Next Stage in China's Development - Becoming a Major Innovation Hub

China has taken great strides and achieved much over the past decade.

Even as inflationary effects start to erode its competitiveness, the country still maintains its tag as the 'Factory of the World'. Few, however, pay attention to the innovative side of China. While its economy has grown steadily over the past several years, its R&D investments have increased annually by around 12 percent—about seven times the annual percentage increase in the US, according to the 2012 Global R&D Funding Forecast. 

China is also making significant gains in intellectual capital in terms of the number of patents and published scientific papers and articles, according to another report by Thomson Reuters. With a major focus on patents in the ICT industry in products such as digital computers, telephone and data transmission systems, the government strives to establish a fertile environment for increased patent filings by providing greater tax deductions and other incentives for R&D expenses.

In order to ensure continuous and sustainable R&D investment, effective commercialization is vital. Last year, China's Ministry of Finance had reportedly allocated about US$125 million to advance the application of its R&D results into the commercial sector. A shining example of China's high-tech commercialization success is the continued growth of Huawei Technologies, now one of the world's largest manufacturers of mobile infrastructure and telecom equipment.

With extensive government support, low manufacturing costs, and strong R&D investments, Huawei has built up a global infrastructure that consists of more than 30,000 employees in R&D centers located in the US, India and Europe. It has also established joint ventures with other companies that possess complementary technologies. The company serves as an exemplary model for other Chinese manufacturers who also want to leverage their global capabilities.

One of these companies is Lenovo. It has recently established the Lenovo Industrial Base in Wuhan, China, which will have facilities for mobile internet product research and development. According to the company, the total investment in the new facility over the next five years is expected to be about roughly US$792 million. The facility is set to open in October 2013 and will be mainly focused on R&D, production, and sales for smartphones, tablets, and other mobile devices for Chinese and global markets. Lenovo expects to employ several thousand R&D and management staff at the new location.

On the contract manufacturing side, reports out of Taiwan have indicated that Foxconn Technology Group plans to build a R&D center in Shanghai's Pudong District, the Taipei-based company said China sales, electronic-commerce and research teams will be housed in the new complex, which is expected to be completed in early 2015.

Looking at these trends, China's well-developed eastern regions will quickly develop into the key source of innovation. But this is not restricted to major cities like Beijing, Shanghai and Shenzhen. Increasingly, the central areas are taking on the R&D mantle and expectations are that eventually the western regions, which are now developing into major production bases, will become innovation hubs as well.