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CUTTING EDGE: Researching new genetic sequencing techniques at the Beijing Genomics institute

Can China innovate?
	It's already the workshop of the world, But what China really wants to be is the world's laboratory
	By Bill Powell | Beijing

Posted Monday, May 9, 2005; 20:00 HKT
The drive from the center of Beijing to the suburban home of one of China's most important new industries takes about 45 minutes. That isn't bad, given that the distance traversed spans two countries—Old China, with one foot in the poor, developing world, and New China, a nation close to the forefront of biotechnology and genetic engineering. Turn off from the main highway—where many Chinese still ride bikes or trudge by foot along the side of the road—and drive into the sparkling new Zhongguancun Life Science Park (replete with two man-made lakes, one in the shape of a human heart, the other a liver), and you've gone from somewhere back in the 20th century to somewhere deep into the 21st, where inside the sleek glass buildings, young Ph.D.s manipulate DNA and clone small animals.

China's economic miracle, the 25 years of breakneck growth that have made it the world's sixth largest economy, is a familiar tale by now: a vast, low-wage work force transforms a nation into a manufacturing colossus, resulting in surging exports and soaring incomes. But the Chinese government, ever burdened by the need to meet the rising expectations of its 1.3 billion people, has understood for some time that the next stage in its economic development would require another great leap forward: China would need to progress from making cheap goods for the rest of the world to creating things that no one else has yet conceived. "The government knows very well that this is the next, crucial stage of China's development," says Jim Hemerling, vice president and director at the Boston Consulting Group (BCG) in Shanghai. "China has to innovate, or eventually this economy will face trouble."

Can China innovate? On its face, the question is faintly ludicrous. Centuries ago, China was the center of innovation, inventing everything from paper to gunpowder. And today, this is a country that produces about four times as many engineers as the United States does. "Our kids go to two-a-day football and cheerleading practices," says Juan Enriquez, former director of the Life Sciences Project at Harvard Business School and now a venture capitalist in the U.S. "Their kids go to two-a-day math classes." But shifting from a focus on low-cost manufacturing to one on painstaking, expensive and often fruitless research requires a major change in mind-set. And, of course, innovation is dependent on the protection of ideas: few entrepreneurs or companies will devote the time and resources needed for innovation unless they know that they, "and not six guys down the street," as BCG's Hemerling puts it, will earn the spoils.

China, of course, is notorious for its lack of intellectual-property (IP) protection. In the last two years alone, companies like Cisco, Sony and General Motors have complained bitterly about alleged IP rip-offs. Last July, the State Intellectual Property Office in Beijing invalidated the patent for Pfizer's blockbuster sexual-enhancement drug Viagra because the original patent application supposedly didn't include sufficient technical data. Pfizer is appealing in a Beijing court, arguing that the information wasn't required or requested when its application was first submitted in 1994. The company says it has become much more cautious about future research-and-development investments in China because it's difficult to operate in such an unpredictable and untransparent environment. Indeed, says Anne Stevenson Yang, managing director of the U.S. Information Technology Organization in Beijing, China's ability to become a technological superpower hinges "on its ability to get a grip on issues of ownership," including intellectual property.

Partly because of IP theft—which can damage domestic as well as foreign companies—China is still in its infancy as an innovator. It spent an estimated $60 billion on R&D in 2003, the most recent year for which figures are available, or 1.3% of its GDP. That compares with $265 billion in the U.S., or 2.7% of GDP.

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