commerce giant Alibaba, the professor pointed out that the Internet space for China is similar to a “protected market” due to the Chinese authorities’ control over the space and the language barrier. 

The following is the interview with professor Eun.

Korea Herald: When we think about Chinese products, we still talk about fake, counterfeit or pirated goods. Has China been pursuing any industrial innovations to shake off its notoriety?
Eun Jong-hak: People regard China’s industrial catchup and economic rise as remarkable achievements. But on the other hand, they still think of China as a country that churns out cheap and cheesy goods or knockoffs. People hardly think of China as one that pursues or creates innovations that Apple of the U.S., Samsung of South Korea and Sony of Japan have achieved. That is a reality, but there are changes taking place in China as well.

Innovation has been a buzzword in China’s industrial sector. China is still far from the point where we can call it an innovation-centric economy, but it is quite notable that the word “innovation” has surfaced as a new norm in China since some 10 years ago.  

One central indicator to see if a country is knowledge-intensive or knowledge-based is the country’s expenditures on research and development. China, which spent 1.39 percent of its gross domestic product in 2006 for R&D, spent 2.09 percent of its GDP in 2013, which is quite a notable increase. There are only a few countries that spend more than 2 percent of their GDPs on R&D. Many advanced nations such as Britain and Canada also spent less than 2 percent in 2012 -- 1.72 percent and 1.73 percent, respectively. Korea tops the R&D intensity list with more than 4 percent, but given the scale of economy, China’s R&D intensity in absolute terms is very high.

Some people talk of the possibility that China may fall into the “middle income trap” -- a hypothetical claim that a country, which attains a certain growth level, will get stuck at the level without growing further. The typical cases of the trap involve countries in Southeast Asia and Latin America that spend little on R&D and rely heavily on the cheap labor and land, and massive resources. China’s case, however, is different. China has started to use its brains. China has been pushing to transition its economy toward a knowledge-based one with extensive investments into R&D. 

KH: China’s rise in the field of the high-speed railway networks speaks volumes about the country’s technological advances. What is your view?
Eun: Like South Korea that acquired its high-speed train technology after introducing TGV trains from France, China has also acquired its own high-speed railway technology after imitating foreign products. It would not be an exaggeration to say that China’s railway technology has effectively surpassed that of Korea. 

After the 2008 economic crisis, China carried out a stimulus package, part of which was the construction of high-speed railways. Now, railways are everywhere in China. They are in the high-altitude regions and also on the overpasses. China has experience in building long-distance railways as well. So for China, it is a case of “learning by doing.” With the technological advances coupled with their ample experience, China has become one of the most competitive countries in the field of high-speed railways. Apart from this sector, there have also been many other industries where China has begun excelling, which is a noteworthy development.

KH: China has been seeking to become a scientific powerhouse. Has it been successful?
Eun: One way to verify whether China has done a lot of scientific research is to check the volume of research papers written by Chinese scientists and published in prestigious journals. In particular, we can check the Science Citation Index involving the world’s leading journals of science and technology. 

If you look at the 1997 SCI list, the U.S. ranked first in the volume of SCI-listed papers, while China ranked 13th. The number of papers written by U.S. scientists accounted for 33.24 percent in the year, while the figure for China accounted for only 2.38 percent. But in 2007, China’s ranking rose to second place with the number of papers by its scientists comprising 9.53 percent. In 2012, China also ranked second with the number accounting for 15.18 percent of the total.   

There is still a big gap between the U.S. and China, but the fact that China has been making strides in terms of scientific research should be noted. China ranks second in terms of the aggregate economic scale and also in the field of scientific research. This is another indication that China is no longer a mere manufacturing hub fuming away lots of smoke. 

KH: There has been a series of corruption cases including funding scandals involving top Chinese scientists. These cases have given rise to speculations that there could be some sort of exaggerations of China’s stated scientific capabilities. 
Eun: Like South Korea’s high-profile scandal involving its disgraced scientist Hwang Woo-suk, there have been similar scandals in China as well. Due to these scandals, of course, there have been many rumors that there should be lies or manipulation of research results in China’s science papers, or corruption in the process of funding research projects.

But over the last several years, there have been whistle-blowers who revealed the dark sides of China’s scientific circles. These whistle-blowers’ revelations and the Chinese authorities’ apparent resolve to tackle them have set in motion self-regulating efforts to get rid of corruptive practices in the country’s scientific arena. 

For example: Rao Yi, a star scientist who then served as the dean of the College of Life Sciences at China’s top-tier Peking University, publicly decried academic cronyism in 2011, saying that the way the government science research had been funded “wastes resources, corrupts the spirits and stymies innovation.” After that, efforts got underway to address the funding issues.

The corruption issues would not disappear in a short period of time even as Chinese leader Xi Jinping is pushing for an anticorruption campaign with vigor. But what matters here is that China is aware of the corruption, and that there have been efforts to tackle them. And there have been signs of improvements as well in the endeavors.  

KH: What do you think about the potential of China’s Internet-based businesses like Alibaba?
Eun: There are some interesting features of the Internet domain in the Chinese context. For China, the Internet is a space that the government can intervene, regulate or control. For instance, China can control online criticisms against its government. The Internet is also a very large space for China given the growing number of users that is estimated to be 600 million or much more. 

China’s Internet space is also somewhat exclusive for Chinese due to the language barrier. Plus, the Internet is an integrated space for China, whereas its physical market has been fragmented due to the country’s huge landmass.

Given all these features, the Internet space for China can be sort of a protected market. Despite criticism about China’s control over the Internet, it can regulate the Internet as its control does not contravene the regulations of the World Trade Organization or anything. And due to the language barrier, a foreign business has found it difficult to enter and exploit China’s Internet realm.

Based on these advantages, we have witnessed the emergence of China’s Internet-based firms such as Alibaba and Xiaomi. In the case of Xiaomi, it is amazing that the company, which was launched some five years ago, has grown to challenge electronics giants like Samsung. We can expect more and more Internet-based Chinese firms to be established by capitalizing on such advantages.

KH: China has been suffering from the problem of excessive capacity -- in which demand for products is less than potential supply. Will it continue to be a serious problem for China?
Eun: There have been many industries across the world that have been struggling with a shortage of demand for their products. This is particularly true for the shipbuilding, machinery and chemicals industries. China’s industries have also been faltering with excessive capacity, which is the reason why it is inevitable that the industries should go through a grueling restructuring.

But if you look on the bright side, those with innovative ideas can capitalize on China’s excessive capacity -- for instance, production infrastructures -- to translate their ideals into realties. In China with excessive capacity, the expense of using the remaining capacity will be lower than any other country, enabling those with fresh ideas to put forward them and realize them in China at a relatively low cost.

In fact, many Chinese entrepreneurs have been realizing their creative ideas by using China’s cheaper production facilities. Many foreigners including those from the U.S. and France have also come to China to realize their business ideas or sell them to local businesses. Many of the creative ideas may be killed due to feasibility issues, but these creative business activities, albeit not immediately feasible, are indeed very meaningful for China’s industrial advancement.

KH: What would be the implications of China’s industrial innovations for South Korean businesses? The implications could be substantial given that China is Korea’s largest trading partner.
Eun: In the 1980s in Korea, there were issues of environmental pollutions, workers’ rights and their pay rises. These issues were challenges to Korean firms benefitting from cheap labor costs. Thus, in the 1990s, many South Korean firms moved their factories to China as they saw China as a manufacturing hub and center for exporting their products to the world. 

South Korea has exported mostly capital goods and intermediate goods to China, as China needed to bring in those goods to produce complete, end products because of its technological deficiencies. So the two were good trading partners for several decades.

But as China’s technological capabilities have grown, China has started to produce intermediate goods such as LCD panels and semiconductors that Korea has hitherto exported to China, though there are still technological gaps between the two countries.

China has numerous research organizations and capabilities to stably fund national projects -- a reason why we should watch China’s growing potential to bridge the technological gaps. The growing demands from within China should also be a motivation to keep developing technologies to produce that intermediate goods that China has imported from overseas.

To overcome these challenges, South Korean conglomerates may need to streamline themselves and try to figure out the higher-value-added products to move beyond the level that China can catch up to. 

A series of measures including streamlining Korea’s conglomerates may help the companies survive or sharpen their own competitiveness, but these measures do not necessarily lead to an improvement of South Korea’s overall economy.

KH: What would be your suggestions for South Korean firms to keep their competitive edge?
Eun: My suggestion is that Korea should pursue what I call “soft innovation.” This is what goes beyond just investing into R&D. It is about mustering up our creativities or creative thinking, so to speak. 

For example, let’s say that there is a building with only two elevators. With an increase in the number of people using the elevators, there are many people who have to queue up before the elevators. From a technological and functional standpoint, the best solution would be to build additional elevators. But if you use your creativity, you can install big mirrors and comfortable chairs that women can use to change their makeup or chat freely while waiting. This could, in a way, help ease complaints from those who have to wait for elevators.

What I am saying is that companies can take into account the emotional, aesthetic and design aspects from the beginning of designing their products, rather than only focusing on the technological and functional dimensions which China itself has focused on with their immense research capacities.

I would like to encourage Korean businesses to promote what I term “designeurship,” a compound word of “design” and “entrepreneurship.” This is not just to make your products look pretty, but to inject your soft innovation into your products from the very beginning of the product development and production process. 

Korean businesses still seem to focus mostly on the exteriors of their products, obsessed with how to make the wrappings look attractive. “Design thinking” is not about the wrappings that come at the final stage before selling them. I am talking about the design as the first stage of the product development. 

KH: Can you touch on China’s start-up craze?
Eun: Yes, there are relatively many start-ups in China. In Korea, many young people prefer to enter big conglomerates or public service as they want job security and stability in their lives. Of course, there are some in China who prefer to work for large firms rather than taking risks to start their own venture firms.

In Korea, there are dozens of big firms like Samsung and LG. But in China, most of the firms are state-owned enterprises. China has also been seeking to streamline or restructure its state firms to bolster their market competitiveness. So the number of jobs at big state firms has been limited.

Due to the limited job opportunities, young aspiring entrepreneurs seem to prefer to open start-ups rather than joining mediocre Chinese firms. Thus, they take risks rather than settling for stability. They may be struggling to keep their businesses afloat and go through lots of trials and errors. There may be only a few of them who will eventually succeed in their new businesses. But all these activities by young aspirants are meaningful given that they are brightening the prospects of China’s industrial innovations.

**Eun Jong-hak

●Eun, professor at Kookmin University’s School of International Studies, is noted for his extensive research on China’s industrial innovation, entrepreneurship and economic catchup, and China’s overall economic development.

●Before joining the university, he served as a researcher at LG Economic Research Institute and the Korea Institute for International Economic Policy. He also served as a visiting professor at the East Asia Institute of the National University of Singapore. 

●He has written numerous articles, monographs and book chapters. They include “China’s University-Industry Links in Transition” (2015), “The Structure of Knowledge Creation in the Contemporary China” (2012) and “R&D of Chinese Firms: Characteristics and Implications” (2012).

●He earned his bachelor’s and master’s degrees in economics from Seoul National University in 1995 and 2000, respectively. He received his doctorate degree in business administration from Tsinghua University’s School of Economics and Management in 2005.

●From 1994-97, he worked as a reporter for the Korea JoongAng Daily.

 

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