Executive Summary
Development Challenges
- First, they must derive their competitiveness increasingly from innovativeness.
- Second, while they are innovating, they must also create jobs to keep the Chinese labor force employed.
Transition Challenges
- First, despite the replacement of government-run R&D institutes by business enterprises as the leading performer of R&D activities in recent years, it is not private enterprises that dominate the R&D landscape now but rather SOEs.
- Second, the market system is not functioning well enough to promote innovation.
- Third, the innovation capacity of the private sector is weak.
- Fourth, the supporting institutional infrastructure, or ecosystem, for a venture capital (VC) industry is not fully developed yet.
Recommendations
- Pursuing a Balanced Strategy
- Creating the Right Incentives
- Building the Capacity of Private Enterprises
- Strengthening the Ecosystem for the VC Industry
This report has also touched upon a number of subjects that call for further study. Those issues are key to a better understanding of the challenges and viable policy options facing China in its effort to develop into an "innovative nation." Examples of subjects for further study include the evaluation methodology for public R&D spending, the route to job-creating innovation, ways to strengthen innovation management within firms, the development of innovation services, and the role of the government in supplying external risk capital.
