China is second only to the USA in the total amount of money that is spent on R&D in their economy according to figures published in the Wall Street Journal.

Why then is China not regarded as an innovator?

R&D expenditure in China has been centrally directed and controlled for decades, either directly by the government or by the large state owned enterprises that dominate the Chinese economy. This explains China’s past decisions to invest heavily in strategic technologies and sciences related to space exploration, supercomputers and military technologies. Technologies that have been well established by Western nations.

Because China is a developing nation, it can still grow its economy by imitating Western technologies and producing them better or more cheaply. Innovation does not need to be based on invention to continue these improvements.

China will continue to grow by taking advantage of a lower cost workforce. But there are real signs that this is changing. China’s growth rate is slowing and the costs of production are rising appreciably.

Eventually China will need to create a more modern innovation environment that encourages and supports the generation of endless ideas from which the real gems will emerge. This will necessitate them to spend more of their R&D dollars on basic scientific research which is a key to creating new industries in biotechnology, energy and materials.

But how do you achieve this when government owned enterprises monopolise the market and use their power to protect their turf?

How do you create this environment where the Chinese political system controls personal freedoms, rights and communications?

How do protect your intellectual property when there is poor enforcement and recognition of the laws?

Until there are signs of significant political and economic change that can influence the innovation environment, we will maintain an advantage over our Chinese partners and innovation will be driven by Western societies.

When change does start to occur opportunities will arise to work with new agile and dynamic Chinese businesses that seek our experience in creating innovative products and services from the raw and inspired ideas.