Innovation and international technology transfer: The case of the Chinese photovoltaic industry
Research Highlights
►China has become the world leader in the production of PV cells and modules, but remains far behind industrialized countries in the more upstream segments of the photovoltaic industry. ►International technology transfers from industrialized countries to China have taken place through two main channels: the competitive market of manufacturing equipments, and labour mobility. ►Fierce competition between equipment manufacturers and public availability of core technology have prevented intellectual property rights from hindering technology transfers towards China. ►As compared with their foreign competitors, Chinese firms file many patents, but of low technical and commercial value. ►Chinese firms' innovation is focused on process rather than on products.
Introduction
There is a large consensus in the international community that effective mitigation of climate change will require the massive deployment of carbon-friendly technologies on a global scale.1 Yet the very notion of technology diffusion remains a tricky issue in climate negotiations, as evidenced by the creation of a working group under the United Nations Framework Convention on Climate Change (UNFCCC) dedicated to this issue.2
In international discussions, the precise scope of technology diffusion remains ambiguous. It refers to the deployment of technology-based solutions to reduce greenhouse gas (GHG) emissions, such as wind turbines, solar panels, and nuclear power plants. But it also alludes to the transfer of the technical knowledge required to produce these turbines, panels or plants by local firms in developing countries. The latter interpretation of transferring knowledge is favoured by developing countries, and explains their request in climate talks for relaxing intellectual property rights (IPR). Although the deployment of technological goods is what matters to address climate change, the transfer of technological capabilities is indeed the key to developing countries obtaining a share of the green business pie. From a general interest point of view, it also reduces costs through increased competition.
The case of the Chinese photovoltaic (PV) industry is particularly interesting in this respect. In 2009, the deployment of solar panels in China had hardly started. Yet with more than 35 percent of worldwide production capacity in 2008 (of which 98 percent was exported), the Chinese domestic industry is the world leader in the production of PV cells and modules. In a nutshell, China has succeeded in acquiring the technologies for producing solar PV, without deploying PV systems in its territory. This case suggests that technology deployment and the diffusion of production technology are two distinct issues.
The purpose of this paper is to understand the drivers and limitations of this Chinese success in mastering a production technology that had initially been developed in industrialized countries. The main questions we will address are: how did Chinese firms manage to acquire production technologies and skills? Which segments of the PV supply chain does it concern? Have IPR impeded this process? Is China now able to produce new technologies domestically?
We address these questions empirically, by combining both quantitative and qualitative evidence. On the quantitative side, we rely on a dataset comprising 79,642 PV-related patents to analyse cross-country innovation and technology transfers in the different segments of the PV industry. To supplement this quantitative analysis, we carried out a series of field interviews with PV actors in China.3 These interviews allowed us to further understand specific details of the economics of the Chinese PV industry, and provided qualitative information concerning the innovation and technology transfers to China.
The theoretical framework of our empirical analysis draws on the economic literature on technology transfer and absorptive capacities (for excellent surveys of this literature, see Keller, 2004, Keller, 2008). Within the Chinese context, our chief purpose is to highlight and explain the mechanisms of technology transfer in each part of the PV value chain. The paper is also related to the available literature on the photovoltaic industry. This includes the works of Yanga et al. (2003) and Marigo (2007). We also exploit a substantial body of professional literature published by public organizations (European Commission, 2005, 2008 and 2009, IEA (International Energy Agency), 2009, REDP (China Renewable Energy Development Project), 2008), industry associations (EPIA (European Photovoltaic Industry Association), 2009, REN21 (Renewable Energy Policy Network for the 21st Century), 2008) and consulting groups (McKinsey, 2008).
The paper is organized into four sections. In Section 1, we highlight the position of China in the global PV market. We then characterize and explain how technology transfer is occurring from developed countries to China in Section 2. Then, in Section 3, we focus on the innovation process in order to see whether China is now a major innovator. Section 4 presents our conclusions.
Section snippets
The global PV industry
This section yields an economic analysis of the PV sector in order to recast our understanding of the role of China in the rapid development of the PV industry on a global scale.
Technology transfers to China
We have seen that China has strong positions in downstream segments, and has plans to increase its market share dramatically in more technology-intensive activities located upstream in the production chain. We show in this section that the rapid development of the Chinese PV industry has been made possible by the successful transfer of technologies form industrialized countries during the last decade.
We mean by technology transfers all mechanisms by which a Chinese firm can benefit of a foreign
Chinese innovation
We have just seen that China has mainly acquired foreign technologies to create a domestic PV industry mostly through the international trade of manufacturing equipments and the hiring of top level managers trained in industrialized countries. In this section, we investigate whether China is now able to generate locally new technologies and inventions.
Concluding remarks
China has become in just a few years a major player of the global PV industry. In this paper, we have tried to understand how this has occurred, and in particular, how Chinese producers get access to the technologies and skills necessary to produce PV systems.
A first finding is that the economic importance of Chinese producers should not be over-estimated. They are mostly active in downstream segments of the PV production chain – cell production and module assembling – where barriers to entry
Acknowledgements
The authors gratefully acknowledge support of the Agence Française de Développement to the Cerna Technology and Climate Change Research Programme. They are also grateful to all the people they interviewed and who contributed to this work, and to two anonymous reviewers for their helpful comments.
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International technology diffusion
Journal of Economic Literature
(2004)Diffusion of technology