Innovation indicator: China’s economy must become more innovative

13.6.2016

The future economic relationship of Germany and China is the focus of the German-Chinese governmental consultations taking place today and of the Conference of the Chinese-German Economic Advisory Committee (DCBWA). China is now an important sales market for many German companies, but the country is also becoming more important for Germany as a research and development partner. However, as the 2015 innovation indicator shows, the Chinese economy is currently not very dynamic and China lies somewhere in the lower middle of the innovation ranking. For Germany, which is ranked in fifth place by the innovation indicator, the low innovativeness of the Chinese economy could have negative impacts on economic growth and research in the long term.

China plays a major role for the growth and competitiveness of the German economy. However, conversely, the German market, Germany’s technological know-how and a close partnership with Germany in research and development are also becoming increasingly important for China as well. China wants Germany’s help to reach its own declared goal of wanting to move more in the direction of knowledge- and innovation-intensive production.

As the innovation indicator shows, China is still far from being an innovative economy: China is only in 26th place in an international innovation ranking, which is published by the German National Academy of Science and Engineering (acatech) and the Federation of German Industries (BDI) and compiled by the Fraunhofer Institute for Systems and Innovation Research ISI and the Center for European Economic Research (ZEW). Among other things, this can be traced back to the fact that hardly any value added remains in the country because its high exports are still dependent on high imports. In addition, the urgently needed reforms in science and industry are only progressing very sluggishly which brings the country very limited economic innovativeness.

Germany, in contrast, was able to further improve its innovation indicator ranking and is now in fifth place internationally. It was also able to gain ground to the leaders, a group of countries consisting of Switzerland, Singapore, Belgium and Finland. This is due to its strengths in high-tech exports, technology-based innovations and close cooperation between scientific research and industry. Its education system remains a weak point, even if visible progress has been made here. However, Germany must counteract an increasingly noticeable lack of skilled workers, put more effort into promoting interest in technical professions than it has done so far, and make it easier for its many small and medium-sized enterprises to access programs promoting innovation.

Even if Germany’s high score in the innovation indicator sends a positive signal to the companies here, they are still concerned by the slowing down of the Chinese economy. After all, The People’s Republic has been the driving force behind the global development of innovative products for a long time. If China’s economy continues to worsen, this will probably have consequences for the entire global economy: Important Chinese-European interrelations in sectors like the automotive industry, electrical engineering or consumer electronics have long resulted in Europe feeling any cooling down of China’s economy.

And yet there are also some cautiously positive developments in China such as the government’s unchecked demand for high technologies or the sharp increase in transnational patent applications. However, these are contrasted by low R&D investments of public research, tax-based research funding that is not very effective, and the poor quality of patents. From Germany’s perspective, future cooperation between Germany and China should be initiated in specific fields where mutual benefits are indicated: This applies in particular to the classically strong sectors of the Chinese innovation system which include materials or information and communication technologies, for example.

About the innovation indicator

The innovation indicator, which is published annually, is a comparative study of innovation strength.  It captures the conditions for innovation in Germany as an industrial location and compares them in a ranking in the areas of industry, science, education, governance and society as well as in an overall indicator with the globally leading industrial countries and newly emerging economies. This creates the basis for innovation policy decisions. The innovation indicator is a cooperation of acatech – the German National Academy of Science and Engineering and the Federation of German Industries (BDI). The study is conducted by the Fraunhofer Institute for Systems and Innovation Research ISI in cooperation with the Center for European Economic Research (ZEW). The innovation indicator was initiated by the BDI together with the Deutsche Telekom Stiftung before acatech became a cooperation partner in 2015.

The publication can be downloaded at www.innovationsindikator.de/.

More information

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.