China Leapfrogs the World in Fostering Innovation
By Elena Mesropyan for LTP
With a population of over 1.35 billion, China recently became the second largest economy and is increasingly playing an important and influential role in the global economy. Not only China is a massive economic force, but also one of the leading countries in terms of disruptive technology and innovative businesses. One of the vehicles that allowed China to go far and beyond in the development of disruptive technology is the rate of mobile adoption – around 675 million people in China use smartphones with 40% of smartphone users making mobile payments.
Moreover, in the report published in August this year, the International Trade Association put China among the top financial technology markets along with the UK, Singapore, Brazil and Australia. Summarizing the hallmarks of China’s FinTech market, ITA emphasized that overall, the Chinese FinTech market is currently focused on payments, lending and bitcoin. Unlike the US and Europe’s telecom and Internet companies, China’s Internet giants have been strategically expanding into payments/finance and their local consumer banks are more sophisticated.
Nearly 1 in 10 of all Chinese payments is done through Alipay, and 80% of bitcoin volume is exchanged through Renminbi. China contains many financial centers, including Shanghai, Shenzhen and Dalian, which are mainly focused on the domestic financial market. Meanwhile, Hong Kong is China’s leading global financial center that rivals both London and New York and acts as a conduit between the domestic Chinese markets and global investors. In fact, Hong Kong has been recognized as one of the top five hottest FinTech hubs worldwide.
ITA professionals believe that China’s payments market offers tremendous opportunities for US FinTech firms. And although China’s per capita GDP is lower than many countries, its digital payment system is ahead of some high-income OECD markets, such as Germany, where only 15% of adult account holders make mobile banking transactions. Meanwhile, 19% of China’s over-a-billion population uses mobile phones to make payments. Overall, ITA estimates that payments made on mobile devices in China could approach half a trillion dollars by 2017, more than double the $200 billion mark in 2015.
On a higher level, China’s economy has established some historic records: GDP growth has averaged nearly 10% a year – the fastest sustained expansion by a major economy in history – and has lifted more than 800 million people out of poverty, as reported by The World Bank.
Not only does China has a strong economic performance and a massive market for payments services providers, as reported recently by the World Intellectual Property Organization (WIPO), the State Intellectual Property Office of the People’s Republic of China (SIPO) received the most applications in 2015 and became the first office to receive more than a million applications in a single year (1,101,864 applications). SIPO was followed by the United States Patent and Trademark Office (USPTO), the Japan Patent Office (JPO), the Korean Intellectual Property Office (KIPO) and the European Patent Office (EPO).
What’s even more impressive is that WIPO states that China accounted for 84% of total growth – overall, ~2.9 million patent applications were filed worldwide in 2015, up 7.8% from 2014.
While high-income countries received 53.5% of applications filed worldwide in 2015, reflecting their high research and development spending, the distribution of applications is shifting toward the upper middle-income group as they grow in China and decline in Japan. Applications filed in China increased 6.4 times in a 10-year span, while those filed in Japan, for example, slightly decreased.
As noted by HBR, given its ideological leanings, China presents itself as a unique experiment in the power of the state to help the economy become more innovative. In the article called “How China’s Government Helps – and Hinders – Innovation,” the authors provide an estimate that total investment in R&D (as a proportion of GDP) grew from 0.9% in 2000 to 2.0% in 2015 and is on track to reach a targeted 2.5% by 2020.
Moreover, the authors state that at 20%, China’s share of global R&D expenditure in 2015 was well above Japan’s at 9% or Germany’s at 6% and second only to that of the US at 26%. The number of PhDs in science and engineering graduating each year has grown dramatically and is now just behind that of the United States.
“Given China’s scale and the quality of its math, science, and engineering education, we deem it inevitable that it will eventually become one of the world’s technology giants. However, for this to happen sooner rather than later, its leadership would need to rethink the design of policies and programs, the pros and cons of free access to information, the importance of a strong IPR regime, and the role of foreign MNCs in accelerating spillover effects,” the authors Anil Gupta and Haiyan Wang suggest.
First appeared at LTP