Tag Archives: David Wolf

Innovation In China Makes Many Small Strides

DAVID WOLF, WRITING on Silicon Hutong, address the hoary question of whether China is innovative. Conventional answers tend to be wrong, he says, because

We tend to view innovation in China through the lenses of two fallacies. The first lens is based on our view of China, and the second on our view of innovation (via Silicon Hutong).

Chinese companies do not innovate in the way Western companies understand it, which is in terms of big breakthroughs. But, Wolf says, define innovation as producing something that is novel, useful, and relevant to a given audience, and you end up with a different landscape of innovation: “the process innovations, the incremental breakthroughs that turn out advances that are novel, useful, and relevant” — and that still have the potential to be disruptive.

Wolf cites three examples:

  • Huawei’s investments in R&D following the telecom bust in 2002 that have yielded industry-leading innovation for three years in its networks business;
  • BYD’s use of old battery technology in an innovative way; and
  • Yuneec being on the verge of doing for general aviation aircraft what Tesla has done for the family sedan.

This Bystander wouldn’t disagree (see: From Fast Imitation To Frugal Innovation), and would add another factor noted before.

Chinese companies’ increasingly outdated global reputation for being imitative not innovative is because much product innovation in China stays there, and so escapes the notice of those not on the ground.

Improving the technological capabilities of China’s manufacturers is a policy priority. R&D spending is being focused on the biotech, green energy, new materials, information technology and high-end equipment manufacturing industries. Measured by how much a country spends on R&D as a percentage of its gross domestic product, a measure known as GERD, China now ranks third after the U.S. and Japan.

Beijing’s long-term target is to raise its GERD number to 2.5% by 2020, up from 1.84% in 2011 and 0.57% in 1995. That would likely put it on a par with the U.S. by then. (America’s 2011 number was 2.77%, down from 2.91% in 2009, according to the World Bank.)

The implications for Western multinationals is that small-step innovation will let Chinese companies pick off niches where consumers are prepared to accept a small drop in quality in return for the large cut in price that is enabled by the redesign of entire business processes to do things better and faster than rivals. The commercial battleground will become not so much at the top end of the market in many industries, but in the middle.

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Filed under Economy, Industry

Making China’s High-Speed Rail Network Viable

A tip of this Bystander’s hat to David Wolf’s Silicon Hutong analysis of high-speed rail development in China, now the subject of some scrutiny in the wake of the bribery and corruption scandal around sacked railways minister Liu Zhijun. High-speed rail, Wolf argues, is particularly suitable for a country where “the distances between city pairs are too great or too traffic-laden for taxi, bus, or personal automobile, and are too near to justify air travel.” China’s urbanization and development plans will only increase the number of city pairs and city clusters for which high-speed rail connections will be viable.

The danger, Wolf says, is in applying high-speed rail as the answer for all of China’s transportation needs. What critics should focus on is “less Chinese high-speed rail qua high speed rail, but on factors that threaten the success and viability of the system.”

What the government needs is some systemic sobriety to counter the early intoxication with high-speed rail. Because of the fixed, inflexible nature of high-speed rail’s assets (as opposed to, say, those of an airline,) a good start would be creating a framework against which the National Development and Reform Commission  can evaluate the economics of a given line over the long term. Clearly the success of the early lines suggest the beginnings of such a template: Beijing to Shenyang, yes, Beijing to Urumqi, probably not.

Railways are simultaneously an economic activity and a public good, which means that a binary choice between them being “profitable” or “social” is the wrong way to look at their cost. That is anyway complex. More rail means less need for roads, less need to expand airports, less need for medical services to treat victims of road accidents, less loss of lifetime economic output from accidental deaths, more efficient energy use, lower carbon emissions, even the civic benefits of people coming together without cars, none of which fits neatly into a one-year budget or even a five-year plan.

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Filed under Transport