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
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