2014-15 Canada-China Business Forum Magazine - Page 8

POLICY the firm persists with its production lines, intellectual property (IP), supplier and customer relations, and the tacit know-how that employees learn on the job. by DAN CIURIAK Canada’s Economic Diplomacy in China: Why Canada Needs to Step Up Its Guanxi with China C anada has mounted an economic diplomacy offensive worldwide. China’s economy is an important target, but arguably not important enough. Global economic tectonic plates have already shifted - the global production paradigm has already changed. China is already a very different country – and is becoming more different with each passing year. Canada needs to step up its economic diplomacy in China and put some real guanxi in its government-to-government (G2G) relationship. And here’s why. POLICY THE BACK STORY There are many eye-catching statistics on China. One that warrants particular attention is in Forbes’ 2014 Global Fortune 500 survey, where 100 of those firms were Chinese. While that is a fair share on a per capita basis, China is above average on a GDP basis (China accounts for 13 per cent of world GDP). This is a spectacular figure for a country that is not yet a full member of the club of developed economies. While a full appreciation of the implications of that statistic, taking into account each and every quibble and counter-quibble (about profitability, governance, state support, etc.) would require a monograph-length treatment, it can nonetheless be stated that the figure is significant because of the role of firms in international trade and investment – and in economic development more generally. Modern trade theory recognizes that it is firms that trade and invest, not countries. It is firms that innovate and bring commercially relevant technologies to the marketplace. Individual CEOs, managers and workers come and go, but For example, China has become a leader in highspeed rail by “re-innovating” technology introduced from advanced countries. Re-innovation can, of course, be interpreted in various ways. On the one hand, it may be seen as illegal infringement. On the other hand, it can be characterized as legitimate tweaking, which is a common practice in the corporate world. For example, Apple “tweaked” its Facetime app after losing a patent infringement lawsuit against VirnetX. Similarly, a U.S. online gaming media company, Curse Inc., raised funding for a voice chat software modelled on software used by online gamers in China. Chinese firms once sought inspiration from Western companies, and now, the dynamic is reversed. This merits a look at some other eye-catching statistics. In 2013, five of the world’s top 100 most innovative firms identified by Forbes were Chinese (including three of the top five Asia-Pacific companies on the list). China recently moved into first place globally on patents issued and in 2012, Hong Fu Jin Precision Industry Corp became one of the top 50 U.S. patent recipients. It was ranked 40th, with 782 patents granted by the U.S. Patent and Trademark Office. China’s meteoric rise in patents was enabled by a surge in R&D investment and by a major patent examiner recruitment and training program launched by the Central government. The program internalized the idea that IP is key to future competitiveness in the global marketplace. China’s rise in patents and innovation was also enabled by the emergence of internal innovation infrastructure at many of its firms. China’s official development policy is singularly focused on technology acquisition and a three-pronged strategy. Third, China now has the institutional capability for large-scale direct investment abroad. China’s global footprint is about to expand dramatically through corporations that invest abroad and acquire technology directly. This third prong looms large in the coming years and will take many forms. There are examples already – Lenovo’s acquisition of IBM’s personal computer manufacturing business First, China will build technology and CNOOC’s acquisition of Nexen; “China’s official domestically, following a path of Huawei’s tapping into foreign development policy is introduction, digestion, absorption and knowledge networks with over 20 singularly focused on re-innovation. This first prong is enabled R&D centres worldwide; and the technology acquisition by massive investments in education. interesting example of a Shandongand a three-pronged strategy.” By the end of this decade, China will based coking firm that bought a have 200 million community college floundering German company and university graduates. Although this with leading-edge technology is proportionately smaller than in developed countries, which it packed up and brought back to Shandong. China will dwarf the 120 million or so graduates in the U.S. in absolute terms. When the U.S. muscled its way Inside China, the innovation dynamic has been to become the world’s top economy during the twentieth described as “seismic,” by Ian Harvey, former century, it was not on the basis of Harvard PhDs, but on Chair of London’s Intellectual Property Institute. the broad base of literacy and numeracy generated by China’s IP laws and the quality of IP rights compare universal secondary education. Today’s undergraduate well with international standards. Its courts are degree is yesterday’s high school diploma. China has handing down sophisticated judgments, and while reached more than critical mass. But there is not just the level of infringement in China is immense, quantity. There is also quality. Shanghai took first so is the level of IP enforcement activity. Chinese place in the 2012 Program for International Student companies are suing other Chinese companies. Assessment (PISA) for mathematics, reading and science. China is a training ground for IP competition. Second, China has been acquiring foreign technology by attracting inbound foreign direct investment with conditions of technology transfer attached. CANADA CHINA FORUM BUSINESS 2014-2015 ccbc.com And competition generates excellence. To visualize this, the world’s number two women’s tennis player, Li Na, did not emerge from a vacuum, but from a 8