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Ordering Up Innovation

If there is one thing that officials and employees of state-owned companies are creative at it it is filing quotas. In a bid to change Made in China in to Designed in China, Beijing has set quotas for patent filings. The target is 2 million a year by the end of the current five-year plan in 2015, backed up in part by the controversial indigenous innovation policy, a large increase in planned R&D spending and a big drive to increase the number of scientists being produced by China’s universities.

China’s innovators have set themselves to the task. At 1.6 million, China last year overtook the U.S. in the number of patents applied for, with two-thirds of China’s being applied for by medium and large state-owned enterprises. But quantity isn’t quality. A new report from the EU Chamber of Commerce says that only a third of those applications were for patents in the top category, new inventions.

The majority of Chinese patents are lower-end design or utility patents covering incremental developments to an existing product but not a technological breakthrough. It is a class of patents that the U.S. doesn’t award, though other developed economies such as Germany do. Innovation through commercialization, as utility development is also known, is arguably appropriate for developing economies where frugal innovation can be as important as step-change advances.

The lower-end skew of China’s patents leads the report to conclude that while China’s innovation potential is “impressive”, its actual innovation is “overhyped”. Creativity has to be nurtured, not mandated, true. Yet any multinational rival that fails to notice how Chinese companies’ innovation is not yet so much leading-edge technological innovation, as process innovation that uses the country’s labor quality, supply chain integrity and infrastructure to reduce costs puts itself in peril.

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