China's Lessons for India: Volume II

This chapter introduces Volume 2 and discusses the range of topics which will be discussed in the context of China and India and the political economy of change. The discussion, evaluation and analysis will focus on the factors relating to infrastructure, knowledge creation and knowledge spillovers. Investment in infrastructure in China’s Coastal regions combined with preferential policies for multinational corporations with regard to tax, profit repatriation and property rights in conjunction with concentrated infrastructure investment in the special economic zones would result in a tide of FDI leading to a transfer of knowledge. Government policy will facilitate the creation of a Triple Helix Model, highlighting the strong link between government, centres of innovation and firms. Indigenous Chinese entrepreneurship at the microlevel is a key strength of the link as well as the dynamism of institutional change. India lacks microlevel entrepreneurship and dynamic institutional change, and this constrains the impact of its economic reforms on its economic growth.

This chapter evaluates knowledge creation and innovation systems. Within this Chapter, there were three significant findings. Firstly, most of the successful invention and innovation in the Chinese economy is not taking place in the high-technology areas. However, there is some progress in innovation in the high-technology areas. Secondly, creativity in Chinese industry as measured by granted patents is accounted for by the in-house R&D activity of Chinese enterprises rather than by spending on imported technologies. Thirdly, it also came to light that whereas in the mid-90s there was almost no use of the Internet, this was not the case in the late 90s onwards. It was also shown using official Chinese statistics that the majority of Internet users in China were educated, under the age of thirty, and that Internet use was highest in Coastal China. Moreover, the Internet predominantly remains an urban phenomenon. 

This chapter shows that innovation systems could be modelled in two ways. Firstly, from the perspective of a National Innovation System in which firms lead the process of innovation. And secondly, from the perspective of the Triple Helix Model in which the strength of the university—government—firm linkage determines the level of innovation in a country. Government creates the policy and the environment which enables entrepreneurial firms to take knowledge created in university-type environments, and then to transform this knowledge into something of physical use with commercial value. It became apparent that China’s innovation system could be modelled on the basis of the Triple Helix Model which consisted of the university—government—firm/entrepreneur, while India’s innovation was similar but lacked the entrepreneurial/firm level involvement. On the other hand, it also became clear India’s innovation system can be best modelled on the basis of a National Innovation System model rather than on the basis of the Triple Helix Model.

This chapter discusses entrepreneurship in India and China. In contrast to Chinese entrepreneurship, Indian entrepreneurship has had a different experience. When India was a British colony, Britain maintained an atmosphere which was hostile to Indian entrepreneurship which was limited to money lending and to trade. Moreover, in India, in contrast to China, occupational mobility was restricted by the caste system. Another reason why entrepreneurship did not take off in India was that after the British East India Company lost its monopoly on trading privileges, the managing firm emerged. This can be explained by the fact that the owners had accumulated financial resources through trade. After the end of the British colonial period, India followed a socialist path for the next four decades under the licence raj, whereby the government controlled the economy and firms by issuing licenses for any type of activity. Even after the economic reforms, microlevel entrepreneurship did not take off in India.

This chapter presents a comparative case study was carried out using Jiangsu, Hubei and Gansu provinces in order to contrast the similarities and differences between Coastal, Central and Western China with regard to the formation innovation systems. In addition to these features, it became apparent that in Jiangsu town and village enterprises (TVEs) had evolved more significantly in the Coastal region, in the pre-reform years, than in the Western and Central regions. The Coastal region was, therefore, better placed to benefit from the post-1978 economic reforms due to some people within this region having gained entrepreneurial experience by having previously worked for TVEs. Moreover, R&D activity is better funded in the Coastal regions by government and LMEs than it is in the Western and Central regions. However, despite the increasing importance of the Coastal region in the reform years, the agricultural sector has not diminished in capacity in a Coastal province like Jiangsu, but only blossomed.

This chapter presents a comparative case study was carried out using Jiangsu, Hubei and Gansu provinces in order to contrast the similarities and differences between Coastal, Central and Western China with regard to the formation innovation systems. In addition to these features, it became apparent that in Jiangsu town and village enterprises (TVEs) had evolved more significantly in the Coastal region, in the pre-reform years, than in the Western and Central regions. The Coastal region was, therefore, better placed to benefit from the post-1978 economic reforms due to some people within this region having gained entrepreneurial experience by having previously worked for TVEs. Moreover, R&D activity is better funded in the Coastal regions by government and LMEs than it is in the Western and Central regions. However, despite the increasing importance of the Coastal region in the reform years, the agricultural sector has not diminished in capacity in a Coastal province like Jiangsu, but only blossomed.

The economic reforms in China which began in 1978 have stimulated innovation and entrepreneurship which has facilitated knowledge spillovers in the wider economy due to the Chinese economics capacity for institutional flexibility. The roots of this lie in the institutional vacuum in which the command economy of the People’s Republic of China found itself in 1949. This institutional vacuum allowed Chinese policymakers to experiment to find a ‘balanced’ path for sustainable economic growth and prosperity. However, the Great Leap Forward led to famine and starvation.