Why You Should Watch China's Commitment to Becoming an Innovation-driven World Leader

Nearly 10 years ago China committed to becoming an "innovation-oriented society" by the year 2020, and a world leader in science and technology by 2050.

The OECD's Science, Technology and Industry Scoreboard 2015 found that China is increasing both the quantity and quality of its scientific publication output. Strategy&'s 2014 China innovation survey shows that two-thirds of multinational executives doing business in China believe that Chinese companies are equally or even more innovative than their own firms.

However, there remains widespread skepticism about China's chances of success. The skeptics have three main arguments. First, the authoritarian nature of the country's regime prevents innovators from setting independent research agendas and freely floating ideas. Second, the educational model favors rote learning and fails to develop creative thinking skills. And third, limitations in intellectual property frameworks deter investment in research and development.

Underlying the scepticism are mental models. One is that only politically-open democracies can become innovation-driven economies. Another is that the future will look much like the present. But the future might quickly come to look very different, in ways that persuade China's leadership to loosen some of the barriers to becoming a truly innovative country.

Imagine a world in which artificial intelligence and robotics have allowed for the automation of nearly all manufacturing. In this world, cheap labor is no longer much of an advantage. A robot in China and France have very similar operating costs, and robots have no particular expectations on standards of living, labor laws or social security. A world in which it has become normal to produce goods close to the point of consumption; a trend supported by additive manufacturing, in industry and beyond, by increasing transportation costs, by biosynthesis processes enabling many resources to be created locally. In such a world, goods can be massively customized, and ubiquitous digital literacy means everyone can participate. Trade in finished goods, natural resources and materials will decrease while intellectual property, digital templates, and data become the key competitive assets. (See also my article To Innovate or Die: The Global Economy in 2050)

In this plausible future, what will be important is the power of ideas. Quite simply the only option for a country that wants to succeed will be to put in place structures that allow innovation and entrepreneurship to flourish.

The skeptics believe that China's ambition to become an innovation-oriented society must eventually founder as its leadership lack the political will to tackle the current restraining elements. However, this assumes that these leaders will have China's traditional sources of competitiveness to fall back on. If innovation becomes the only possible way for China's leaders to achieve the "overall well-off society" to which they are committed, the extent of their willingness to put in place the conditions for becoming an innovation-driven country may come as a serious surprise.

It is easy to discount the idea of China becoming an innovation-driven world leader - but that could prove to be a dangerous strategic blind spot. Impossible? Many things are impossible, until they happen.