Author: ceciliazhang

How should China spur innovation and entrepreneurship?   [Copy link] 中文

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Post time 2018-4-26 18:32:15 |Display all floors
This post was edited by sfphoto at 2018-4-27 09:55
huaqiao Post time: 2018-4-26 15:17
Financial incentive is only a part of the equation to innovation. The other one is Research and Deve ...

State-funded technology R&D is needed for high-tech industries because private sector enterprises lack the will and the resources to undertake technology R&D. Most Chinese private sector enterprises focus only on short-term profits and depend upon low-cost manufacturing to compete on price. Only a few high-tech companies such as Huawei have succeeded in global markets by investing in technology R&D while the rest depend upon foreign technology.

China should setup State-funded technology R&D centers focused on high-tech industry clusters such as electric vehicles, robotics, AI, IoT, biotech, e-commerce, nanotechnology, semiconductors, aerospace, new energy, smart cities, CAD/CAM, 4G/5G telecommunications, mobile Internet, 3D printing, healthcare, green buildings, maglevs, high-speed rail, urban transit, drones, supercomputing, animation, quantum technologies, etc. These State-funded technology R&D centers will ideally be located in State-level High-tech Zones which are directly administered by SOEs reporting to the Central Government thus bypassing the local governments.

An example case study is Taiwan’s Industrial Technology Research Institute based in the Hsinchu Science Park. Founded in 1973, the State-funded ITRI succeeded in incubating TSMC and UMC which are the world’s leading companies in the semiconductor manufacturing industry. With a market cap greater than Intel, TSMC is the world’s biggest semiconductor company with 60% market share in the silicon foundry business and has the world’s most advanced 7nm semiconductor process technology, ahead of Intel’s 10nm technology. ITRI also successfully incubated Taiwan’s optoelectronics industry which commands 90% market share in the flat-panel display industry, supplying the world’s leading TV brands and PC OEMs.

Innovation will come only after three things are satisfied:

1). Engineering R&D in Academic Research Institutions:

This is where professors, academicians and PhD students do the Engineering R&D to discover engineering principles based on Applied Science.

2). Technology R&D in Industrial Research Institutions:

This is where researchers, engineers and scientists with Masters and PhDs do the Technology R&D to design prototypes for industrial projects.

3). Product/Service R&D in Hi-tech startups:

This is where entrepreneurs, managers and engineers do the Product/Service R&D to create products or services based on viable business models.

These hi-tech startups are spinoffs from the technology R&D projects and should be given seed funding from the industrial research institutes. After developing a product/service prototype, these startups can then raise additional capital from both State-owned and privately-owned VC firms.

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Post time 2018-4-27 16:05:43 |Display all floors
Jaaja Post time: 2018-4-26 16:27
There are possible challenges with this though.

Chinese SOEs mainly operate in manufacturing, r ...

I have only given a general idea and direction of what China has to do to get ahead in technology. Your views are valid too. You are a proponent of free market and enterprise. For decades, this model has worked. However, I am concerned with wastage of resources in R&D.

For example, off-hand, I can recall the battle between Sony's blue-ray vs Toshiba's(?) HD decades ago. Sony eventually won the battle and blue-ray technology was adopted. Does that mean Toshiba's HD technology was inferior? No, not at all. Imagine the amount of time and resources Toshiba has spent on R&D and then having to give it up.

That is why I think SOE is still the way to go for R&D to cut down on wastage. The "flaws" that you mention should not have happened if there is proper management and follow-up. SOEs are not hurdles in international co-operation but only seems to be so--to the free market mindset. The reason why China gives way in this respect is because China has come to the scene too late and has to compromise.

sfphoto has mentioned some good points in his post too.

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Post time 2018-4-27 16:12:43 |Display all floors
sfphoto Post time: 2018-4-26 18:32
State-funded technology R&D is needed for high-tech industries because private sector enterprises l ...
Innovation will come only after three things are satisfied:

1). Engineering R&D in Academic Research Institutions:

This is where professors, academicians and PhD students do the Engineering R&D to discover engineering principles based on Applied Science.

2). Technology R&D in Industrial Research Institutions:

This is where researchers, engineers and scientists with Masters and PhDs do the Technology R&D to design prototypes for industrial projects.

3). Product/Service R&D in Hi-tech startups:

This is where entrepreneurs, managers and engineers do the Product/Service R&D to create products or services based on viable business models.

These hi-tech startups are spinoffs from the technology R&D projects and should be given seed funding from the industrial research institutes. After developing a product/service prototype, these startups can then raise additional capital from both State-owned and privately-owned VC firms.


Good points.

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Post time 2018-4-28 02:28:55 |Display all floors
huaqiao Post time: 2018-4-26 15:17
Financial incentive is only a part of the equation to innovation. The other one is Research and Deve ...

So not only do you want business to pay no tax you want the state to cover the overheads?

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Post time 2018-4-28 02:29:25 |Display all floors
China is a $%$%.

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Post time 2018-4-28 02:35:45 |Display all floors
This post was edited by sfphoto at 2018-4-28 03:38
huaqiao Post time: 2018-4-27 16:05
I have only given a general idea and direction of what China has to do to get ahead in technology. ...

In the past, Chinese SoEs were content to adopt old technologies by entering into joint ventures with foreign MNCs, eg., autos. But that business model is flawed for two reasons: 1). China became dependent upon foreign technologies and 2). Foreign MNCs were then able to exploit this technological dependency to dominate the market in China. Foreign MNCs then complain about this need to “transfer technology” to China, preferring that they should be allowed to sell their products to China without being “forced” into JVs with Chinese SoEs. But this arrangement actually benefits foreign MNCs more than China because that practice created this insidious technological dependency. This phenomenon can be seen clearly in the auto industry where foreign brands hold 80% of the domestic market.

What China needs is its own indigenous technologies because it’s better to have something of your own rather than to have nothing at all. In many cases, the foreign technologies being transferred to China are old technologies that will become obsolete in a few decades. In the auto industry, Chinese companies sell 97% of the electric vehicles made with indigenous technologies which will eventually replace the obsolete gas vehicles made with foreign technologies that are sold under foreign brands in China.

China should support the electric vehicle (EV) industry by funding technology R&D which can be spun-off into State-funded high-tech startups providing EV technology to Chinese SoEs, Chinese private-sector companies and foreign MNCs. This way China can own and control new technologies and set industry standards for emerging industries such as the EV industry. Chinese SoEs have a role to play in innovation but they are too big which makes them too slow. That’s why it’s best for them to adopt indigenous technologies developed by State-funded high-tech startups. And foreign MNCs who want to enter the Chinese market will need to adopt Chinese technology not the other way around.

NO MORE FOREIGN TECHNOLOGY!!!

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Post time 2018-4-28 03:03:54 |Display all floors
This is what China should do -

German Government Receipts, 1932–39
One of the campaign pledges which the Nazis most conspicuously failed to fulfill was the promise to reduce tax rates, which had been very high under previous regimes. Consequently, as the national income rose from 45,200,000,000 Rm. in 1932–33 to 76,000,000,000 in 1938–39, tax collections increased accordingly. Official figures for total government receipts are not available, but the following figures given by Strachey18 correspond closely to other estimates, including those made by Vaso Trivanovitch for the National Industrial Conference Board through 1936:

Fiscal Year        Taxes and Customs        Loans        Total Receipts
1933–34        6,900,000,000 Rm.        2,400,000,000 Rm.        9,700,000,000 Rm.
1934–35        8,200,000,000        3,600,000,000        12,200,000,000
1935–36        9,700,000,000        6,400,000,000        16,700,000,000
1936–37        11,500,000,000        6,300,000,000        18,800,000,000
1937–38        14,000,000,000        6,500,000,000        22,000,000,000
1938–39        17,700,000,000        11,800,000,000        31,500,000,000
The discrepancies in the totals were made up by unemployment insurance and other collections. Stolper's figures for tax receipts are almost the same, and he says of the government borrowing:

The best estimate is that … the national debt rose from 11,700,000,000 Rm. at the end of the fiscal year 1932–33 to about 40,000,000,000 or 45,000,000,000 by the end of 1938, of which about 15,000,000,000 or 20,000,000,000 are “secret,” that is, not shown in the official statements of the Treasury—-chiefly technically short-term bills held in the portfolios of industrial corporations or various banks.19

The “short-term” financing was made possible by a government decree which permitted renewal of three-months' or six-months' notes, thus making it possible for the banks to hold them without a technical change in the law. This is explained by M. J. Bonn: The Nazi government “copied and very skillfully refined the methods by which Imperial Germany had financed the war: i. e., the issue of treasury bills which were taken up by the banks and could be rediscounted by the central bank, which used them as note cover. From time to time these outstanding bills were converted into funded loans, whenever credit expansion had served its purpose and had inflated monetary income.”20

The percentage of the German national income taken by federal taxes, according to Poole, was 17.8 per cent in 1928–29, 22.6 per cent in 1932–33, and 24.6 per cent in 1937–38. He says that “the most important source of revenue since 1930 has been the turnover tax” which provided 20.4 per cent of all tax receipts in 1935–36. The corporation tax yielded 6.5 per cent of all taxes in the same year.21

In addition to paying regular taxes, employers and workers alike are required by law or by party pressure to contribute to the Labor Front—an amount for workers which is estimated as not much more than their former union dues—to a special relief fund known as the “Winter Help” and for other special purposes. The London Economist of July 21, 1934, estimated that 7 per cent of a worker's earnings go into fees and contributions, but Ermarth believes that this estimate is too high. On the other hand, Stolper thinks that 30 per cent of the average wage earner's income is taken by contributions, direct and indirect taxes.

The heavy tax burden, as has been indicated, is imposed partly for the deliberate purpose of depressing the level of consumption so that the greatest possible proportion of total production may be devoted to armament. So far as the borrowing goes, Strachey points out that: “The proportion of the borrowing to taxation is moderate, especially if we remember the fact that the German government had little or no public, internal debt in 1932. As a matter of fact, the 1937–38 level of German public debt works out at some 40 per cent of the total national income, while the British public debt stood in 1936, before the new borrowing for rearmament, at 220 per cent of the national income.”22

Bonn says that “Given the tendencies prevailing in Nazi Germany, a huge capital confiscation seems inevitable, and with it another step towards collectivism.” But Balogh thinks that Germany already has a “collectivist war economy.” He writes:

It has often been contended that the burden of military preparation in Germany and Italy is so heavy that their economic structure must break down in the long run; that therefore the democracies merely have to sit back and wait until the impoverishment of these countries produce internal social troubles. Nothing can be farther from the truth. Rearmament was achieved in the main by reemploying labor and capital rendered idle by the world crisis. So great was the productive power of the country that—at least until the general mobilization which prepared the way for the attack on Czechoslovakia—they could even afford some increase in consumption. …

The German economy, as far as it could break down, has long ago broken down, namely it broke down in 1931, and what a breakdown in the collective economy means I simply do not know, except that some people are either purged or put in concentration camps.23

The extent of German borrowing since the beginning of the war is a carefully guarded secret, but there is as yet no reason to believe that the German war effort will be impeded by any internal financial difficulties.

Currency Issue and Investment Capital
In addition to long and short-term borrowing, the German government has increased its supply of money by mild currency inflation. Poole says that the note circulation of the Reichsbank was increased by 300,000,000 Rm. in 1934; by 900,000,000 in 1935; by 700,000,000 in 1936; and by 500,000,000 in 1937. In 1938, the increase was 2,686,000,000, but of this amount about 1,300,000,000 went to Austria and the Sudetenland. The German government has also obtained substantial “windfalls” by confiscating gold held in Austrian and Czechoslovak banks, and by confiscating Jewish property.

As in the latter days of the Weimar Republic, the German government has continued to make heavy investments of government funds in private industry, particularly for the purpose of expanding the productive facilities of firms engaged in the manufacture of armament and strategic materials. At the same time, German industrial corporations have been forced to invest their own funds in plant expansion at government direction—or even to submit to industry-wide levies used to build new plants which will be in competition with themselves. Dividend payments are limited to 6 per cent, in most cases; if a firm is fortunate enough to earn more than 6 per cent after paying its corporation taxes, amounting to 30–35 per cent of income, the surplus must be invested in government loans or in new plant as directed by the government.24

From the German business man's point of view, Ermarth asks, “But are all these burdens and sacrifices not amply balanced by the fact that a strong state is protecting the position of the owners and business leaders, and, moreover, by rising profits … Is capital not in a better state than it has been, for a long time, regardless of lowered interest rates and dividend restrictions'”2


Raise taxes and take greater control of the economy. Not lower taxes and give all credit to 'capitalists'. Who had the best stuff at the start of the war? The Nazis did. Who had the best technology? The Nazis did. The Nazis. All the Chinese Government wants to do is shift all the profits from the state to the capitalists. That is what it is doing. China is in cahoots with the American capitalists. Corporate tax cuts and corporate welfare promotion. China is a $%$%.

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