Introduction: Mediating the State and Market in China's Competitive High Technology Industry

Abstract

The new age of globalization is characterized by the explosive development and application of new technologies, which arguably are among the leading forces for changes in the global economy. China is one of the world largest manufacturing bases for the technological products, but its role does not end there. In the last five years, China has to shown considerable initiatives to engage in global technological changes at many different levels. China's science and technology (S&T) sectors, after twenty years of reform, have also become integrated with its economy and is are playing increasingly important role roles in technology innovation. At the global level, however, China continues to be a follower rather than creator of new technology, even though Chinese leaders are convinced that autonomous technology development is of strategically importance to China.

A generation ago, China's S&T system evolved from the former Soviet Union model with a rather rigid division of labor with the Chinese Academy of Sciences (CAS) focused on basic research, universities focused on training, industrial ministries sponsored institutions focused on industrial research and development (R&D), and state enterprises focused on manufacturing.

There was little interaction between the S&T systems and the production and consumption in the economy. Since the middle 1980s, the Chinese government has tried to reform its S&T system, with the hope that its S&T system can become more productive and more closely linked with industries. Different approaches have been tried out: such as restructuring the funding mechanisms for the state R&D institutes and universities, development of the domestic technology market, research institution and university affiliated firms, government sponsored science parks, foreign joint-ventures, incentives for foreign investment in R&D, strategic support for indigenous companies, to name a few. Public and scholarly research analyzing the success of these strategies has surged in recent years. This special edition of China Review provides the most recent investigations on some fronts of China's technological sector and we hope to shed light on how global forces, Chinese states, research and development institutions, and Chinese indigenous enterprises interact in shaping technology development in China.

This special edition makes particular contributions addressing two central issues. Examined first is the role of domestic markets within large developing economies such as China and how it influences the decision making processes and the performance of foreign and indigenous corporations, and how this in turn affects the technological trajectories of the developing economies? Also examined, are the appropriate roles and effectiveness of the state in the promotion of technology and market competitiveness for both multinational corporations and indigenous firms?

In terms of the first issue, studies on technological changes in developing countries have traditionally emphasized the dominance of foreign capital and importance of export oriented sectors, giving little attention to the innovative potential of indigenous firms or domestic markets. It is often argued that that export-promotion strategies practiced by Southeast Asian countries generated superior technology-transfer results compared with import substitution practiced by Brazil and India in the 1960s. Hodday, for example, concluded that it was the export-led growth that led to South Korea and Taiwan's technology dynamism: Export acted as a focusing device for technology investments and encouraged the growth of a variety of institutions to enable exports to flourish. According to this argument, the affluent external markets with their stringent demand on quality control and innovation were the forces probing and pushing enterprises in developing countries to become internationally competitive and innovative in their products. Yet, despite a relatively successful track record in Southeast Asian countries, export-oriented strategies have never lacked critics. Many scholars argue that export led-industrialization in less developed countries often amounts to labor-intensive assembly with little technology value. Research on China's trade and export sectors also finds a profound dualism in which highly competitive industry in China, dominated by imported technology and foreign affiliates, are segregated from other domestic sectors and thus have a limited impact on local production and the diffusion of technology.

Because of its extraordinary population, export-led technology growth may be undermined by obstacles unique to China. China's labor pool, double the American and European labor force combined labor force of the America and Europe, makes it extremely unlikely that China will be allowed to export to full of its potential without eventually encouraging protective measures by its trade partners. Recent trade disputes between China and USA, EU and many other countries already indicate to the potential limits of China's robust export economy. Moreover, China's growing political and economic rivalry with United States and other western countries is also likely to undermine prospects for direct technology transfer to China from multinational corporations headquartered in the U.S and elsewhere in the West.

China's unique domestic circumstance may allow it to follow a development trajectory perhaps impossible in places like Brazil or Korea. Several authors in this special edition point to this conclusion. Sun, shows that it is China's sizable and rapidly expanding domestic market rather than its export potential that draws R&D investment from MNCs. Zhang argues that vibrant domestic demand is leading the development of the internet industry. Fan shows how China's most successful telecommunication firms were built on the domestic markets. Zhou discusses how intense competition generated by China's market has also created mounting pressure for Chinese enterprises to move onto more innovative fields such as technology standards. Porter argues that while the domestic market size help the economies of scale of indigenous firms, but it is the sophistication of the market that is decisive in establishing their global competitiveness. This may explain why Chinese firms have lagged so far in technology innovation as they compete primarily to cater a price sensitive domestic market. But as the middle class continues to rise and Chinese consumers are increasingly demanding in new technology, the Chinese firms have to respond by moving up to the technological value chain. Papers in this edition show some of their strategies to respond to the market pressure.

The second issue addressed is the role of state in technology development. There has been a long-running debate between those who favor a more traditional neo-classic approach which advocates involvement of minimal government interference and those who support the political economics approach and argue that the state can play an instrumental role in technology and economic development. The papers in this special edition examine closely the second approach. According to Castells, If society does not determine technology, it can, mainly through the state, suffocate its development. Or alternatively, again mainly by state intervention, it can embark on an accelerated process of technological modernization able to change the fate of economies, military power and social well-being in a few years. Evans crafts a more refined model of the behavior of the state. Depending on their degree of embeddedness and autonomy from different social groups, he divides countries into predatory states, exemplified by Zaire, which extract resources with little service in return, and those developmental states, as in the case of South Korea, which can formulate coherent and effective developmental programs and guide enterprises in technological development.

Scholarship on East Asia in general, and China in particular have generally emphasized the leading role of the developmental state, whether it be Japan Inc., South Korea's military regime, and so on. Fan's paper in this edition reviews some key literature in this area. Chinese central and local governments are also often seen as being somehow able to apply a guiding hand to China's development to an extent far exceeding that of other countries. These arguments, though valid, also need considerable refinement. In contemporary China (and perhaps in most developing countries), the question was never whether, but how the state can play a role in technological development,. Evans contends that the state should assist entrepreneurship rather than simply acting as entrepreneurial police and regulators. This can be challenging. Simply identifying quality entrepreneurship (state-owned enterprises, privatized state enterprises, private entrepreneurs, foreign firms, etc.), is difficult, let alone the details of how best to evaluate the effectiveness of government assistance.

This is an area the papers in this special edition diverge in their assessment of the effectiveness of state in China's high-tech market places. Fan's paper argues that Chinese state was instrumental and strategically flexible in supporting the domestic enterprises in the telecommunication sector. The roles of state differ significantly in different stages of market and enterprise development. Governments actively provided the initiation, research and development, market access and financial support in the infancy of domestic firms and later gradually withdrew direct support from firms that became self-sustaining. Instead, the state turned its focus to R&D projects that are of strategic national importance. While Fan's paper portrays the Chinese state as strategic and mostly benevolent, Zhang's paper conceptualizes the state-enterprise relations as patron-client relations with unequal power positions. He argues that China's highly concentrated and spatially biased internet service industry was a result of state control of key technological resources. The non-state actors were forced to cultivate and cater to the interests of the state whose relationships are more exploitive than supportive in nature. Zhou's paper, on the other hand, emphasizes the limited reach of the Chinese state in the domestic technology market. She focuses on China's technology standard policies. Though the state has concluded that China must get involved in global technology standards, it has encountered considerable difficulties as it seeks to coerce foreign firms to conform to China's national mandate and as much trouble coordinating unified movement among Chinese enterprises. She argues that due to the fact that the standard strategies are motivated primarily by commercial rather than ideological incentives, China's government is unable to dictate the course of action without having to deal with commercial interests that generate internal contradictions and external resistance. Sun's paper provides additional evidence demonstrating that the role of the state is limited in its ability to attract foreign R&D investment, which he argues is instead largely a product of China's growing market and enormous high-quality labor pool. Early attempts by the government to attract foreign R&D investment through preferential policies, political persuasion and other measures resulted in largely failed efforts and at best a handful of foreign showy R&D facilities designed more to publicly appease the Chinese government than to conduct serious R&D. Today, a growing domestic market and China's high-quality low cost labor supply is at the heart of foreign companies' decision to establish such R&D facilities in China.

Together, the four papers, show that the role of the Chinese state is multiple and contradictory, enormously powerful, indispensable, yet not without limits. These findings allow us to interrogate and refine the model established by Evans in which we conceptualize a more complex interdependence between the state and domestic capital under a globalization context. State and enterprise relations in China appear to be dynamic in nature. While the state continues to control crucial resources and often plays favoritism toward selected indigenous firms, these favors or resources are also mediated through an intensely competitive market. The state/capital alliance is being created, but they are not firmly established as China transitional context continues to generate new actors and the rules of game are constantly contested. Though the special edition does not claim to have a consensus, we hope that it will contribute to and invite additional research on technology change in China. Many areas worth further exploration including China's national or regional innovation system, its changing regime of science and technology, and the multiple forms of foreign collaboration with Chinese local firms. As China emerges as one of the key players in global technology development, understanding its motivation, approaches, institutions, capacity and the implications becomes more pressing for the international community.

Keywords: High-tech, innovation, China

JEL Classification: O18, O31, O34, O38, O53