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Exogenous sources for technological progress and self-reliance

As members of modern society we live in an interdependent world. Owing to the rapid development of transportation and communications, distances have become shorter and the degree of interdependence has increased. There are interdependencies between regions and nations as well as between provinces and regions within a country.

It is not easy to identify the feasibility for S&T interdependence in specific areas and sectors. Only general observations can be made.

The sectors highlighted in the case-studies were: agriculture; light industry (textiles and agrofood); infrastructure (electric power); heavy industry (iron and steel, machine-building and machine tools); and high technology (electronics). Economically, China has a static comparative advantage in the agriculture, agrofood, and textile sectors. It is therefore possible in these sectors to cooperate well with exogenous sources in order to achieve technological progress.

A full range of production, R&D, and design capability has been built up in nearly every sector of economic activity in China. It is now necessary to strengthen the horizontal linkages and to emphasize the interdependence between sectors and activity components for mutual technological progress. Owing to the prolonged closed-door policy in the past, industrial technology in China has generally lagged behind that of industrialized and newly industrializing countries. Even in the traditional agrofood sector, it is still necessary to draw on exogenous sources in the drive for technological progress.

Cooperation with the outside world does not mean abandoning self-reliance. Interdependence and self-reliance are complementary; self-reliance should still be emphasized, because in terms of S&T the developed countries have a comparative advantage. Many sophisticated technologies are part and parcel of the military R&D of developed nations, and so governments impose controls and restrictions on them, mandating an emphasis on self-reliance among less developed nations. Developed countries, for their part, reap the benefit of "job creation" in their economies when they engage in technology transfer.

Past technology transfer can be roughly divided into three periods.

First, in the 1950s, China adopted a "follower's" strategy, importing technology from the Soviet Union and other Eastern European countries. This transfer was in the form of both hardware and software, and complete sets of equipment and processes were imported. Emphasis was laid on the capital goods production sector. Technology transfer also took the form of complete sets of technical drawings and documents and the services of expert technical assistance in planning, design, construction, testing, and the operation and maintenance of various types of industrial plants. The establishment of research organizations was also assisted by foreign experts.

Second, in the 1960s, after the Sino-Soviet conflict had come into the open, China imported technology and equipment on a small scale from Japan and the Western European countries. Priorities were placed on metallurgy, chemical fibre, petroleum, chemical engineering, textile machinery, mining equipment, electronics, and precision machines. This importation of technology supplemented the technological capability already established in the 1950s, and promoted S&T self-reliance in textiles, machine-building and machine tools, and electronics. Self-reliance and the process of "walking on two legs" were emphasized during this period.

In the period 1956-1967, a 12-year S&T development programme was carried out. This provided China with a technological capability in nuclear energy, jet technology, computers, automation, semiconductors, and radio electronics. The success of the programme was due not only to the coordination of different sectors, but also to the coordination between different regions, particularly with the relatively developed regions such as Shanghai. In this period widespread development of small- and medium-scale labour-intensive industries in the countryside was also initiated.

Third, in the 1970s, after she had had her United Nations seat restored in 1971, China imported technology and complete plants from a variety of non-communist sources and on a larger scale than ever before. This had a strong positive impact on the productive capability of several industrial sectors, such as chemical fertilizers and chemical fibres. But the absorption of this technology remained a problem, owing to the rigidity of the existing S&T system.

Since the announcement of the basic policy of "Opening to the Outside," China has started transferring technology from abroad on a larger scale, adopting various means and forms. Steps such as the encouragement of foreign investment (such as joint ventures, cooperative ventures, direct investment, and leasing) and the opening of Special Economic Zones (SEZ), including the 14 cities and the three deltas along the coastal area, all involved certain amounts of technology transfer. Whether China can benefit further from this policy or not depends on the establishment of a proper system of related policies, which will be mentioned later.

The effort to achieve technological progress based on exogenous sources and "self-reliance" is best described in the following quotation from a Western expert:

While the realization of the concept of "walking on two legs" has differed in degree from phase to phase and according to the political line prevalent at the moment, it has never been subject to any real basic doubt. Traditional, labour-intensive methods were employed in every area where they could make an effective contribution to development; . . . on the other hand, China did not seal itself off completely from large world-wide technological developments. China was aware that its level of performance in certain technological fields was limited and therefore made some effort, in fields important to development, to catch up with international standards.

Table 11. Innovation by source (international experience) (percentages)

The proper selection of the right type of technology is the key to upgrading technology. In the past, China had swung between the extremes of importing turnkey plants and relying wholly on domestic R&D. And the traditional organization of R&D in China involved a top-down technology push. This approach was successful in limited cases, but international experience has proved that individual enterprises play a much more active role in innovation, as shown in table 11.

This is also demonstrated by the case-study example of the Capital Iron and Steel Corporation, which was one of the first groups to experiment with the new economic system. It had more autonomous decision-making power than enterprises had previously, and S&T played an increasing role in the promotion of its production and profits. Clearly, there is a need to push the economic reforms further.

The segregation of sectors in the past has seriously affected the utilization of exogenous sources in a broader sense. Domestic sectors and regions were isolated from each other, as was the defence sector from the civil sector. Major advantages can be gained by breaking down these barriers.

Central government agencies and ministries, with their research institutes and superior resources, have played a dominant role in determining what innovations are needed. This top-down "technology-push" approach to innovations was effective in large programme efforts, such as those in the period 1956-1967. But it failed to meet the needs of a wide variety of commodities. Large enterprises such as the Capital Iron and Steel Corporation can solve such problems alone. But for the industrial system as a whole, responding to the demands of users is important in promoting the self-reliance capability of R&D. This is the idea behind developing a technology market, as suggested in the S&T management system reform.

A desirable path and a strategy for S&T development

China has announced the "Decision of the Central Committee of the Communist Party of China on the Reform of the Science and Technology Management System," which is an official document outlining the new strategy for S&T development. One should mention here that the S&T system is a subsystem of the economic system. The economic reform should provide a suitable environment for the current S&T development strategy.

The aim of the economic reform is to establish a dynamic socialist economic structure (including the establishment of an organizational structure for the S&T system). The planning system (including the S&T planning system) will be reformed so that the law of value is consciously applied in developing a socialist commodity economy.

In the economic sphere, special emphasis is placed on invigorating enterprises and establishing various forms of economic responsibility. The parallel in S&T is the reform of its funding system. The reform of the economic management system includes separation of the functions of government and enterprise, promotion of a new generation of cadres, and the continual expansion of foreign and domestic economic and technological exchanges. China will no longer isolate herself from the economic and technological world. It has been realized that the S&T system of the industrialized countries evolved organically with the rest of their socio-economic systems.

The current strategy for the S&T system, outlined in the "Decision on the Reform of the S&T Management System," contains two basic elements. First, the reform is based upon general guidelines which specify that "science and technology must serve economic development? economic development must rely on science and technology." The three main aspects of this are reforms of the operating mechanism, organizational structure, and the S&T personnel system.

Second, the reform of the operating mechanism of the S&T system entails the reform of the funding system and the planning system, and the exploitation of the technology market. The reform should overcome the defect of relying purely on administrative methods in science and technology management.

In the past, the government allocated research funds unconditionally to research institutes according to the number of staff, and was indifferent to the economic aspects of the research community. Under the reformed system, for a given period of time funds provided by central and local departments for S&T will increase gradually, at a rate higher than the growth in state revenue, in order to encourage the development of S&T activities in general.

For basic research and some applied research, funds will be provided through research foundations. But for research institutions engaged in technology development activities, it is planned that government contributions for current expenditure will be gradually reduced and abolished. Banks will be actively encouraged to provide loans for scientific and technological work, and to supervise and control the use of such operating funds.

Research institutions engaged in such important public matters as medicine, public health, labour protection, family planning, the prevention and control of natural calamities, environmental sciences, and other social sciences, as well as institutions providing certain scientific and technological services, will continue to receive state funds in accordance with existing block funding practice.

The commercialization of technological achievements and the exploitation of the technology market will be arranged to suit the development of the socialist commodity economy. It is realized that technology plays an increasingly important role in the creation of the value of commodities, and more and more technologies have become intellectual commodities in their own right. The intellectual industry has now emerged as a new trade. The technology market will therefore constitute an essential component of China's socialist commodity market.

The exploitation of technology covers seven main points and includes actively developing diverse forms of trade in technological achievements, technological job contracting, technical consultancy, and other services. Furthermore, the establishment of different kinds of business institutions dealing with technological commodities will be appropriately supported. Various measures will be taken to encourage enterprises to use new technologies and to improve their economic ability to satisfy buyers' demands. Statutes and regulations will be formulated to protect the legitimate rights and interests of buyers, sellers, and intermediaries. The ownership of intellectual property will be protected by the state through patent laws and other relevant statutes. The market prices of technological achievements will be determined through negotiations between sellers and buyers with no restrictions imposed by the state. All income from transfers of technology achievements will, for the present, be exempted from taxation. Technology development units and enterprises may reward personnel directly engaged in such development with a portion of the income from technological transfers. And units responsible for technological achievements may set up joint ventures with enterprises by contributing shares in the form of technologies.

Research projects having national priority will remain under the control of state planning, while other activities conducted by scientific and technological institutes will be managed by means of economic levers and market regulation, in order to enable these institutes to develop through internal impetus and to imbue them with vitality.

The reform of the organizational structure will change the situation whereby a disproportionately large number of research institutes are detached from enterprises; where coordination is lacking between research, design, education, and production; where the defence and civilian sectors are separated from each other; and where barriers are erected between various departments and regions.

The organizational structural reforms will be focused on strengthening the enterprises' ability to absorb and develop technology, and on strengthening the intermediate links in a complete life-cycle production system, as shown in figure 3. Emphasis is placed on encouraging partnership between research, educational, and design institutions on the one hand and production units on the other. Some of the detailed suggestions are as follows. The institutes of higher learning and research institutes under the Chinese Academy of Sciences, the central ministries, and local authorities will be encouraged to set up various forms of partnership with enterprises and design units on a voluntary and mutually beneficial basis. Some of the partnerships may gradually become economic entities. Some research institutes may develop on their own into enterprises of a research-production type or become joint technology development departments for small and medium-sized enterprises. Large, key enterprises would gradually improve their own technology development departments or research institutes. Defence research institutes would create a military-civilian partnership. While ensuring the fulfilment of national defence assignments, they would serve economic construction, accelerate the transfer of technology from the military to the civilian sector, and engage energetically in research and development programmes for civilian products. Collectives and individuals would set up research or technical services on their own. Local governments would exercise control over them and give them guidance and assistance. Institutes in this category would be profit-oriented.

The objective of the reform of the personnel system is to create a situation favourable to the emergence of a large number of talented people who can put their specialized knowledge to good use.

"The proper person in the proper position" is the optimum way to utilize human resources. The older generation of China's S&T specialists will be encouraged to continue to play their role in training qualified personnel and directing research, in writing books, and in acting as consultants to promote various public activities. A great number of accomplished and vigorous young and middle-aged people will be assigned to key academic and technological posts. Scientists and engineers in their forties and fifties will be able to contribute their full share as a bridge between the older and younger generations. Young talents will be nurtured.

In solving the serious "ageing problem" in the leading bodies of many research institutes, measures will be taken to train different types of scientific and technological managers, a new breed which possesses both modern scientific and technological knowledge and management skills.

Mobility of personnel will be encouraged. Competent people will no longer be made to sit idle and waste their talents. Appropriate S&T policies and preferential measures will be adopted to encourage S&T personnel to work in small and medium-sized cities, in the countryside, and in regions with communities of minority nationalities. Research and design institutes and universities will gradually experiment with recruiting personnel by invitation so as to break the so-called "iron bowl."

Active efforts will be made to improve the working and living conditions of scientific and technological personnel. The principle of "from each according to his ability, to each according to his work" will be earnestly adhered to in order to oppose egalitarianism. Rational remuneration for scientists and engineers will be gradually introduced. A system of honours and material rewards will be instituted.

The management system in agricultural science and technology will be reformed so as to serve the restructuring of the rural economy and to facilitate its conversion to specialization, commercialization, and modernization. In vigorously promoting technology development, efforts in applied research will be redoubled and basic research will be guaranteed steady and continuous growth. Opening to the outside world and establishing contact with other countries is a basic, long-term policy for China's scientific and technological development. Within this field, the utmost will be done to integrate foreign trade with technology and industrial production, and greater importance will be attached to importing patented technology, technical know-how, and software. More channels will be opened to expand various forms of international cooperation in development, design, and manufacture.

Certain domestic research and development work will be closely related to imports in order to absorb advanced imported technology. A policy of active support will also be adopted for technology development projects with promising international prospects so as to promote the ability of Chinese commodities to enter the world market. Active efforts will also be made to expand international academic exchanges.

The basic function of S&T in the coming decade is not to try to catch up with the advanced countries. S&T should first play its role in industrialization and serve the development of traditional industries and of technological rehabilitation. The industrialization process to be carried out will rest on the new S&T-based technological revolution.

In R&D institutes reforms will be carried out to strengthen the horizontal linkages between the universities, research institutes, and enterprises, between domestic regions, and between China and the external world.

R&D will have three functions. These are, first, to carry out strategically important basic research and applied research for selected areas of long-term importance, and, second, to develop and carry out a "technological complex" strategy, according to which priority will be given to the development of traditional technology (special importance being attached to energy, transportation, and the supply of raw materials, which are the bottlenecks in present economic development). Other priorities are the development of high technologies (with electronics and information technology as the guiding technology) and the reform of traditional industries and technologies, which will be combined with high technologies.

Thirdly, a "Sparks Programme" for the rural areas, where more than 75 per cent of the population live, will be carried out. Whether S&T can be effectively utilized in the industrialization process of rural areas depends on the socio-cultural pattern of the regions. Guidance from the government plays a very important role in promoting this process. The "Sparks Programme" is sponsored by the State Commission of Science and Technology, which entrusts scientists and engineers with the job of designing simple and low-cost equipment with a high economic efficiency for rural use.

The S&T system must adapt to the structural changes of a dynamic society, and therefore human resource inputs must adapt to the dynamic changes of the S&T and economic system. China's present stock of educated manpower has an unusual composition. The proportion of the population with primary education is high, but the number of people with advanced educational qualifications is small (table 12).

This unusual structure has dual implications. It is favourable to grass-roots participation for self-reliance in S&T and economic growth. As the World Bank points out: "Widespread basic education in some East Asian economies has helped achieve both usually high output per unit of physical capital and, unusually, equal sharing of the benefits of rapid development." Yet, on the other hand, this type of educated manpower structure is unfavorable to the development of self-reliance in S&T, because a minimum number of highly educated people is required to promote the development of S&T. The present S&T specialized personnel structure in the national economy (table 13) is insufficient and could hamper growth even in the traditional sector.

In order to compare the relative intensity of specialized personnel employed in different branches of the national economy, a notion of "equivalent density" of specialized personnel has been adopted. This is defined as the percentage of the number of employees. A college graduate is taken as unity, while one who has completed graduate education, short-cycle higher education, or specialized secondary education is assigned an equivalent value of 2, 0.6, or 0.2 respectively.

Educational reforms entitled "Decision on the Organization and Management of the Educational System" were announced in 1985. The basic purpose of the reform was to produce more skilled, high-quality manpower. There would be nine-year compulsory schooling. The structure of secondary education would be readjusted and vigorous development of vocational technical education undertaken. The system of college admission, recruitment planning, and placement of graduates would be reformed and the autonomy of higher education institutions would be extended. The supervision and guidance of education would be strengthened, so as to ensure successful implementation.

Besides these five main steps? a multi-level and efficient system of higher education would be built up in order to remedy the shortage of highly educated manpower.

Social capacity in adapting new and existing technology is important in the management of S&T development. China already had a socio-infrastructure in planning; the problem was how to improve the planning system, i.e. to reduce the scope of mandatory planning and to improve indicative planning.

Table 12. Education attainment of population, by age and sex (percentages)

Source: China: World Bank Country Economic Report, 1982.

Table 13. Percentage of specialized personnel in different sectors

a. Survey carried out by the Ministry of Education from the statistical returns of 72 central departments.

The long-term national development goal was to catch up with the developed countries by 2050 while maintaining a socialist system in which the benefits of prosperity are widely shared, avoiding polarization. Another goal for the year 2000 was to improve living standards and eliminate poverty, quadrupling the gross value of industrial and agricultural output (GVIAO) between 1980 and 2000 and increasing per capita national income from about $300 to $800. The leaders of the government have emphasized repeatedly the role of S&T in achieving these goals.

The strategy for development towards S&T self-reliance was, as explained earlier, to create a self-perpetuating mechanism for the S&T system through economic reform and the supportive sociocultural infrastructure. Both self-reliance and the transfer of technology from abroad will be emphasized, taking into account latecomers' ability to borrow. In the modern interdependent world, it is feasible for latecomers to adopt a "follower's" strategy but at the same time to increase their capacity to innovate and to adapt new technologies.

Because of different levels of development in different regions and different sectors, different strategies and S&T development policies will be adopted.

The resource allocation for science and technology R&D in China is roughly 1 per cent of its GDP. This is low in comparison with the R&D expenditure of many of the developed countries, such as the USA, United Kingdom, Germany, and Switzerland, where R&D expenditure generally exceeds 2 per cent of their GDP. Around 70 per cent of this outlay is allocated to development, while the remaining 30 per cent is divided between basic and applied research. The resource allocation for S&T and between sectors is entirely determined by the government according to its choice of priority sectors.

Nearly all R&D systems in the past were publicly owned. R&D management, in the words of one Western scientist, was such that

... despite a very elaborate structure of R&D functioning relatively well in China in the context of developing countries, the Chinese still do not have what may be called a systematic effort to build or utilize R&D management expertise on modern lines. . . that can be explained as a necessary consequence of not having so far developed general management education and training on a system basis....

This point has now drawn the attention of the Chinese government, and reforms are being undertaken. But difficulties could arise because many components are involved in this reform, and, in the transitional period, interaction between the old system components and those of the new system has to be taken into consideration.

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