Our policy makers are right to worry, but they are worried about the wrong things.
American policy makers worry about the dramatic increases in the number of academic papers being published and patents being filed by Chinese researchers. They believe that these will give China a formidable competitive advantage when it comes to innovation. After all, China is now only second to the U.S. in academic publications, and by 2015 it will file more patents annually than the U.S. does.
Our policy makers are right to worry, but they are worried about the wrong things.
The Chinese academic papers are largely irrelevant or are plagiarized. They do little more than boost national pride. Almost no innovation is coming from government-funded research labs. Meanwhile, Chinese patents aren’t an indicator of innovation, but are tollbooths that the country is erecting to tax foreign companies that come to China. The Chinese have learned to play the same games that American tech companies and patent trolls do: Use patents to extort licensing fees from other industry players.
China’s real advantage lies in its next generation — the students who graduate from its top colleges and become entrepreneurs. These kids are very similar to their counterparts in the West. They are smart, motivated, and ambitious. Whereas the children of the Cultural Revolution—who now work in government research labs and lead the State enterprises that dominate industry learned not to challenge authority and to play strictly by government rules, the new generation knows no bounds. They are not even aware of the atrocities of the previous era. They don’t hesitate to think outside the box, to take risks, or to have ambition. Unlike their parents, this new generation can innovate.
The changes I have seen in the entrepreneurial scene in China during my visits over the last six years are dramatic. It used to be that Chinese graduates strove to join Western multinationals. And because of the taboo associated with failure and the low social esteem granted to start-ups, parents discouraged their children from becoming entrepreneurs. No longer. With the success of entrepreneurs such as Jack Ma and Kaifu Lee and the fortunes being reaped by the earlier generations of technology startups, Chinese youth have role models, and parents are becoming more accepting of entrepreneurship. Joining a startup is now the “in thing” in China—just as in Silicon Valley. And it’s becoming acceptable to fail and start again.
There are start-up incubators springing up in all of China’s major cities. According to Lux Research, China venture capital investments reached $5.4 billion in 2010—an increase of 79 percent from the year before. There is so much Angel and Venture Capital available that investors have to compete for investment. One incubator I visited last week, in Beijing, called Garage Café, is offering free office space and Internet connectivity to start-ups just so that it can jump to the front of the line on investments.