Investing in innovation

China should divert foreign capital to core technologies and manufacturing activities with high added value

Globalization has made it impossible for any individual country to produce completely independent innovations or dominate innovations by monopolizing all resources and technologies for such activities.

Therefore, China should try to take advantage of the dividends brought about by globalization to facilitate its struggling transformation into an innovation-driven economy.

The ever-rising prices of China's factors of production in recent years, its tightened land supply and looming labor shortages, together with the weakened cost advantages enjoyed by traditional production activities, have put ever-growing pressure on China-based foreign-funded enterprises, especially export-oriented and labor-intensive ones. However, this has not crippled China's general advantages in attracting overseas capital.

The country's comparatively steady economic development, a series of policies it has adopted to spur domestic demand, as well as a steady increase in the quality of its labor and a relatively complete industrial auxiliary infrastructure, are sharpening China's edge in absorbing high-quality foreign investment. The adoption of an innovation-driven development strategy and measures aimed at encouraging the development of new industries of strategic significance have also offered policy props for China to improve the quality of inward foreign capital.

At the same time, different economic development stages among its regions and a multi-layer labor force supply model have made China attractive to different types of foreign investment. Its ever-improving investment environment, increased investment convenience, as well as a sound legal system and strengthened efforts for intellectual property rights protection also make China a tempting long-term investment destination for foreign investors.

China's low ratio of technological conversions is now undergoing some positive changes and this has benefited from expanded technological cooperation with the outside world and its absorption of foreign technological transfers. Data indicate that some foreign countries, especially developed ones, are spending more and more funds on scientific research in China and the number of technological transfers has been growing. These have offered China more chances for cooperation on joint research and development. In particular, developed countries' renewed efforts to promote re-industrialization, boost high-end manufacturing and expand their exports of services, moves aimed at realizing their economic rebalancing, have increased the opportunities for their technological cooperation with China.