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Developmental state and innovation: nanotechnology in China RICHARD P. APPELBAUM,* RACHEL PARKER† AND CONG CAO‡ *

Department of Sociology, Global & International Studies Program, University of California, Santa Barbara, California, USA [email protected] (corresponding author) †

IDA Science and Technology Policy Institute, Washington, DC, USA [email protected]

‡

The School of Contemporary Chinese Studies University of Nottingham, UK [email protected]

Abstract In this article we examine the role of the Chinese government in fostering advances in nanotechnology, while looking at the promises and pitfalls of state-led development in the world’s fastest-growing major economy. China, like many countries involved in catch-up development, is convinced that manufacturing prowess alone is not enough to make it a leading economic power in the twenty-first century. Our concern here is how, within the context of nanotechnology, China’s approach to national development reflects the debate on innovation. Many countries, including the United States, see government spending on nanotechnology as essential to creating world leadership in this emerging field. The USA, for example, expects to spend $1.8 billion in 2011 on its National Nanotechnology Initiative – primarily to foster basic research and development. Unlike the USA, government sources largely fund nanotechnology in China, for its economy is in transition from state-owned to privately-owned enterprises and still suffers from a lack of private investment capital. Moreover, in China, such funding extends more broadly across the value chain than in the United States, from fundamental research to commercialization. Through field research and extensive interviews, in this article we document and evaluate the effectiveness of China’s state-led efforts to become a global nanotech leader. Keywords NANOTECHNOLOGY, CHINA, DEVELOPMENTAL STATE, POLICY, RESEARCH AND DEVELOPMENT, COMMERCIALIZATION

Global Networks 11, 3 (2011) 298–314. ISSN 1470–2266. © 2011 The Author(s)

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Journal compilation © 2011 Blackwell Publishing Ltd & Global Networks Partnership

Developmental state and innovation: nanotechnology in China China, along with the United States, Europe, Japan, and about 40 other countries, is pushing to become a global leader in nanotechnology. It is cashing in on what was predicted to be a $2.6 trillion market by 2014, accounting for 15 per cent of manufacturing output in that year (Holman et al. 2007: Table 1). While initial expectations for the commercial returns of nanotechnology may have been overly optimistic (there are growing concerns about the risks associated with nanomaterials), nanotechnology clearly serves as a platform technology for a wide range of industries. It potentially promises to solve some of the world’s most critical problems related to energy scarcity, finite clean water sources, diminished availability of sustainable food resources and pandemic diseases. By ‘leapfrogging development … [aiming] at the forefront of world technology development, intensify[ing] innovation efforts, and realiz[ing] strategic transitions from pacing front-runners to focusing on “leap-frog” development in key high-tech fields in which China enjoys relative advantages’ (MOST 863 2005), China hopes to become a major player in nanotechnology and other high-tech fields. The plan to accomplish these goals is laid out in China’s Medium and Long-Term Plan for the Development of Science and Technology (2006–20) (MLP), issued in early 2006. The MLP called on China to invest heavily in research and development in advanced technologies, singling out nanotechnology as one of four ‘megascience’ programmes for targeted funding and research activities (the other three are development and reproductive biology, protein science, and quantum research). China is uniquely situated to make such a push, since it has $1.2 trillion in foreign reserves – generated by its export-oriented industrialization – to invest in high-tech development initiatives, although it remains unknown whether the foreign reserves have been, or will be, put to effective use in R&D. In this article, we examine the pros and cons of China’s aggressive approach towards funding nanotechnology. We begin with a brief discussion of public efforts to promote nanotechnology, before turning to a review of China’s plans and current efforts. We base our analysis on extensive field interviews in China, including more than 60 interviews with Chinese government officials, as well as with nanotechnology scientists and engineers engaged in research and commercialization. We supplement this with an examination of government publications in English and Chinese and an 1 analysis of Chinese patent data. We conclude with some predictions about where China is headed, given its current trajectory. Nanotechnology: a public approach to realizing the promise What is nanotechnology? While definitions vary, the characterization of nanotechnology that the National Science Foundation (NSF) and National Nanotechnology Initiative (NNI) present (and that similar policies and initiatives subsequently echo globally) involves working with materials at a scale of less than 100 nanometres (Roco 2007: 3). This provides ‘the ability to work at the molecular level, atom by atom, to create large structures with fundamentally new molecular organization’, allowing materials and systems to ‘exhibit novel and significantly improved physical,

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Richard P. Appelbaum, Rachel Parker and Cong Cao chemical, and biological properties, phenomena, and processes due to their nanoscale size’ (NSTC 2000: 19–20). This scale is comparable to the smallest virus, 80nm, and the diameter of human DNA, about 2.5nm (Martz 2009). Because of its far-reaching and diverse potential across industries, nanotechnology will arguably herald the next great technological revolution, one capable of solving many human problems while 2 generating enormous economic returns (Lieberman 2005: xi; Roco et al. 1999: iii). The list of promised benefits is seemingly endless. To take but a few often-mentioned examples (Lane and Kalil 2005; NSTC 2006): • low-cost hybrid solar cells that combine inorganic nanorods with conducting polymers, providing a new, low-cost source of energy; • targeted drug delivery, achieved by constructing nanoscale particles that migrate and bond with specific types of cancer cells, which are then selectively destroyed, thereby offering a non-invasive cure for cancer without the toxic side effects of radiation and chemotherapy; • ‘lab-on-a-chip’, providing instant diagnosis of multiple diseases in remote field settings, greatly contributing to public health in poor countries where medical facilities are lacking; • ultra high-speed computing, thanks to data storage devices based on nanoscale electronics that provide data densities over 100 times greater than those of today’s highest density commercial devices; • highly efficient nanoscale filtration at low costs, providing a solution for air pollution and water contamination; • nano-electro-mechanical sensors capable of detecting and identifying a single molecule of a chemical warfare agent; and • nanocomposite energetic materials that create propellants and explosives with more than twice the energy output of typical high explosives. Because of this promise, by 2007 world governments were investing an estimated combined total of $6.5 billion in national nanotechnology efforts, while private investment (at $7.3 billion) was even greater. The United States is the world leader in this regard. Its NNI, launched in the closing days of the Clinton administration, grew from approximately $422 million in its initial year of funding (2001), to a budget request for $1.8 billion in 2011, representing a total federal outlay since 2001 of more than $14 billion (NSTC 2010). This is one of the largest government investments in technology since the Apollo programme (McCray 2009: 60). The Chinese government is currently investing an estimated $200 million annually in nanotechnology, which, when adjusted for purchasing power parity, makes it second only to the United States. One question that particularly concerns us is to what extent does public investment in nanotechnology constitute an industrial policy? In the standard definition, industrial policy is said to involve ‘a concern with the structure of domestic industry and with promoting the structure that enhances the nation’s international competitiveness’ (Johnson 1982: 19) ‘to achieve goals of long-term growth and structural change’

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Developmental state and innovation: nanotechnology in China (Chang 1994). Industrial policy usually calls for ‘support for educational infrastructure and for research and development’ (Woo-Cumings 1999: 27). In the United States, the notion of industrial policy has long been politically unacceptable. Neal Lane, the former head of the NSF, played a pivotal role in the creation of the US NNI as special assistant to the president during the Clinton administration. He described objections to industrial policy as follows: The appropriate role of the federal government in anything having to do with private industry is a politically contentious matter in our free market system. There are people who believe that the most important thing government can do to assure that US companies are competitive in the global marketplace is to get out of the way, cut taxes, and reduce regulations. (Lane 2008: 259) Nonetheless, Block (2008) has argued that even where industrial policy is explicitly rejected, a ‘stealth’ industrial policy – what he calls the ‘hidden developmental state’ – often can be found. In Block’s words, ‘leaders in the legislative and executive branches who were concerned about US competitiveness took initiatives that helped the US to develop its own highly decentralized form of industrial policy that takes advantage of US global leadership in scientific and engineering research.’ As we argue elsewhere (Motoyama et al. 2009), the US NNI offers an important example of a ‘hidden’ industrial policy, through which the USA has sought to become the major world player in an emerging technology and where market-driven returns are likely to be years in the future. Yet, we also show that almost all US public investment has been at the research end of the product cycle, rather than in providing direct support for commercialization. We argue that China’s approach to fostering nanotechnology, and indeed hightechnology development in general, has been similar to that of the United States – it provides substantial public support for research and development. China differs from the United States, however, both in that its efforts are overt (China has no ideological need to hide an industrial policy) and it has targeted resources not only for research and development but also for commercialization. Indigenous innovation and leapfrogging: China’s high road to technology-led development China has invested substantially in the creation of a national innovation system that will build up an indigenous innovation (zizhu chuangxin) capability in leading-edge areas of science and technology, now seen as a key to national prosperity (NIBC 2006: 14). Both the eleventh and twelfth five-year plans (2006–10 and 2011–15) view innovation as the centrepiece of China’s economic strategy, the means to address the country’s significant social, environmental, global competitive and national security challenges. China has called for ‘leapfrogging development’ – moving directly into high-impact emerging technologies rather than merely building on its successes with


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Richard P. Appelbaum, Rachel Parker and Cong Cao low-wage and low to intermediate-technology exports, thereby bypassing the more traditional step-by-step movement up the value chain. Technological leapfrogging requires state investment in areas in which firms are unable or unwilling to invest. Investment in nanotechnology, where financial payoff will likely take years to become commercially viable, is one such effort. While China’s leadership did not want to abandon its export-led industrial growth, it came to regard this strategy as insufficient by itself: not only did the multinationals that were producing in China retain the largest profits, but also the degree of technology transfer – especially with the most advanced technologies – was limited. China’s development strategy has thus become a three-pronged approach. First, it continues to foster its export sector (a major source of employment and one in which wages are slowly rising). Second, it develops its domestic market, which is a potentially profitable source for its burgeoning domestic industries. Third, it fosters the growth of high-technology development by drawing on its rapidly expanding talent pool of low-cost (relative to other advanced industrial countries) scientists and engineers, while creating infrastructure (highways, ports, logistics and communications) and investing in universities and science parks. Given the urgency of innovation in China’s next-step economic growth, in the mid-1990s the leadership of the Chinese Communist Party (CCP) adopted a strategy of ‘strengthening the nation through science, technology, and education’ (kejiao xingguo); more recently, it called for China to become an ‘innovation-oriented society’ by 2020 and a world leader in science and technology by 2050. Moreover, enormous investments in areas with the potential to contribute significantly to China’s leapfrog, including nanotechnology, have accompanied the strategy. Many people question whether this bold approach can succeed. Will such ‘technonationalism’ (Reich 1987; Serger and Breidne 2007) undermine the export-led growth that has been key (or pivotal) to China’s success, effectively killing the goose that laid the golden egg? Will a government-led push into targeted areas fail in the face of bureaucratic rivalries and inertia (Suttmeier et al. 2006b)? Will the relative absence of clear market signals create unwise and ultimately wasteful public decisions (Lardy 2006)? In addition, will nanotechnology become another case of advances in R&D having difficulty turning out competitive products? While these concerns are certainly real, we believe that the evidence to date suggests that China will ultimately emerge from this effort as a major world player in high-technology development. What is less clear is whether nanotechnology will occupy a central role in this effort. China’s nanotechnology policy: a mixed approach to industrial policy A push from leading scientists both inside and outside the country bolstered the support of China’s political leadership for nanotechnology. In fact, China did not fully embrace nanotechnology until countries such as the United States had formulated national nanotechnology initiatives – efforts that made it easier for Chinese scientists to make their case to China’s political leadership. According to one of China’s leading nanoscientists, Xie Sishen (2007), ‘governments around the world and delegations

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Developmental state and innovation: nanotechnology in China from other countries, especially those from advanced countries, frequently mentioned nanotechnology. … [Their] exchanges and collaborations … provided information continuously, which made the government realize its importance from pure basic research to application to impacts on economy and society.’ Therefore, in mid-2000, a group of Chinese experts jointly proposed to the CCP Central Committee and the State Council that China ‘should accelerate the industrialization of the nanotechnology and occupy this worldwide frontier area as soon as possible’. Members of the CCP Central Committee quickly took this up as a priority research area (NIBC 2006). The following year, addressing an international forum on nanomaterials, the general secretary of the CCP Central Committee and Chinese President Jiang Zemin stated explicitly that ‘the development of nanotechnology and new materials should be regarded as an important task of the development and innovation in S&T. The development and application of nanomaterials and nanotechnology is of strategic significance to the development of high technology and national economy in China’ (NIBC 2006). Pressure to develop a national nanotechnology policy began in China’s sciencebased government agencies. The Ministry of Science and Technology (MOST), the State Planning Commission, the Ministry of Education (MOE), the National Natural Science Foundation of China (NSFC), and the Chinese Academy of Sciences (CAS) jointly analysed the strengths and limitations, opportunities and threats that the development of nanotechnology posed. A national steering committee on nano3 technology, which MOST’s chief scientist, Bai Chunli, chaired, was created in 2001 to coordinate efforts and determine priority areas for support. One result was a roadmap for national nanoscience and technology development (2001–10). The other was the establishment of a national nanotechnology centre by combining resources at three of China’s premium institutions of learning – the CAS, Tsinghua University and Peking University. Expenditure on nanotechnology R&D has also been rising. The MLP called for major public investment in four key science areas to foster scientific breakthroughs; nanotechnology was one of them. It is understandable, given the country’s limited resources, that China should ‘do what it needs and attempt 4 nothing where it does not’ (you suo wei, you suo bu wei), thus concentrating its public investments where a high payoff is deemed most likely. Nevertheless, Chinese scientists, especially those working overseas, did not universally accept this policy of picking champions, namely targeting government funding towards research and development with the most likely long-term commercial payoff potential. The scientists particularly singled out MOST, which would play a major role in implementing the MLP, for criticism, for they viewed its achievements as incommensurate with the amount of investments made. Of special concern was the way in which MOST had organized the State High-Tech Research and Development Program (the 863 Program) and the State Key Basic Research and Development Program (the 973 Program). They saw the 863 Program as a key vehicle for improving China’s high-tech competitiveness. It ‘attach[ed] importance to developing nano-material and other new materials, along with related technologies for the development of aviation, the maglev train, information storage and access, in order to © 2011 The Author(s)

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Richard P. Appelbaum, Rachel Parker and Cong Cao meet major demands of national security and economic development by utilizing China’s characteristic resources, environment, and technical strength’ (MOST 863 2005). The 973 Program sought ‘to strengthen the original innovations and to address the important scientific issues concerning the national economic and social development at a deeper level and in a wider scope, so as to improve China’s capabilities of independent innovations and to provide scientific support for the future development of the country’ (MOST 973 2004). Ultimately, however, in the final deliberation the authorities did not take the opinions of the overseas scientists seriously (Cao et al. 2006). Nevertheless, because MOST only controls about 15 per cent of R&D funds, it has to persuade other agencies to endorse its priorities. The ongoing conversation among officials at different agencies provides a kind of check on the risks that MOST 5 might be wasting its resources on a technological dead end. Supposedly, China bases its funding of nanotechnology through the MLP on scientific research, with major players such as MOST and the NFSC providing the money, and the CAS and the universities carrying out the work. During the first four years of MLP implementation, 32 institutions were selected to lead 54 projects, including 15 CAS institutes or affiliates, with the rest being key (zhongdian) universities. Beijing, Shanghai, Jiangsu, and Anhui stand out for having the leading centres of nanotechnology and well-known nanotech scientists. Projects include nanomaterials, devices and electronics, biology and medicine, and characterization and structure. Although under the MLP, the projects are supposed to be oriented to basic research, some also deal with applied nanotechnology. Input from physicists and 6 chemists who have long worked in areas such as carbon nanotubes and nanopowders is important, as is that from the applied scientists and engineers who are seeking to transform nanomaterials into commercial products. In addition, a small group of entrepreneurs and venture capitalists is trying to introduce new nano-enabled products to the emerging market (Xu et al. 2006 interview). In reality, support for nanotechnology has been fostering breakthroughs not only in basic research but also in commercialization, and therefore, blending the efforts of not only science-related organizations but technology-focused ones as well, ultimately representing a significant departure from the original goal of the MLP in singling out nanotechnology. For one thing, different levels of government play differing roles: as one moves from central to provincial to local levels of government funding, the time horizon for returns on investments becomes shorter, and there is a tendency to move from intangible (basic research) to tangible (commercial products) results. In particular, provincial governments are important not only in provinces containing major cities (such as Beijing and Shanghai), but also in provinces such as Zhejiang, which neighbours Shanghai, that hope to promote their regional universities as major players by setting up collaborative university science centres. (Zhejiang, for example, has joined forces with UCLA to set up the Zhejiang-California International Nanosystems Institute, though with mixed results.) Local governments, particularly in major cities, also frequently play a key role (examples include the Shanghai Nanotechnology Promotion Centre and the Suzhou Industrial Park). At the local level especially, government officials expect a quick turnaround in terms of technological develop-

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Developmental state and innovation: nanotechnology in China ment and market applications (Cheng 2007). Both provincial and local governments can collaborate with foreign investors, as with the China-Singapore Suzhou Industrial Park Development Corporation. China’s investments in the commercialization of nanotechnology tend to focus on those nanomaterials and nanodevices that promise to yield the quickest payoff in addressing immediate problems such as air and water purification, materials with great tensile strength for use in a variety of industrial applications, as well as targeted drug delivery. For example, China is already a world leader in the production of carbon nanotubes (Fan 2007). While the Chinese effort relies on a variety of different programmes, typically the national and local Development and Reform Commission provides funding for actual commercialization projects. However, usually the Commission only provides 15 per cent of the total funding needed to set up a company. Investors must raise the remainder before the company even exists, often from provincial or local levels of government. Thus far, the amount of central government resources dedicated to nanotechnology has not been large, even when adjusted for the lower costs of doing research in China. Estimates vary widely, ranging from as little as $230 million for the fiveyear period from 2000 to 2004 (Bai 2005: 63) to $160 million in 2005 alone (Bai and Wang 2007: 75). In that same year, Holman et al. (2007: 25) even gave an estimate as high as $250 million. Although even the highest figures are still considerably less than public investment in the USA (which was $1.6 billion in 2010), China’s governmental spending on nanotechnology may not be far off when adjusted for differences in labour and infrastructure costs (Nanotechwire.com 2005). The role of private firms and individuals remains limited in China. While foreign firms have established more than a thousand R&D centres, few are engaged in basic research, and almost none in nanotechnology. International collaborations are more promising. These include institutional partnerships between universities and corporations, study abroad programmes (especially postgraduate degrees earned by Chinese in the USA, Japan and Europe), and efforts to capitalize on Chinese national pride and identification by recruiting overseas Chinese scientists and engineers to return to China. Informal personal ties are also important, as when American professors or business leaders mentor their former graduate students after they return to China. Universities are an especially important component of China’s nanotechnology initiative, which remains first and foremost research (rather than development) based. China’s state-run firms, which still account for an estimated 43 per cent of GDP 7 despite China’s commitment to privatization, tend to be bureaucratic and conservative, shunning potentially risky investments in favour of short-term, more predictable returns. The emerging private sector, including many small and medium enterprises (SMEs), remains small, under-capitalized and generally risk averse. This poses a challenge to the heightened emphasis of the Chinese government to leapfrog development through nanotechnology, for the major payoff remains deferred for years into the future. Yet, the most pervasive theme to emerge throughout our interviews © 2011 The Author(s)

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Richard P. Appelbaum, Rachel Parker and Cong Cao was the importance of government funding and support for nanotechnology, not only for basic research but also for the commercialization stage. One of our interviewees, 8 Dr Gao Congjie, who was working on a highly promising project that employs nanotechnology for seawater filtration, told us that: It is a little hard to estimate the timeframe for industrializing the new process. China Water Tech is currently working on optimizing the process. And speed for it to move to industrialization will depend on government funding and industrial interest. Government funding is usually not at all enough to industrialize a technological process, industrial involvement is crucial. However, larger scale demonstration of this process needs to be done (likely via government funding) before industry would become interested. (Gao 2006) At the local level, through various forms of incubation, the government plays the role of a quasi venture capitalist. For the Beijing region, the Nanotechnology Industrialization Base of China Entrepreneurship Investment Co. (NIBC) – located 100 km from Beijing, in the Tianjin Economic and Technological Development Area – serves this role. MOST, in conjunction with the CAS, universities and private enterprises, established the NIBC in December 2000. Its distinguishing feature is that it is essentially ‘a government organization run by market forces’, reflecting the belief that ‘pure state ownership does not work well for technology innovation or management. … What the NIBC does is to take results from universities and institutes, and help scientists to commercialize the results. It takes a systematic approach that goes to the end of the commercialization pipeline’ (NIBC 2006). NIBC incubates new companies, acquires existing companies and prepares initial public offers. In 2005, the Chinese National Academy of Nanoscience and Engineering (CNANE) was established under the same administration as the NIBC, but with a primary focus on R&D rather than commercialization. It is unclear to us how large a role these institutions actually play; during our visit in 2006, the principal operation we observed was the manufacturing of non-nano pharmaceuticals, as a form of income generation for the facility. Shanghai has its own incubator in the form of the Shanghai Nanotechnology Promotion Centre (SNPC), which is funded largely by government initiative, particularly the Shanghai municipal government as well as the NDRC, although local 9 enterprises have also contributed. It was founded in July 2000, with the centre’s formal activities starting in 2001. SNPC is subordinate to the Science and Technology Commission, which is the lead government agency in Shanghai concerned with advancing the city’s high-technology profile. The SNPC provides training for scientists and engineers on the specialized instruments used in nanoscale research, and has several university-affiliated ‘industrialization bases’ for the purpose of transferring research on nanomaterials and nanoparticles to the estimated 100–200 SMEs reportedly engaged in nano-related R&D in the Shanghai area. Roughly a third of its 25 person staff are science and engineering professionals.

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Developmental state and innovation: nanotechnology in China The purpose of the centre is to promote commercialization and it achieves this in 10 various ways. These include funding basic application research, offering a research platform to promote the commercialization process, providing nano materials testing, hosting workshops and international conferences on nanotechnology, and providing education (including a certificate programme) and outreach to raise public awareness 11 about nanotechnology. As an incubator, the SNPC provides services for start-ups before and as they enter the market – services that include legal advice for establishing a company, a variety of technology-related services, and help with marketing products. The centre also lends out lab and office space as well as a testing centre that provides the costly equipment required for nanomaterials characterization – equipment that most start-up programmes could not afford. It currently supports some 70 to 80 companies, of which perhaps half are nano-related, with grants ranging from 50,000 RMB for smaller projects to one million RMB for large ones. While there is some private industry investment in nanotechnology (local examples include limited investments by Baosteel and Shanghai Electronics), local government funding clearly plays a key role in China. During our visit to the SNPC, we saw a number of examples of such support – private firms housed within the centre’s complex that receive public funding as well as access to centre support and services. Shanghai’s municipal government also supports the ‘Climbing Mountain’ (Dengshan) Action Plan, which provides dedicated funding for joint projects that companies must lead in collaboration with an academic partner. Within the plan, most work is contracted between university researchers and engineers/business partners from companies. The plan specifically earmarks funding for nanotechnology, with projects divided between basic and applied research intended for nanotechnology commercialization (Jia 2006). In Shanghai, as is typical of funding at the local level, the government provides funding for local players as well as local collaboration with foreign companies such as Unilever (Li and Wang 2006). It seems clear that at the provincial and local levels, government funding is trying to make up for the weakness of funding from private capital (Li et al. 2006). Nanotechnology in China: what is the payoff? Many scholars have attempted to understand the relationship between science, technology and innovation in China by analysing the rise of Chinese publications and citations in scientifically indexed journals. Usually derived from the Journal Citation Reports of the Science Citation Index, these findings reveal that China is a rising star in terms of publications. In fact, China’s output in nanotechnology is now roughly equal to that of the USA, though the impact of its articles (as measured by citations) is considerably lower (see, for example, Kostoff et al. 2006; Zhou and Leydesdorff 2006). Scientific publications do not necessarily result in commercialization. Patent applications are a more direct measure of the commercial impact of China’s investment in nanotechnology, bearing in mind that China’s intellectual property


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Richard P. Appelbaum, Rachel Parker and Cong Cao system is still in its infancy. Only in 1980 was the State Patent Office, the predecessor of the State Intellectual Property Office (SIPO), established, and China enacted its first patent law on 1 April 1985. This law has undergone several subsequent revisions to harmonize it with international norms and most recently to facilitate the MLP implementation. Almost at the same time of the establishment of the State Patent Office, China applied and soon was accepted into the World Intellectual Property Organization (WIPO), and subsequently joined other major IPR related international organizations and conventions, having been established in 1985. In 2008, reflecting its WTO commitments, China established the National Intellectual Property Strategy, the goal of which is to foster increased innovative capacity. China’s domestic patents – in nanotechnology as well as more generally – increased rapidly after China joined the WTO. Our analysis of all nanotechnology patents filed with SIPO between 1991 and 2006 found that 89 per cent of nanotechnology patents filed in China were invention patents, in comparison with only 33 per cent of all patents, suggesting that patenting 12 in this area has been strongly concerned with product innovation. Domestic (Chinese) firm and individual nanotechnology patenting has greatly outstripped foreign patenting in China, with the gap growing markedly in recent years. Foreign patents made up 39 per cent of the yearly nanotech-related applications from 1991 to 2000, but only 20 per cent from 2001 to 2006. Nor is such increased patenting limited to SIPO: other studies report that China has increased its nanotechnology patent output in the USPTO (Liu et al. 2009) and the EPO (Leydesdorff 2008; Li et al. 2006) although its handful of nanotechnology patents in the EPO are mostly recent. During the period 1991–2006, foreign firms and individuals have also applied for nanotechnology patents through SIPO, although not in large numbers. Approximately 77 per cent of all nanotechnology patent applications in the SIPO database are from China, with the top countries submitting nanotechnology patent applications to SIPO being the United States (7 per cent), Japan (4 per cent), and Korea (3 per cent). Some 63 per cent of the nanotechnology related patent applications originating in China are either from Chinese universities or from the Chinese Academy of Sciences. All but one of the top five most frequent nanotechnology patent applicants are academic institutions representing China’s most elite universities. The Hongfujin Precision Industry Co. Ltd, a subsidiary of the Taiwan-based Hon Hai Precision Industry Co. Ltd, which specializes in manufacturing, assembling and marketing consumer electronic products, was one company to make the top five in terms of 13 numbers of patent applications. Interestingly, Hongfujin is owned by Foxconn, a benefactor of the 300 million RMB Tsinghua-Foxconn Nanotechnology Centre, and it is unclear how much the Tsinghua Centre has contributed to the Hongfujin patenting activities, as the centre has in-house patent attorneys from Foxconn actively searching for patentable technology (Fan 2007). This strongly suggests that the large majority of nanotechnology patents in China remain closer to basic research than to development, with relatively few pertaining to marketable consumer products. Even patents may be poor indicators of innovation because they are more firm and

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Developmental state and innovation: nanotechnology in China product specific and do not necessarily represent innovation in a sector or a country. Companies such as Huawei and ZTE in the telecommunications industry are exceptional as they not only lead China as well as the industry as a whole in patenting, but also compete fiercely with and win over Cisco, Motorola, Nokia and others both inside and outside China. Still, most innovation activities in Chinese companies are incremental, which unfortunately explains why they are at the lower end of the global production network and there are products made in China but not created there. In industries such as oil and petrochemicals, steel and mining, monopoly rather than innovation still carries the day. With the domination of MNCs, directly or through their subsidies, in the Chinese aircraft, motorcar and pharmaceutical market, Chinese products are more likely to be imitation or ‘me-too’ types, therefore downplaying the role of innovation (Nolan 2001). China has been the largest producer and supplier of nanopowders and nanotubes used in sophisticated products other than clothing, paints and tennis rackets. These are the raw materials of nano-enabled products. They are at the bottom end of the product value chain and are therefore the least profitable. Lux research, which monitors global developments in nanotechnology, estimates that the price of multi-walled carbon nanotubes has dropped from $1000 per gram in 2000 to only ten cents a gram in 2010 (Bradley 2010). Moreover, while the laboratory and workplace toxicity associated with nanotechnology remains under-studied and poorly understood, basic nano particles (such as carbon nanotubes) are likely the most toxic form. The degree of regulation in Chinese laboratories is difficult to ascertain. This implies that China has a long way to go to come up with innovation that is compatible with government investment and the accompanying expectation for nanotechnology. Moreover, nanotechnology may possibly become another high-tech area in China, with science effectively unable to translate into innovation and the country failing to leapfrog through nanotechnology, thus becoming trapped again in an insignificant position. Conclusion: China’s developmental state China’s dedication to high-technology growth is evident in its policies that support efforts to leapfrog development through targeted megascience programmes in nanotechnology, among others. As we have shown, China’s approach to nanotechnology is heavily state-centred, with public investment originating at all levels of government, and ranging from support for basic research to funding intended to promote commercialization with the expectation of not only higher return to investment but also technological and industrial leapfrogging. Given China’s relative lack of private business funding for commercialization, government at various levels has sought to pick up the slack, providing funding to get technological breakthroughs into the marketplace. The Chinese model represents a complex mixture of centralized and decentralized elements. For example, the Chinese Academy of Sciences’ Knowledge Innovation Program is typically treated as an example of decentralized influence of the scientific


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Richard P. Appelbaum, Rachel Parker and Cong Cao community, but it involves a significant amount of centralized targeting within the academy. The existence of multiple and overlapping funding sources introduces a significant element of decentralization where multiple agencies are reviewing the efforts of key scientists and institutes. Finally, we have seen that local and provincial governments and decentralized incubators play a central role in supporting the commercialization process. It remains to be seen whether China’s efforts to achieve first mover status in nanotechnology are successful. We still do not know if there will be any large-scale payoff in the future development of nanotechnology-enabled market applications. However, one thing seems to be clear: nanotechnology in China is still largely in the stage of basic research, as is most nanotechnology research outside China. However, China has clearly shown itself to be very committed to adding high-technology initiatives like nanotechnology to its top national priorities, thereby showing the dynamism of its contemporary developmental state. In the words of one of China’s leading nanoscientists, Xie Sishen (2007): As a whole, China is in the rear of the first echelon or the front of the second echelon, ranking fifth or sixth in the world in nanotech. More but few – more SCI papers but few higher-citation papers; more original ideas but few original achievements; more patents but less tech transfer; more purchased advanced instruments but few indigenously made. While China has made significant research advances in nanotechnology in areas such as water filtration and targeted drug delivery, at the commercial end of the spectrum its greatest current strength appears to be in the production of raw nanomaterials. Once a scare resource commanding high prices, carbon nanotubes – a growing Chinese export – have become a low-cost commodity, useful in a wide range of products but hardly a driver of industrial innovation or a source of high value-added profits. Paradoxically, even as China invests in advanced technologies in the hope of moving away from its role as the world’s low-cost workhouse, at least with regard to nanotechnology – one of its high-tech areas singled out for considerable public investment – China appears to be reproducing its historic role. Rather than ‘leapfrogging development’ to assume a technology-driven leadership role in global production networks, Chinese nanotech firms remain low-cost suppliers to foreign multinationals. It remains to be seen whether China’s role will change – whether its emphasis on achieving indigenous innovation through investment in high-tech areas such as nanotechnology will eventually pay off. Acknowledgement This material derives from work supported by the National Science Foundation (Grant No. SES 0531184). Any opinions, findings, conclusions or recommendations expressed are ours and do not necessarily reflect those of the National Science Foundation. We conducted our research under the auspices of the UCSB’s Center for Nanotechnology in Society (www.cns.ucsb.edu).

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Developmental state and innovation: nanotechnology in China Notes 01. One author (Cong Cao) had already undertaken extensive research on the development of science and technology in China – Cao (2004); Cao et al. (2006); Simon and Cao (2009); Suttmeier et al. (2006a, b). 02. There have already been a number of Nobel Prize awards crucially related to nanotechnology. In physics these include development of the space–time view of quantum electrodynamics by Richard Feynman (1965), the discovery of the quantized Hall effect by Klaus von Klitzing (1985), the design of the scanning tunnelling microscope by Gerd Binning and Heinrich Rohrer (1986), the discovery of a new form of quantum fluid with fractionally charged excitations by Robert Laughlin, Horst Stormer and Daniel Tsui (1998), and the discovery of giant magnetoresistance by Albert Fert and Peter Grünberg (2007). In chemistry these include the discovery of C60 (better known as fullerenes) by Robert Curl, Harold Kroto and Richard Smalley (1996) and the discovery and development of conductive polymers by Alan Heeger, Alan MacDiarmid and Hideki Shirakawa (2000). 03. Bai, who was appointed president of the Chinese Academy of Sciences in February 2011, is a pioneer and champion of nanotechnology research in China; he has served as an alternate member of the CCP Central Committee since 1997. 04. We took this theme from the then general secretary of the CCP Central Committee, Jiang Zemin’s report to the 15th CCP Congress in 1997. It reads: ‘We should formulate a longterm plan for the development of science from the needs of long-range development of the country, taking a panoramic view of the situation, emphasizing key points, doing what we need and attempting nothing where we do not, strengthening fundamental research, and accelerating the transformation of achievements from high-tech research into industrialization’ (emphasis added). This was in turn adapted from the May 1995 decision of the CCP and the State Council to push forward China’s S&T progress, though the wording was slight different—‘catching up what we need and attempting nothing where we do not’ (you suo gan, you suo bu gan). 05. In recent years, there have also been criticisms of MOST for its inaction in handling misconduct in scientific research in China. The appointment of Wan Gang, a non-CCP member, as the minister of science and technology in April 2007 is a case in point. It involved bypassing another non-CCP high-ranking vice minister with similar credentials and experience, which seems not only to signal the importance of non-CCP members in government but also that the government may be dissatisfied with the MOST leadership, and in turn the progress of Chinese science, despite the huge sums of money put into it. They may want someone with no previous relations with the ministry to bring in new ways of thinking and management. 06. Nanotubes are a form of carbon with unusual tensile strength that gives it potential for a variety of industrial uses. Nano powders are extremely fine forms of elements such as iron, which scientists believe to have considerable potential as a catalytic agent in fuel cells. 07. OECD (2005). In 1997 President Jiang Zemin called for privatization (feigongyou, or ‘nonpublic ownership’) of state-owned enterprises (SOEs), a plan that was ratified by the ninth National People’s Congress the following year. 08. Dr Gao Congjie is a member of the Chinese Academy of Engineering and chair of China’s Desalination and Water Reuse Society; his NSFC-funded project has yielded promising results in the laboratory. Gao is one of the founders for membrane technology in China. He is also the person who introduced the term ‘nanofiltration’ to China in 1993.


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Richard P. Appelbaum, Rachel Parker and Cong Cao 09. Information was obtained in interviews at the SNPC with Li Xiaoli (project manager), SHI Liyi, and Min Guoquan (7 August 2006), and with Zhu Simon (SNPC Chinese Industry Association for Antimicrobial Materials & Products; Shanghai NML Nanotechnology Co., Ltd), Zhang Bo (Shanghai AJ Nano-Science Development Co. Ltd), and Fu Lefeng (Shanghai Sunrise Chemical Company) (3 August 2007). 10. As one prominent example, we were told that SNPC helped to fund and manage a project involving the use of atomic force microscope tips to locate DNA molecules that involved CAS and Shanghai Jiao Tong University, which was featured on the cover of Nano Letters. 11. The SNPC has three incubators, each associated with a university: one affiliated with Shanghai University, and two with the Hua Dong Science and Technology University (East China University of Science and Technology). 12. Among all patents, 37 per cent were also utility model patents, and 30 per cent design patents. Invention patents are much closer in legal terms to USPTO patents. Utility model patents do not have a good corollary in the USPTO patent terminology, but do offer many of the same protections that patent protection offers, but typically – and similar to design patents – are for a shorter period of time. Design patents are typically for ornamental designs of such things as jewellery or containers as well as computer icons. To assure comparability across countries, we limited our analysis to invention patents. 13. See Business Week, Hongfujin Precision Industry (Shenzhen) Co. Ltd. Available at: http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=5478657, last accessed April 2011.

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