DRAFT FOR DISCUSSION – DO NOT CITE

Higher Education Innovation in China

Weiping Wu

ProfessorInternational Studies &

Urban and Regional Studies Virginia Commonwealth UniversityRichmond, VA 23284-2021, USA

Tel: 01 (804) 827-3413Fax: 01 (804) 828-0127

email: wwu@vcu.edu

January, 2010

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Higher Education Innovation in China

Weiping Wu

Preamble – university, innovation, and technological progress

The role of universities is multi-faceted. First, they train the next generation of leaders,managers, and professional and technical personnel. Second, through research, they are engaged in the creation of codified knowledge in different forms – publications, patents, and prototypes. Third, they contribute to local and national economies through research commercialization, problem solving, and providing public space, to say the least (Abdullateef 2000, Cambridge-MIT Institute 2005, Mayer 2003, Poyago-Theotoky and others 2002). With the rise of the knowledge economy, universities are increasingly seen as a source of knowledge, innovation, and technological progress. Globally, the bulk of economic benefits of academic research comes from inventions in the private sector that build on the scientific and engineering base created by university researchers (Henderson and others 1998, Poyago-Theotoky and others 2002). In addition such innovations in basic and applied knowledge, faculty contributes to commercial inventions in the form of product development and process improvement. It is important to note that key ideas and major technological breakthroughs are often the product of cumulative research interactions and advances involving the flow of ideas and people back and forth across the boundaries between universities and industry (National Academy of Engineering 2003).

In terms of the relative importance of universities in research and innovation, there are different paths. The U.S. is often recognized as the most effective, entrepreneurial model. A major feature in the postwar U.S. national innovation system is the immense expansion of research in institutions of higher learning. By simultaneously providing funds for university research and education, the federal government has strengthened the university commitment to research (Mowery and Rosenberg 1993). Institutional changes in the U.S.—especially the passage of the Stevenson-Wydler Technology Innovation Act and the Bayh-Dole University and Small Business Patent Act (both in 1980)—have ushered in a new era in the transfer of publicly funded IPRs (intellectual property rights) to the commercial sector (Feldman and Francis 2003, Mowery and others 2004, Shane 2004) and have encouraged universities to embrace closer interactions with industry to facilitate diffusion of innovation. As a result, both public and private universities have been playing a significant role in conducting research that contributes to technological development and industrial performance, with diverse interfaces between research universities and the commercial sector (Mowery and Rosenberg 1993). Going beyond this path, some scholars have looked into an emerging pattern of transformation toward an entrepreneurial university (D’Este and Patel 2005, Etzkowitz and others 2000), which envisions an academic function combining economic development with teaching and research (Etzkowitz and Leydesdorff 2000). At their most effective, universities can serve as nodes in regional or global systems linked to other major centers of learning across the world, contributing to the sparking and diffusion of ideas.

Universities typically play marginal roles in innovation in developing countries. While widely acknowledged as important institutions, they function as training sites for knowledge workers rather than innovators (Bell and Pavitt 1997, Gereffi 1995, Liefner and Schiller 2008,

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Vega-Jurado and others 2008). Few developing countries have a systematic national structure for R&D (research and development) or universities at the cutting edge of innovation, for the following reasons: (1) developing countries tend to depend on borrowed technology, so local R&D is less significant for the production process; (2) market demand for expensive cutting-edge products is weak so financial reward for independent R&D is low, resulting in little incentive for firms or universities to invest in R&D endeavors; (3) most technology transfer arrangements, such as licensing and patenting, require sophisticated institutional setup among a diverse set of agents, but such institutions are typically under-developed in developing countries; (4) local firms tend to have low human resource endowments for absorbing innovation; and (5) limited financial resources cause the majority of universities to lack state-of-art facilities necessary for technological innovation (Arocena and Sutz 2002, Braddock 2003).

While these difficulties are real, our understanding of universities’ roles is mostly defined through matured economies and fails to recognize fully the diverse functions that universities play in adapting imported technology. Bell and Albu (1999) argue that the narrow focus on formalized R&D ignores a spectrum of other technology changes such as improvement in existing production system and knowledge from existing stocks. It is also well acknowledged that technology absorption is not simply a process of copying, but involves considerable additional work to adapt it to a different practical environment and assimilate it in commercial production for the condition of an emerging market (Malecki 1991, Zhou and Tong 2003).

1. Role of higher education in China’s innovation system

Three key institutional actors – industry, research organizations, and government –occupy important positions in all national innovation systems (Mowery and Rosenburg 1993, Fujita and Hill 2004). This system, in addition, includes a nation’s IP protection system, its universities and its research laboratories. More broadly, it also may include many other subsystems and processes, such as norms of competition and a nation’s financial and monetary policies. While this conceptualization is useful in understanding the associated agents and institutions, it may not be entirely applicable to developing countries because of their relatively lagging status from the technology frontier in a globalizing economy. A more sensible approach would be to investigate a broader system of science and technology (S&T) activities.

Between 1949 and 1979, China’s S&T system followed a Soviet model of functionally specialized organizations whose activities and interactions would be managed by central authorities. Under this model, research, including all innovative activities, was conducted by research institutes, manufactured by factories, and distributed by distributors. A multitude of central ministries coordinated these units, creating a vertically rather than horizontally integrated system dependent on centralized, top-down allocations for necessary inputs. Two key central ministries: the Ministry of Science and Technology (MOST, formerly known as the State Science and Technology Commission) on civilian technology, and the Commission on Science, Technology and Industry for National Defense or (COSTIND) on military related technology, along with the Chinese Academy of Science (CAS), coordinated R&D units. MOST’s mandate was to regulate and coordinate activities in public research institutes (PRIs), production enterprises, and research centers in universities. In addition, the Ministry of Education (MOE, formerly known as the State Commission on Higher Education) was responsible for education

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and training in universities, as well as vocational and technical schools. The industrial minitries—such as the Ministry of Communications and Posts, Ministry of Machinery, Ministry of Chemical Industry, and others—also oversaw research institutes as well as the production and distribution enterprises within their respective industries (Liu and White 2000). There were no incentives to create direct linkages among research institutions, manufacturers, distributors or users. Instead, these units depended on centralized, top-down allocations for necessary inputs.

During this period, the role of higher education was confined by this large framework to that of education primarily. After the founding of the People’s Republic in 1949, all private and missionary universities were abolished and consolidated into public ones. In 1952, a reform in the name of “adjustment of colleges and departments” (yuanxi tiaozheng) began, under Soviet guidance (Simon and Cao 2009, p. 112). Aimed at developing techno-centric professional education to support national development strategies, the adjustments recombined universities into new categories based on their disciplines, such as comprehensive universities, normal universities, polytechnic universities, more specialized technical institutes, and medical universities (Simon and Cao 2009, Xue 2006, Ying 2008). As a result, the mission of higher education was shifted towards teaching, which set the conditions for ever-widening gap between teaching and research. The relocation of specialties, in addition, broke the connections among basic research, applied research, and experimental development. Ten years of Cultural Revolution, between 1966 and 1976, further derailed the higher education system.

Since 1979 China’s S&T system has been undergoing drastic reforms. The central government has been decentralizing responsibility and the necessary authority to make decisions parallel to new levels of responsibility has moved down. This is accompanied by measures to encourage a closer relationship between research and production through horizontal, market-based ties between research institutes/universities and enterprises (Liu and White 2000, Suttmeier and Cao 1999). In the mean time, nationwide R&D expenditure as a percentage of China’s GDP has increased sharply in recent years. Although most developed countries’ R&D ratios range between 2 and 3 percent, China now stands out as a heavy spender among developing countries with the largest R&D expenditures (1.6 percent of GDP, see Table 1). Mexico’s R&D spending, for example, was 0.4 percent of its GDP in 2007, while India’s score was 1.0 percent in the same year. Despite growth in China’s R&D spending, China remains far behind most of the developed world. In the mean time, a major shift has occurred in the national distribution of R&D spending among the three major sectors D – PRIs (government), state-owned and private enterprises (industry), and universities. Whereas the enterprise sector performed less than 40 percent of the nation’s R&D as recently as mid-1990s workers (Hsiung 2002, Hu and Jefferson 2004), they now perform about 70 percent (see Table 1).

Broad reforms of the S&T system have brought a major structural change for universities (see Table 2). After the reinstatement of the National College Entrance Examination in 1978, the central government issued a comprehensive set of measures to promote “3Ds” (decentralization, depoliticization, and diversities) and “3Cs” (commercialization, competition, and cooperation) (see Xue 2006). Specifically, universities gained autonomy in enrollment expansion, curriculum development, faculty recruitment, and international exchanges (NSF 2000, Zhan and Zhong 2004). Providers of higher education services other than public universities began to emerge under the diversification measure – in the form of private institutions. Universities also were

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encouraged to diversify funding channels as the share of government budgetary allocation declined steadily, and to create closer links between education and the economy. Since the mid-1990s, higher education has undergone even more transformation, particularly as related to China’s overall S&T goals. The administration of many universities was delegated to localgovernments and there were many “merges and acquisitions” among universities (Simon and Cao 2009, Xue 2006). Various initiatives have been introduced to consolidate schools run by different ministries, in order to avoid repetition of specializations. Universities are also reforming their curricula, to eliminate excess subjects in order to make the curriculum more flexible, interdisciplinary, and relevant.

Table 1. R&D and higher education expenditure in selected countries

China Brazil India Mexico Russia Singapore S. Korea Japan U.S.

Gross domestic expenditure on R&D (GERD), 2007GERD PPP (US$, billions) 141.71 - 38.85 6.10 17.33 3.19 34.73 136.69 343.00As % of GDP PPP 1.6 1.3 1.0 0.4 1.3 2.2 2.6 3.4 2.8

Estimated projection for R&D spending in 2008 (%)Government 21 58 - 19 27 9 11 7 7Industry 70 41 - 51 67 68 78 78 72Academia 9 1 - 27 5 23 10 12 13

Investment in higher education, 2006Annual expenditure on HE per student (US$) 2,063 10,294 - 6,462 4,279 - 8,564 13,418 25,109As % of GDP PPP 1.5 0.8 - 1.1 0.8 - 2.5 1.5 2.9

Source: Battelle and R&D Magazine, 2007.- Data not available.Note: R&D distribution may not add to 100%, and the remainder of performance is conducted by the non-profit sector, as applicable. China’s HE (higher education) expenditure data are for 2007 (China Educational Finance Statistical Yearbook 2007), and share of HE in GDP is for 2005 (China Statistical Yearbook 2007). Brazil data are for 2004, drawn from cordis.europa.eu/erawatch/ (retrieved on 27 September 2009). U.S. R&D distribution is 2007 preliminary data, drawn from the American Association for the Advancement of Science (retrieved on 17 September 2009 from www.aaas.org).

Universities have gained clear recognition as an integral part of China’s national innovation system as a result of these measures and two additional national programs specifically designed to elevate the importance of research in higher education (see Figure 1). One is “Project 211,” which provides significant funding for construction on university campuses around China (Hsiung 2002). Jointly sponsored by the State Planning Commission, Ministry of Finance, Ministry of Education (MOE) and provincial governments, this project targets a group of 211 institutions during the 9th Five-Year Plan period (1996-2000). On the heel of the “Project 211”, MOE launched another nationwide program “985” aimed to turn China’s top universities into world-class research universities. Competition for “985” designation has been fierce as selected institutions would receive substantial funding to expand their research capacities and disciplinary scope, with matching funds from provincial governments.

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Table 2. Key elements in China’s higher education reform and their effects

Period Key policy and legal change

Content Effects on higher education

Effects on academic R&D

1978-1984Reinstatement

1978: National Education Working Meeting

Reinstatement of education system

RHEIs from 598 in 1978 to 902 in 1984; students from 856,000 to 1.4 million

1985-1992Explorative reform

1985: Resolution on Education Reform1987: Second adjustment of HE majors

DecentralizationDepoliticizationDiversificationCommercializa-tionCompetitionCooperation

RHEIs increase by 59 and students by 34,000; number of majors from more than 1,400 to more than 800Private HEIs emerge

Universities first given mandate to include research as main mission

1993-1997Deepening reform

1993: Guidelines of Chinese Education Reform and Development1996: National Education Act

Decentralize administration and financing of universities (implemented in 1998)

RHEIs from 1,054 in 1992 to 1,020 in 1997; students from 2.18 to 3.17 million; number of majors from 504 to 249 (1997)

1995: “211” program to improve overall capacity and develop key disciplines

1998-presentRapid development

1998: Education Revitalization Action Plan1999: Strategy ofrevitalizing China through science and education

Sharp increase in enrollment.“Merges and acquisitions” among universities

Fivefold increase in annual admission and annual growth of 23 percent; total RHEIs student enrollment 15.6 million in 2005

1998: “985” Program to turn top universities into world-class research universities

Source: Based on Kang 2005, Simon and Cao 2009, Xue 2006, Ying 2008, and author’s compilation. Note: HE=higher education, HEIs= higher education institutions, RHEIs=regular higher education institutions.

A new legal framework has been put in place at the national level to cement the role of universities in the innovation system. In April 1999, the State Council gave its approval to the "Several Provisions on Promoting the Transformation of Scientific and Technological Achievements.” The "Provisions" make relatively generous allowance for rewarding the discoverers of new, commercially useful knowledge and make it easier for research personnel to move back and forth between research and business (Suttmeier and Cao 1999). The central government also has paid more attention to IP protection, creating the Chinese Patent Office in 1980 and enacting its patent law in 1985 and copyright law in 1990 (Hu and Jefferson 2004, Liu and White 2000, Suttmeier and Cao 1999). The patent law was substantially revised in 1992 with expanded scope of patent protection.

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Figure 1. China’s national innovation system

Source: Based on Xue 2006 and author’s compilation. Note: CAS=Chinese Academy of Science, CASS=Chinese Academy of Social Science.

However, universities have yet to become key drivers of innovation, particular in comparison with PRIs. They have consistently spent less than PRIs, counting for less than 10 percent of total R&D expenditures on average between 1997 and 2006 (see Figure 2). In addition, with expanding corporate R&D, higher education’s share in both national R&Dexpenditure and personnel is in fact trending downwards in recent years, counting for 8.5 percent and 14.6 percent respectively in 2007. But the growth in the absolute volume of R&D personnel in universities has been steady since 2000, and on par with the overall expansion of the R&D workforce. A comparison with selected developing and industrialized countries shows that the position of China’s higher education vis-a-vis government and industry in R&D spending is within the normal range (see Table 1).

Figure 2. University sector’s share in China’s R&D activities, 1997-2006

0.0

5.0

10.0

15.0

20.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Percent

R&D personnel R&D expediture

Central government

Local governments

MinistriesIndustry & private sector

Ministry of Education

Universities & colleges

Public research institutes

Corporate R&D

CAS & CASS

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Sources: Chinese University Technology Transfer, September 2005, p.40-43; MOST (various years).

2. Basic characteristics, scale and performance of China’s higher education system

The system of higher education in China has two major divisions – regular higher education institutions (RHEIs) and adult education institutions (Ying 2008). It has experienced steady expansion since the start of economic reform in 1978. Through several rounds of policy and structural change (see Table 2), it has reverted from a system based on the Soviet model to one that is closer to international norms. Since only RHEIs are engaged in R&D, they are the focus of this report. By 2007, the number of RHEIs stabilized at 1,908 after a series of consolidation among public universities and rapid growth of private institutions (see Table 3). Meanwhile, the number of RHEIs directly under central ministries has declined substantially since 1998, from 353 in 1989 to 263 in 1998 (Zhan and Zhong 2004) and 111 in 2007 (Table 3).

Table 3. Distribution of higher education by type and discipline, 2007

Adult4-year 2-year Total % education HE PRIs Total %

Under central ministriesUnder MOE 73 0 73 3.83 1 73 0 73 9.18Under other ministries and agencies 33 5 38 1.99 13 25 273 298 37.48Sub-total 106 5 111 5.82 14 98 273 371 46.67Percentage of total 14.32 0.43 5.82 3.39

Under local authoritiesUnder education bureaus 532 320 852 44.65 161 357 1 358 45.03Under other local departments 72 578 650 34.07 236 24 42 66 8.30Sub-total 604 898 1,502 78.72 397 381 43 424 53.33Percentage of total 81.62 76.88 78.72 96.13

PrivateNumber 30 265 295 15.46 2 0 0 0 0.00Percentage of total 4.05 22.69 15.46 0.48

Total 740 1168 1,908 ##### 413 479 316 795 100.00

By specializationComprehenve 160 283 443 23.22Science and engineering 198 474 672 35.22Agricultural 32 42 74 3.88Forestry 6 12 18 0.94Medicine and Pharmacy 77 57 134 7.02Teacher training 120 49 169 8.86Language and literature 14 23 37 1.94Finance and economics 54 124 178 9.33Piolitical science and law 23 46 69 3.62Physical education 14 14 28 1.47Arts 30 40 70 3.67Ethnic affairs 12 4 16 0.84

Regular HE Graduate institutions

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Source: www.moe.edu.cn (retrieved on 22 September 2009); China Social Statistical Yearbook 2008. Note: The 295 private RHEIs qualified for accredidation by MOE as of 2007 (Zhao and Sheng 2008). There are additional 906 other types of private higher education institutions (www.moe.edu.cn).

Drastic increase in student enrollments has taken place, leading to a student body of about 18.9 million in RHEIs in 2007 – 20 time more than that in 1978. The average size of RHEIs also has increased, reaching over 10,000 in 2007. China’s achievement in transforming higher education from an elite- to a mass-type is unprecedented in the world. It took the United States 30 years (1911-1941), Japan 23 years (1947-1970), South Korea 14 years (1966-1980) and Brazil 26 years (1970-1996) to see gross enrollment rate grow from 5 to 15 percent (Gao 2009, Simon and Cao 2009). It took China about 12 years to repeat the same feat (1990-2002, also see Table 4). Together with students in adult education, China has surpassed the U.S. in having the largest higher education sector, with more than 20 million students (Zhao and Sheng 2008). There are now clearly two tiers in its higher education. Mass-type education takes place in local RHEIs and adult institutions, all of which continue to focus on a single mission of teaching. The best universities, on the other hand, are under the supervision of MOE as well as other central ministries. Many of them also are jointly managed by local governments that provide matching funding. Their elite status is reflected in the larger university size, higher proportion of graduate students, more comprehensive in disciplinary offerings, and more active in academic research (Yan and others 2006).

Table 4. General indicators of China’s RHEIs and senior high school education, 1978-2007

1978 1980 1985 1990 1995 2000 2005 2006 2007

Regular higher education institutions (RHEIs)Number of RHEIs 598 675 1,016 1,075 1,054 1,041 1,792 1,867 1,908Number of RHEIs directly under MOE - - - 36 35 72 73 73 73Total undergraduate student enrollment (millions) 0.856 1.144 1.703 2.063 2.906 5.561 15.618 17.388 18.850Total graduate student enrollment (millions) 0.011 0.022 0.087 0.093 0.145 0.301 0.979 1.105 1.195Average size of RHEI (undergraduate + graduate) 1,450 1,726 1,762 2,005 2,896 5,631 9,261 9,905 10,506Total full-time faculty (millions) 0.206 0.247 0.344 - 0.404 0.463 0.966 1.076 1.269Faculty to undergraduate-student ratio 4.15 4.63 4.95 - 9.83 16.30 16.85 17.93 17.28Gross enrollment rate for 18-22 age (%) - - - 3.4 7.2 12.5 21.0 22.0 23.0

Regular senior secondary schoolsTotal student enrollment (millions) 15.531 9.698 7.411 7.173 7.132 12.013 24.091 25.145 25.224As % of all senior secondary school enrollment - 56.4 57.2 46.9 43.2 48.8 59.8 57.9 55.7Teacher to student ratio - - - - 12.95 15.87 18.54 18.13 17.48Gross enrollment rate (%) - - - - 33.6 42.8 52.7 59.8 66.0Admission rate to RHEIs (%) - - - 27.3 49.9 73.2 76.3 75.1 70.3Admission rate from regular junior to senior high schools (%) - - - 40.6 50.3 51.2 69.7 75.7 80.5

Source: China S&T Statistical Yearbook 2008; China Education Statistical Yearbook 2007; China Statistical Abstract 2008; China Social Statistical Yearbook 2008; Gao 2009. - Data not available.

The expansion in university enrollment has led to a similar trend in secondary education, particularly since the turn of the century (see Table 4). China’s senior secondary schools are bifurcated – the regular schools are feeders into higher education institutions (HEIs), whereas the

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other stream prepares students for vocational skills through specialized secondary schools, vocational schools and craftsmen schools. The first stream, generally making up between 50 to 60 percent of senior secondary education, has been sending an increasing share of its graduates to HEIs (70 percent in 2007). This stream also has been admitting a larger percentage of students from junior high schools. Overall, this reflects the steady penetration of secondary education into the population, following the implementation of universal primary education in the 1980s and subsequently the 9-year compulsory education. University entrance is the sole aim of students in regular senior high schools and, as such, curricula are designed to prepare them for the national higher education entrance exams. Upon admission, students are funneled into two tracks – science/engineering (li gong ke, including medicine) and humanities (including social sciences) with different curricula. This has resulted in teaching and learning going very deep in the exam subjects at the expense of electives and other subjects. Compounded by large class sizes, this also is in part to blame for the teacher-centered and drill approach to teaching in secondary education (Liang 2001).

Such rapid expansion in higher education inevitably brings with it problems, chief among which is insufficient supply of qualified faculty. Faculty-student ratio has seen steady increase and jumped particularly high after massive enrollment growth since 1998 (see Table 4). Per student expenditure also suffers, particularly in terms of library holdings and classroom space (Yan and others 2006). After an absence of 30 years (1952-1982), private higher education has not only reemerged but also has grown rapidly. By 2007, there were more than 1,200 private HEIs (see Table 3). Teaching quality and standards, however, vary considerably across regions and types of HEIs, and the level of variation is beyond what would be considered satisfactory in terms of maintaining public confidence. Specifically HEIs in the underdeveloped regions is considered to be of significantly lower quality than elsewhere (Gallagher and others 2009). In 2007, in its higher education development plan, the central government cautioned about the rapid growth in college admission and proposed to stabilize gross enrollment rate at 25 percent (Gao 2009).

Graduate education has experienced a major gain since 1978, an area that was previously overlooked in China’s higher education. Between 1949 and 1965, graduate students made up a mere 2 percent of all university students (Ying 2008). During the Cultural Revolution, graduate education essentially ceased. In 1978, there were 10,943 graduate students at both the master’s and doctorate level (see Table 4). By 2007, this had grown to about 1.2 million, counting for about 6 percent of all university students. The majority of graduate students are in science, engineering, medicine, and, more recently, management (see Table 5). By comparison to undergraduate students, more graduate students, particularly at the doctorate level, are specializing in science. This should bode well for an increasing capacity in basic research.

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Table 5. Enrollment and graduates of students at all levels, 1995-2007

1995 2000 2005 2007 2007 (%) 1995 2000 2005 2007 2007 (%)

UndergraduatePhilosophy 1,747 1,847 1,797 2,337 0.04 2,110 916 1,275 1,325 0.03Economics 152,694 363,379 264,219 287,701 5.08 119,042 159,299 162,977 235,925 5.27Law 31,939 114,682 199,521 191,377 3.38 23,170 44,124 163,529 204,798 4.57Education 41,258 107,259 315,638 267,253 4.72 41,898 42,052 280,134 352,729 7.88Literature 131,587 343,418 760,475 878,088 15.52 115,969 146,997 415,206 635,004 14.18History 15,672 22,003 13,379 14,937 0.26 18,117 13,661 10,694 12,316 0.28Science 100,295 202,466 270,147 297,972 5.27 100,566 98,200 164,867 230,883 5.16Engineering 352,463 832,124 ####### ####### 36.85 295,839 354,291 ####### ####### 35.60Agriculture 32,590 68,966 97,188 103,557 1.83 32,975 30,370 69,531 88,330 1.97Medicine 65,695 149,928 338,563 366,068 6.47 55,711 59,857 202,577 300,389 6.71Management 0 0 974,228 ####### 20.58 0 0 506,180 822,078 18.36Total 925,940 ####### ####### ####### 100.00 805,397 949,767 ####### ####### 100.00

Master'sPhilosophy - 1,252 3,683 4,572 1.27 366 574 1,813 3,191 1.18Economics - 12,849 15,950 17,425 4.84 1,951 6,518 9,313 15,090 5.58Law - 7,204 22,465 28,398 7.88 1,258 3,498 12,912 20,685 7.65Education - 2,808 11,352 13,918 3.86 517 1,070 4,646 9,033 3.34Literature - 6,737 26,628 33,173 9.21 1,463 3,294 12,098 23,172 8.57History - 1,545 4,303 4,409 1.22 502 790 2,110 3,699 1.37Science - 12,878 34,979 40,305 11.18 4,718 5,669 16,570 27,215 10.07Engineering - 44,209 110,362 124,671 34.59 12,873 19,752 63,514 100,142 37.06Agriculture - 3,675 11,611 13,338 3.70 914 1,783 4,945 9,394 3.48Medicine - 9,766 31,602 37,036 10.28 2,561 4,617 15,114 26,546 9.82Management - 0 36,917 43,133 11.97 0 0 18,924 32,067 11.87Total - 102,923 309,852 360,378 100.00 27,123 47,565 161,959 270,234 100.00

DoctoratePhilosophy - 427 731 869 1.50 67 201 436 547 1.32Economics - 1,894 2,662 2,737 4.72 214 701 1,617 2,149 5.19Law - 992 2,305 2,987 5.15 111 322 1,191 1,871 4.51Education - 419 1,005 1,043 1.80 51 151 455 821 1.98Literature - 993 2,334 2,576 4.44 105 355 1,216 1,892 4.57History - 561 946 925 1.60 86 236 547 725 1.75Science - 4,829 10,214 11,084 19.11 1,307 2,408 5,458 8,051 19.43Engineering - 10,825 20,983 21,647 37.33 1,784 4,611 9,427 14,479 34.94Agriculture - 1,172 2,253 2,395 4.13 197 499 1,093 1,903 4.59Medicine - 3,030 6,738 7,125 12.29 719 1,520 4,291 5,907 14.25Management - 0 4,589 4,602 7.94 0 0 1,924 3,097 7.47Total - 25,142 54,760 57,990 100.00 4,641 11,004 27,655 41,442 100.00

Enrollment Graduates

Sources: China S&T Statistical Yearbook 2008; China Social Statistical Yearbook 2008; Simon and Cao (2009); www.moe.edu.cn (retrieved on 22 September 2009).- Data not available.

Overall, China has been very successful in maintaining higher enrollment and graduation rates in science and engineering. Through all levels of tertiary education, engineering remains

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the dominant field of study (see Table 5). At the undergraduate level, the trend is particularly stable, counting for around 37 percent of both incoming and graduating students each year between 1995 and 2007. The surge in engineering graduation rates can be traced to a series of top-down government policy changes that began in the late 1990s to transform science and engineering education from “elite education” to “mass education” by increasing enrollment (Wadhwa and others 2007). At the graduate levels, the share of new and graduating students in engineering has declined slightly since 2000 (from more than to just under 40 percent), while the absolute numbers are growing steadily. This is largely the result of the increasing popularity of management as a new field of study. Despite rising enrollment in science and engineering quality remains mixed. Representatives of multinational and domestic technology companies have revealed that they would feel comfortable hiring engineering graduates from only 10 to 15 universities across the country (Wadhwa and others 2007).

Faculty has grown in tandem with enrollment expansion, standing at close to 1.3 million in RHEIs in 2007 (see Table 4). A series of aggressive programs have been designed to attract talented returnees to China from institutions overseas and reward outstanding scientists, such as the “Hundred Talent Program” and the Cheung Kong ("Changjiang," or Yangtze River) Scholars Program. Building intellectual capacity by recruiting top-notch faculty through competitive mechanism is high on the agenda for many universities, and faculty also can request transfer to other universities. This is a welcoming development and likely increases academic quality and diversity, since most elite Chinese universities have a deep-seated tradition of hiring their own graduates. The proportion of faculty with graduate degrees has been growing steadily (Table 6), now counting for more than 42 percent.

Table 6. Faculty qualification and ranks in RHEIs, 2003-2007

Number Percent Number Percent Number Percent Number Percent Number Percent

By educational backgroundDoctorate 53,612 7.4 70,487 8.2 88,450 9.2 108,605 10.1 130,926 11.2Master's 182,517 25.2 223,860 26.1 269,003 27.9 317,823 29.5 363,034 31.1Bachelor 458,522 63.3 532,705 62.1 578,366 59.9 620,191 57.6 646,424 55.3Below Bachelor 30,007 4.1 31,341 3.7 30,020 3.1 29,370 2.7 27,916 2.4

By academic rankFull professor 70,063 9.7 83,231 9.7 96,552 10.0 108,856 10.1 119,651 10.2Associate professor 216,161 29.8 250,251 29.2 278,200 28.8 304,830 28.3 326,300 27.9Lecturer 240,555 33.2 280,905 32.7 311,958 32.3 352,210 32.7 394,449 33.8Below lecturer 146,092 20.2 183,285 21.4 214,714 22.2 239,482 22.3 256,962 22.0No rank 51,787 7.1 60,721 7.1 64,415 6.7 70,611 6.6 70,938 6.1

Total 724,658 100.0 858,393 100.0 965,839 100.0 ####### 100.0 ####### 100.0

20071995 1998 2001 2004

Sources: China Education Statistical Yearbook 2003-2007.

Many universities have taken steps to assemble a more comprehensive range of academic programs. Because of the higher education restructuring in 1952 following the Russian approach, universities were organized based on disciplinary scope. There were four broad

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categories used widely in China: basic sciences (li ke), engineering (gong ke), humanities and social sciences (wen ke), and medical sciences (yi ke). Though many have made great efforts to broaden their disciplinary bases since the 1980s, their current comparative advantages and weaknesses reflect historical legacies (Xue 2004, Wu 2007). For those that traditionally favored more humanities and sciences (e.g. Beijing University, Nanjing University, and Fudan University), the approach is to expand into life and medical sciences, business, and engineering. For those centered on engineering, on the other hand, the expansion naturally veers towards social sciences, business, or medical sciences (e.g. Tsinghua University and Shanghai Jiaotong University). By 2007, the number of comprehensive universities stood at 443, about a quarter of all RHEIs (see Table 3).

Higher education only became an investment priority during the rapid development phase in late 1990s. While public expenditure on education as a percentage of total government expenditure was on the rise, it did not change much as a percentage of GDP and remained as low as 2.2 percent in 1994, lower than the average for least-developed countries (2.8 percent), other developing countries (4.1 percent) and developed countries (5.3 percent). But since then, China’s growing economy has made large-scale investment possible for the expanding higher education, from both government and non-government sources. To finance higher education reforms, the central government doubled its investment in colleges and universities to an estimated $11.6 billion during the five-year period ending in 2004 (Mooney 2006). In absolute terms, total expenditure on higher education increased six-fold from 1997 to 2005. In relative terms, such expenditure nearly doubled its share in total expenditure on education from 17.2 in 1997 percent to 31.6 percent in 2005, and more than doubled as a percentage of GDP (Zhao and Sheng 2008).

Since 1985, diversification has led to different channels for financing higher education. Public universities and colleges are funded through three income streams (see Figure 3): first, annual recurrent block funds through a per capita payment to the institution from either the central or local government in respect of a quota of student enrolments; this is supplemented by non-recurrent funds for selected institutions under the “985” and “211” programs; second, tuition fee income reflecting prices set by provincial governments (typically some 25 percent of estimated delivery costs); and third, additional income generated by institutions from contracted work and other activities (Gallagher and others 2009).

The proportion of government funding in the operating budget of universities has been in decline (see Figure 3), so many universities have found ways to compensate the shortfalls by charging tuition fees, commercializing R&D outcomes, and fundraising from private sources (Xue 2006, Zhan and Zhong 2004). For instance, government funded 95.9 percent of RHEIs revenues in 1979, but by 2000 this declined to 47.9 percent (Zhan and Zhong 2004). For all HEIs, this share now stood at 42.5 percent in 2005 (Figure 3). In the meantime, tuition and fees increasingly have become an important source of revenues, counting for 31.5 percent in 2005. This is a rather high level, even compared to universities in the west. Around 2000, public universities in the U.S. counted tuition and fees for 19 percent of revenues, while those in the U.K. 23 percent (Gao 2009). What is lagging in Chinese universities is self-generated income, through such entrepreneurial ways as commercialization of academic R&D and non-degree training. From a comparative perspective, government spent more on higher education—in

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relative terms—in Hong Kong and Singapore than Japan and South Korea, with China in between, suggesting that funding for higher education is more diversified in Japan and South Korea (Zhao and Sheng 2008).

Figure 3. Sources of funding for higher education in China, 1998-2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1998 1999 2000 2001 2002 2003 2004 2005

Government Tuition & fees Others

Sources: China Statistical Yearbook 2000-2007 cited in Zhao and Sheng 2008.

3. Higher education and R&D in China

R&D input

With 1.3 million researchers, China now ranks second worldwide behind the United States. It is also the world’s second highest investor in R&D after the United States (Gallagher and others 2009). While on the whole, the academia performs less than 10 percent of China’s R&D, it is a critical player in basic and applied research. In 2004, for instance, universities performed around 41 percent of China’s basic research (this share increased to 49.7 percent in 2007) and 27 percent of applied research (Xue 2006). Academic R&D expenditures also are growing steadily –an increase of 21.7 percent in basic research and 17.9 percent in applied between 2006 and 2007. Applied research has been the dominant R&D activity in universities. Since 1995, its share in total academic R&D expenditures has stayed above 50 percent, although basic research is slowing picking up speed (see Table 7).

The main sources of funding for academic R&D and S&T activities are government and industry, counting for more than 50 percent and 35 percent respectively (see Table 7). Officially, the accounting of university R&D revenues includes the following: central government

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budgetary allocation (primarily from MOST and MOE), National Natural Science Foundation and other , local government budgetary allocation, contract funding from the enterprise sector, bank loans, and research grants/contracts with overseas entities (see Wu 2007). To further promote university-based research, the central government (primarily through MOE) is providing more funding to elite universities (Hsiung 2002, Ma 2004, Suttmeier and Cao 1999). Recent programs include the National Basic Research Program (“973” Project), “211” Project, and “985” Project (see Table 8). These national programs have increased the funding and research capacity of the university sector. For instance, universities are now substantial players in a couple of programs focused on basic research —“Climbing” (later “973”) and “863” (Hu and Jefferson 2004). They carry out about one-third of the “863” projects and close to two-thirds of projects funded by the National Natural Science Foundation (Wu 2007).

Table 7. General indicators of academic R&D, 1995-2007

Number Percent Number Percent Number Percent Number Percent Number Percent

GeneralNumber of R&D institutes 3,431 3,241 3,481 3,681 4,502Scientists and engineers (thousands) 308 311 359 364 460

R&D personnel (FTE thousands/year)Total 144 100.0 169 100.0 171 100.0 212 100.0 254 100.0Scientists and engineers 132 91.7 161 95.3 168 98.2 206 97.2 248 97.6Basic research 39 27.1 46 27.2 51 29.8 74 34.9 94 37.0Applied research 78 54.2 93 55.0 92 53.8 104 49.1 120 47.2Product and process development 27 18.8 30 17.8 28 16.4 34 16.0 40 15.7

S&T revenues (RMB millions)Total 4,950 100.0 8,500 100.0 20,000 100.0 39,160 100.0 61,270 100.0From government sources 2,210 44.6 4,110 48.4 10,980 54.9 21,060 53.8 34,540 56.4From industry sector - - 3,680 43.3 7,250 36.3 14,860 37.9 21,920 35.8From financial institutions 120 2.4 - - 100 0.5 130 0.3 - -

R&D expenditures (RMB millions)Total 4,230 100.0 5,730 100.0 10,240 100.0 20,090 100.0 31,470 100.0Basic research 650 15.4 950 16.6 1,900 18.6 4,790 23.8 8,680 27.6Applied research 2,330 55.1 3,140 54.8 5,660 55.3 10,880 54.2 16,180 51.4Product and process development 1,250 29.6 1,630 28.4 2,680 26.2 4,420 22.0 6,610 21.0

20071995 1998 2001 2004

Source: China S&T Statistical Yearbook 2008; China Education Statistical Yearbook 2007; China Statistical Abstract 2008. Note: FTE=full time equivalent.

Research funding from industry has thus become a major source of income for universities. Given that research funding from industry accounts for more than a third of the total research revenues, universities naturally encourage its faculty to develop closer ties with industry, or even to become entrepreneurs themselves, as discussed later. Interactions between universities and research institutes, on the other hand, have remained tacit due to the chronic partitions among different research entities in China. Research institutes have spent about 90 percent of their S&T funds intramurally and seldom cooperate with universities. Interactions between PRIs and universities largely focus on the recruitment of university graduates despite some efforts by individual research institutes and universities (Xue 2006).

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The university sector has seen a steady growth in the total number of scientists and engineers as well as R&D personnel (see Table 7). Echoing patterns of R&D expenditures, personnel distribution favors applied research. However, increasingly more personnel is being deployed in basic research, now counting for 37 percent of the academic R&D workforce. Despite this growth, university sector’s share in China’s total S&T workforce has remained stable at about 12 percent and has declined in terms of R&D personnel (from 21 to 16 percent) between 1991 and 2006 (Simon and Cao 2009). This has much to do with the growing rank of scientists and engineers in the industry sector.

Table 8. Major national programs with impact on academic R&D

Program Agency Start date Key focus“863”—National High Technology R&D Program

MOST March 1986 To enhance international competitiveness and improve overall capability of R&D in high technology (with 19 priorities)

National Key Technologies R&D Program

MOST 1982 To apply R&D to meet critical technological needs in key sectors

“973”—National Basic Research Program

MOST June 1997 (combined with “Climbing” program initiated in 1992)

To strengthen basic research in line with national strategic targets (primarily in agriculture, energy, information, resources and environment, population and health, and materials)

R&D Infrastructure and Facility Development

MOST 1984 (National Key Laboratories Program)

To implement the National Key Laboratories Development Program, National Key Science Projects Program, and National Engineering Technology Research Centers Development Program

National Natural Science Foundation

NNSF February 1986 To promote and finance basic research and some applied research

“211” MOE 1995 To improve overall institutional capacity and develop key disciplinary areas in select universities

“985” MOE 1998 (first phase)2004 (second phase)

To turn China’s top universities into world-class research universities

Sources: Hsiung 2002; Hu and Jefferson 2004; Ma 2004; www.most.gov.cn.

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Table 9. University R&D revenues and technology transfer by province, 2004 and 2006

2004 2006 2004 2006 2004 2006 2004 2006

Eastern region

Beijing 3153.2 4631.2 373.2 433.6 11.8 9.4 0.92 1.42

Tianjin 685.0 846.5 157.3 11.8 23.0 1.4 1.79 0.21

Hebei 150.8 322.3 53.3 46.3 35.4 14.4 2.76 2.18

Liaoning 950.2 1572.4 87.2 193.1 9.2 12.3 0.71 1.86

Shanghai 1990.0 2686.2 114.7 170.6 5.8 6.4 0.45 0.96

Jiangsu 1869.0 2371.7 233.6 190.8 12.5 8.0 0.97 1.22

Zhejiang 1113.3 1413.9 50.5 107.9 4.5 7.6 0.35 1.16

Fujian 164.6 305.9 4.3 5.0 2.6 1.6 0.21 0.25

Shandong 414.1 753.9 168.3 121.7 40.6 16.1 3.17 2.45

Guangdong 766.1 862.2 55.9 48.3 7.3 5.6 0.57 0.85

Guangxi 116.4 264.5 13.0 2.3 11.2 0.9 0.87 0.13Hainan 12.0 26.6 0.8 0.8 6.7 3.0 0.53 0.46

Central region

Shanxi 151.5 246.8 4.3 4.7 2.8 1.9 0.22 0.29

Inner Mongolia 65.2 136.5 1.2 2.8 1.8 2.1 0.14 0.31

Jilin 413.2 694.5 46.5 39.1 11.2 5.6 0.88 0.85

Heilongjiang 1290.2 1370.2 15.2 19.0 1.2 1.4 0.09 0.21

Anhui 308.6 442.9 85.8 80.8 27.8 18.2 2.17 2.77

Jiangxi 162.2 309.0 16.9 47.7 10.4 15.4 0.81 2.34

Henan 129.9 388.5 9.7 26.9 7.5 6.9 0.58 1.05

Hubei 1193.9 1285.7 106.4 98.9 8.9 7.7 0.69 1.17Hunan 763.5 1025.2 90.4 59.1 11.8 5.8 0.92 0.88

Western region

Chongqing 222.9 476.5 56.2 54.5 25.2 11.4 1.96 1.73

Sichuan 940.6 1416.9 31.7 44.6 3.4 3.1 0.26 0.48

Guizhou 32.7 65.5 2.5 0.2 7.5 0.3 0.58 0.04Yunnan 111.0 149.2 25.0 9.4 22.5 6.3 1.75 0.96Tibet 2.8 2.5 - - - - - -

Shaanxi 1156.0 1563.2 465.2 140.7 40.2 9.0 3.13 1.37Gansu 155.2 217.3 22.6 3.3 14.6 1.5 1.14 0.23Qinghai 7.1 18.7 - - - - - -Ningxia 9.4 13.9 0.4 0.2 3.7 1.2 0.29 0.17Xinjiang 29.4 55.4 0.3 - 1.2 - 0.09 -

National 18530.1 25935.9 2292.3 1964.0 12.8 6.6 1.00 1.00

(a) R&D revenues (b) Technology transfer (c) = (b) as (c) Index (national(million RMB) contracts (million RMB) percent of (a) average = 1)

Sources: MOE (2005, 2007). - Data not available.

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Research-orientated universities are distributed unevenly across China. For instance, the “985” program’s first phase funded only nine universities, including Beijing University, Qinghua University, Chinese S&T University, Nanjing University, Fudan University, Shanghai Jiaotong University, Xi’an Jiaotong University, Zhejiang University, and Harbin Institute of Technology. All except three (Chinese S&T University, Xi’an Jiaotong University, and Harbin Institute of Technology) are in the eastern region. The second phase expanded to include 34 universities in 2004 (Ma 2004). This time the proportion of participating universities from the central and western regions increased slightly – 13 out of 34 or about 38 percent. Such a pattern further exacerbates the uneven distribution of higher education institutions. With a few exceptions (e.g. Hubei, Sichuan and Shaanxi), provinces in the eastern region tend to house more universities. Beijing, the capital city, has the largest number of them. This disparity rings true for both public and private universities. Research shows that the number of private universities tends to correlate with that of public universities and GDP level across provinces (Yan 2008).

Universities in eastern provinces are in general better endowed financially to conduct R&D activities. The region altogether makes up for the lion’s share of university R&D revenues nationally (about 61 percent in 2004 and 2006). Beijing, in particular, accounted for 17 percent of the national total while Shanghai had close to 11 percent, far outpacing other provinces (see Table 9). More telling is the average amount of R&D funding for individual institutions in that year. Each university in both Beijing and Shanghai operated at more than four times of the national average (21.7 million RMB per university in 2003). Other provinces that fared above the national average include Tianjin, Jiangsu, Zhejiang, Heilongjiang, Hubei, Hunan, Sichuan, and Shaanxi. In addition to the concentration of research universities, these provinces boast a number of long-standing elite institutions. All the other 20 provinces had below-average levels. Clearly the national momentum of university research has been generated by just a handful of provinces.

R&D output

Academic research capacity, as measured by such output indicators as publications and patents, has increased. There is steady growth of publications in internationally recognized journals and proceedings in science and engineering. The university sector generated between 78 and 82 percent of international publications by China, and about 75 percent of joint publications with international collaborators between 2003 and 2007 (ISTIC 2004-2008). Faculty research is clearly driving the rapid rise of China as a leading source of publications across several major world citation indices (see Table 10), including SCI (Science Citation Index), SSCI (Social Science Citation Index), EI (Engineering Index), and ISTP (Index to Scientific and Technical Proceedings). Compared to other East Asian countries, including Japan, South Korea, Singapore and Taiwan, China has had a particularly high share of publications in the physical sciences (NSF 2007).

The quantitative advances in publication output, however, have not been accompanied by a similar level of qualitative improvement. For instance, measured by the total number of citations, China has stalled around the twelfth place in the world (see Table 11). Some believe that the critical problem lies in the fact that China still lacks a scientific leadership capable of major breakthroughs. This likely stems from a number of factors, including the experience gap

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across the entire S&T workforce, shortage of creativity, and reluctance for risk taking in innovation (Simon and Cao 2009).

Table 10. International publications of all Chinese institutions, 1995-2007

1995 2000 2001 2002 2003 2004 2005 2007 1995 2000 2005 2007

Total 26,395 49,678 64,526 77,395 93,352 130,318 180,834 253,954SCI 13,134 30,499 35,685 40,758 49,788 57,377 68,226 94,800 15 8 5 3EI 8,109 13,163 18,578 23,224 24,997 33,500 54,362 78,200 7 3 2 1ISTP 5,152 6,016 10,263 13,413 18,567 20,479 30,786 45,331 10 8 5 2Medline - - - - - 18,962 27,460 33,145 - - - -SSCI - - - - - - - 2,478 - - - 10

National total World ranking

Source: ISTIC 2004, 2005, 2006, and 2008; MOST 2007.

Table 11. Citations for countries with more than 200,000 S&T publications, 1998-2008

# Citations per Number ofRank Country publication publications Number Rank

1 United States 14.28 2,959,661 42,269,694 12 The Netherlands 13.59 231,682 3,148,005 83 United Kingdom 12.92 678,686 8,768,475 34 Canada 11.68 414,248 4,837,825 65 Germany 11.47 766,146 8,787,460 26 France 10.82 548,279 5,933,187 57 Australia 10.42 267,134 2,784,738 98 Italy 10.25 394,428 4,044,512 79 Japan 9.04 796,807 7,201,664 4

10 Spain 8.91 292,146 2,602,330 1111 South Korea 5.76 218,077 1,256,724 1712 China 4.61 573,486 2,646,085 1013 India 4.59 237,364 1,088,425 2014 Russia 4.10 276,801 1,135,496 19

Citations

Source: ISTIC 2008.

More encouragingly, the university sector’s share in granted domestic patents is picking up speed in recent years (Figure 4). By official definitions, patents in China are divided into three groups: inventions, new utility models, and new exterior designs. Inventions “refer to new technical proposals [on] products, methods, or both.” New utility models “refer to new technical proposals on shape, structure of a product or the combination of both.” New exterior designs “refer to aesthetics and industry-applicable new designs for shape, design or color of a product,

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or their combination” (Sun 2000, p. 443). Inventions, and to a lesser degree new utility models, are the most fundamental and beneficial paths for technology development in the long run.

The university sector is particularly prominent in generating invention patents, now counting for over a third of the country’s total (see Figure 4). Between 1985 and 2008, a major shift occurred – inventions overtook utility models in academic patenting (see Table 12). Close to 54 percent of all patents granted to higher education is related to inventions. This may be attributable to its stronger focus on basic and applied research. For universities, the distribution of R&D expenditures has been close to 28 percent in basic research, 51 percent in applied research, and 21 percent in product or process development (Table 7). For China as a whole,most of the work conducted by its R&D community (about 75 percent in recent years) focuses on product or process development. Basic research, conversely, has only constituted about 5 percent, and applied research only about 20 percent (Gu 2003, Hsiung 2002). China’s investment in basic research stands only between a quarter and a half of the proportions reported by the U.S., Japan and Korea (Hu and Jefferson 2004).

Figure 4. University sector’s share in granted domestic patents, 1995-2006

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1995 2000 2001 2002 2003 2004 2005 2006

Percent

All patents Inventions Utility models Designs

Source: MOST, 2007.

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Table 12. Domestic patents granted to universities, 1985-2008

1985-6 1990 1995 2000 2005 2008

Number of domestic patents granted to universitiesInventions 37 326 258 652 4,453 10,265Utility models 341 698 623 868 2,391 7,242Designs 3 7 10 28 555 1,652Total 381 1,031 891 1,548 7,399 19,159

ShareInventions 9.7 31.6 29.0 42.1 60.2 53.6Utility models 89.5 67.7 69.9 56.1 32.3 37.8Designs 0.8 0.7 1.1 1.8 7.5 8.6Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: MOE S&T Development Center, 2009.

The improvement in research output can be partially attributed to the stronger incentives university administrations provide for faculty research and publication. For instance, with each SCIE (Science Citation Index Expanded) publication faculty in Shanghai Jiaotong University is entitled to a 10,000 RMB reward with 9,000 as research grant and 1,000 as cash incentives (personal interviews). Fudan offers somewhat less incentives, ranging from 9,000 RMB for a SCIE I publication, 6,000 for SCIE II, 4,000 for SCIE III to 2,000 for SCIE IV (Fudan S&T Yearbook 2003, p. 47). In addition, both universities offer cash incentives to faculty who have won national and local research and technology awards.

More importantly, motivation for research comes in the way through which faculty annual evaluation is carried out. Much like the commune system started in the late 1950s, faculty needs to meet an annual quota in work loads that include courses offered, publication and supervision of graduate students. Those with a higher research output can easily substitute publications for teaching, a practice similar to that in top U.S. universities where research is more valued. In fact, many full professors never have to step into an undergraduate classroom while some teaching faculty is so burdened with courses that they rarely have time for research; hence creating a stratified faculty rank. Some university officials also complain about another downside of the incentive system – certain faculty members divide up research results to get out the maximum number of publications

University-industry linkages

A direct push for university-industry linkages came in 2001, when the State Economic and Trade Commission and MOE jointly set up the first group of state technology transfer centers in six universities to promote the commercialization of technological achievements. Perhaps even more important was a clear directive from the MOE in 2002 that encouraged the development of university enterprises, after some heated debate on whether commercialization and links with industry should be a central mission of universities (Wu 2007). These debates were highlighted by six circulars endorsed by then vice premier Li Lanqing. After the

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appointment of then minister of education, Zhou Ji, who oversaw a number of university enterprises as a professor in Wuhan, the debates came to some closure and a clear official position emerged. This position stated that the three major missions of universities would be teaching, research, and commercialization. Now the number of patents and income from technology transfer have become important criteria when the MOE evaluates universities (Tang 2006). To promote university-industry linkages, various national and local policies have been implemented, such as providing financial and legal services for faculty and student startups, strengthening patent laws, encouraging the establishment of university-based science parks (more than 40 nationwide), and building high-tech development zones near major universities (Chen and Kenney 2005, Liu and Jiang 2001, Walcott 2003, Wei and Leung 2005, Xue 2004)

Under China’s recent reforms, university-industry linkages are built through two broad categories of mechanism. The first is technology transfer through licensing and other arrangements such as consulting, joint or contract R&D, and technical services. This resembles how universities in the West build industry linkages. The second mechanism, which is almost uniquely Chinese, is through university enterprises (broadly defined) that are invested in and owned wholly by universities, operated and owned jointly with other entities, or invested in partially by universities (Ma 2004, Zhang 2003). The tradition of university enterprises actually dates back to the late 1950s when they served as sites for student experiential learning and generators of employment as well as supplemental funding for universities (Ma 2004). It is only after the mid-1980s commercialization of faculty research becomes a key function of university enterprises, although even today the majority of them are not technology enterprises. As in many top universities, separate administrative units manage traditional technology transfer (often by the S&T division or its affiliate) and university enterprises (by a university enterprise office or group). In addition to commercialization, enterprises are seen as a way to provide supplemental funding for university operation and absorb surplus personnel on campus as public universities are not allowed to lay them off (Zhang 2003).

Assessing the full range of activities of university technology transfer in China is not feasible at this time, given the lack of consistent data. For instance, experience in the West suggests that informal linkages through faculty consulting and collaboration are prevalent and that these frequently contribute to incremental innovations in processes, product designs and organizational software (Cambridge-MIT Institute 2005). However, reliable and systematic information on informal university-industry interaction is nonexistent in China. Based on available data, it appears that the diffusion of university research occurs primarily through contracts for technology services, patent licensing and sales, and university-affiliated enterprises. Together, income generated from these activities was equivalent to one-fourth to one-third of university R&D revenues nationally between 2000 and 2007 (see Table 13).

Entering into technology transfer contracts with firms is the most significant mechanism of innovation diffusion for Chinese universities. In the period of 2000-2007, income from such contracts amounted to an average of 16 percent of R&D revenues in higher education. A number of factors are likely underlining this trend. For a long time, the enterprise sector had been a weaker actor in China, particularly in comparison to public research institutes. Internal capacity in basic and applied research was absent in most enterprises. Industry-specific research institutes within different ministries were responsible for solving specific applied problems as well as

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introducing new technology into enterprises (Gu 2003, Liu and White 2000, Xue 2004). The lack of in-house R&D capability in most industrial enterprises means that they could not rely on themselves for solving more complex technical problems in their production (Xue 2004).

Table 13. Overview of technology transfer from higher education, 2000-2007

2000 2001 2002 2003 2004 2005 2006 2007

Technology transfer contracts Number 4,946 5,540 5,683 7,809 9,188 7,321 6,878 6,920Value (million RMB) 1,788 2,219 3,797 2,374 2,292 2,215 1,964 2,104As % of university R&D revenues 22.0 22.1 30.0 15.4 12.4 9.5 7.6 6.4

Patent licensing Number of patents licensed and sold 299 410 532 611 731 842 701 711As % of granted patents 45.9 70.8 76.3 35.3 21.0 18.9 11.3 8.7As % of technology contracts 6.0 7.4 9.4 7.8 8.0 11.5 10.2 10.3Value of patent licensing and sales (million RMB) 185 259 220 360 278 295 287 448As % of university R&D revenues 2.3 2.6 1.7 2.3 1.5 1.3 1.1 1.4

Publications jointly-authored with industryNumber 5,366 6,424 7,829 8,988 - - - -Ratio to granted patents (paper/patent ration) 8.2 11.1 11.2 5.2 - - - -

University-affiliated technology enterprisesNumber 2,097 1,993 2,216 2,447 2,355 2,429 1,933 -As % of university enterprises 38.5 39.6 43.9 50.6 51.6 56.3 48.5 -Net profits (million RMB) 2,803 2,398 1,863 1,473 2,385 2,976 3,072 -Contribution to university (million RMB) 846 778 761 774 825 609 570 -Contribution to university as % R&D revenues 10.4 7.8 6.0 5.0 4.5 2.6 2.2 -

Sources: Liu and Lundin (2007); MOE (2001-2004); MOE S&T Development Center (2009); Chinese University Technology Transfer, July 2005, p.47-49.- Data not available.

The largest beneficiary of such technology contracts looks to be state enterprises during the entire period of 2000-2006, which have signed close to one-half of the contracts withuniversities (see Figure 5). This is likely attributable to existing institutional channels in the state sector that facilitate the connections, since nearly all of China’s elite universities are public. It also may suggest continued difficulty of private enterprises in accessing state resources. However, a new trend has emerged since 2003 in the number of technology contracts signed between universities and private enterprises, counting for about 40 percent of all contracts (see Figure 5). In contrast, state enterprises as a whole have experienced a shrinking share since 2003, now nearly on par with the private sector in contracting S&T activities with universities. Foreign-invested firms, on the other hand, have drawn the least upon university research capabilities. This is likely attributed to concerns by foreign firms with the long-standing belief on Chinese university campuses that knowledge is public and warrants no particular intellectual property protection.

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Figure 5. Share of technology transfer contracts between universities and different types of enterprises, 2000-2006 (percentage)

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006

State enterprises Private enterprisesForeing-invested enterprises Others

Sources: MOE (2001-2007).Note: Private enterprises also include collective enterprises, and enterprises with mixed share-holding.

Patent licensing, commonly used in the West for universities to diffuse innovation, has yet to become a major mechanism of technology transfer in China. University patents are a good indicator, because patents are a unique and visible method of technology transfer and their public nature allows for more comprehensive analysis than surveys or case studies (Henderson and other 1998). Among technology transfer contracts, patent licensing and sales generated only a small portion of income during 2000-2007 (about 10 percent), although this share has picked up since 2005 (see Table 13). Nationally, an average of 36 percent of granted patents were licensed out, but this share showed a pattern of decline during the same period (to 8.7 percent in 2007). Clearly, patent licensing and sales are an underutilized mechanism of technology transfer, particularly given that universities have been granted closed to 30 percent of domestic patents. This may stem from the mismatch between academic research and firm demands, as well as institutional barriers. In general, only about 10 percent of all patents registered by universities are marketable (Xue and others 2005 and personal interview). University administrators have expressed frustration over the lack of technology intermediaries to facilitate patent sales and the limited capacity of domestic firms to conduct further development.

Given the regional distribution of higher education and research funding, conventional technology transfer proliferates more in the eastern region, not only at the aggregate level but

24

also for individual institutions. For example, in terms of the share of technology transfer contracts in R&D revenues, provinces that performed above the national level in 2004 and 2006 include Beijing, Hebei, Shandong, Jiangsu, Anhui, Chongqing and Shaanxi (see Table 9). More than half of them are in the eastern region. The others are places that house several top institutions, such as Chinese S&T University (in Anhui), Chongqing University, and Xi’an Jiaotong University (in Shaanxi). Some provinces better endowed with academic R&D funding, such as Shanghai, Heilongjiang and Sichuan, turned out a less than impressive performance in this respect. Income from technology transfer contracts accounted for a wide range of university R&D revenues, from as high as 40 percent to as low as less than 2 percent

Besides the conventional forms of university-industry linkage discussed above, university-affiliated enterprises received much attention early on. In particular, China has had some success in creating large university-affiliated computer companies in the 1980s and 1990s as discussed above. There are now a variety of spin-off enterprises in many cities– some state-owned, some collectively-owned, and others privately-owned, and they have become a lucrative and increasingly important source of revenue for many research institutes (Wu 2007). However, except for the successful few, many early spinoffs simply provided technology services to other firms, and were not commercializing research results but rather transferring personnel from universities to the commercial sector (Chen and Kenney 2007). Angli Ltd., affiliated with Shanghai Jiaotong University, is a case in point. It specializes in health supplements and created as wholly university-owned enterprise in 1990 (Yang and Xu 2004). Its products target the domestic mass market but have quickly established a brand name, leading to steady rise in sales revenue and making the company the most profitable enterprise for the university.

University-affiliated enterprises now number just over 4,500 nationally, as compared to over 5,400 in 2000. Since the late 1990s, many university-affiliated enterprises have begun to reform their governance structure, increasingly through an “exit strategy.” As a result, the number of wholly university-owned enterprises has declined steadily nationwide since 2000 (see Table 14). Now about one-third of such enterprises are joint ventures with domestic partners while foreign partnership remains rare. Similarly, university departments are gradually giving up control of enterprises, although theoretically departments are no longer permitted to establish commercial entities. Some university enterprises have gone public, spearheaded by the initial public offering of Fudan Fuhua Inc. on the Shanghai Stock Exchange in 1993. By 2002, more than 60 university-affiliated enterprises had become publicly traded (Yang and Xu 2004). Most of these enterprises were engaged in S&T activities, with universities as the majority shareholders (Xue 2004).

Overall, spinoff enterprises are declining in numbers (see Table 14) and contributing less to university R&D revenues (see Table 13). This may be signaling a gradual shift in university-industry linkages from affiliated spinoffs into more flexible institutional arrangements, such as joint R&D, contract research, sharing research labs, licensing, and technology sales. To some observers, affiliated spinoffs in China are based on hierarchical mechanism rather than market mechanism since they retain substantial connection to universities (Euna and others 2006). But as domestic firms gradually move upwards along the technology curve, their abilities to absorb new knowledge and conduct in-house R&D increase in tandem. As such, the advantage of affiliated enterprises in knowledge resources inevitably erodes.

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Table 14. Characteristics of university-affiliated enterprises, 2000-2004

Number Percent Number Percent Number Percent

Enterprise orientationS&T related 2,097 38.5 1,993 39.6 2,355 51.6Other 2,354 43.2 3,046 60.4 2,208 48.4

SectorManufacturing 1,995 36.6 1,830 36.3 1,893 41.5Services 846 15.5 746 14.8 425 9.3Other 2,067 37.9 2,463 48.9 2,245 49.2

OwnershipWholly university-owned 4,793 87.9 4,227 83.9 3,044 66.7Joint venture with domestic partner(s) 556 10.2 718 14.2 1,478 32.4Joint venture with foreign partner(s) 102 1.9 94 1.9 41 0.9

Administrative affiliationUniversity 4,217 77.4 4,059 80.6 4,031 88.3Department/School 1,234 22.6 980 19.4 532 11.7

Total 5,451 5,039 4,563

2000 2001 2004

Sources: Chinese University Technology Transfer, July 2005, p.47-49; MOE (2003).

Several provinces along the east coast also are the stellar performers in terms of university-affiliated enterprises. Specifically, universities in Beijing, Shanghai and Zhejiang on average scored the largest amounts of profit in 2005 (see Table 15). Nationwide, income from such enterprises topped 100 million BMB in the same year for seven universities, including Beijing University (670 million), Tsinghua University (426 million), Fudan University (219 million), Northeastern University (173 million), Shanghai Jiaotong University (132 million), Beijing Foreign Language University (108 million), and Wuhan University (106 million) (Chinese University Technology Transfer, March 2007, p. 7). All but one (Beijing Foreign Language University) are designated world-class research universities through the “985” program. In general, S&T enterprises affiliated with Beijing University and Tsinghua University contributed about 45 percent of all sales revenues. The central government has required more and more university-affiliated enterprises to engage in S&T activities. Thus, with a few exceptions, a common pattern has emerged across the country in terms of the proportion of S&T enterprises (see Table 15). Though longitudinal regional data are not available, it is likely that an increasing share of university-affiliated enterprises is S&T related in most provinces, resembling the national trend discussed in the last section.

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Table 15. University-affiliated enterprises by region, 2005

Number of Number of Enterprise profit Per enterprise Per universityuniversity enterprise (million RMB) (million RMB) (million RMB) Number Percent Per univ.

Eastern regionBeijing 44 400 1888.46 4.72 42.92 226 56.5 5Tianjin 18 142 35.39 0.25 1.97 91 64.1 5Hebei 16 121 100.48 0.83 6.28 80 66.1 5Liaoning 41 335 306.38 0.91 7.47 164 49.0 4Shanghai 27 533 560.80 1.05 20.77 279 52.3 10Jiangsu 47 502 245.39 0.49 5.22 295 58.8 6Zhejiang 15 157 247.06 1.57 16.47 75 47.8 5Fujian 13 110 20.36 0.19 1.57 44 40.0 3Shandong 31 209 107.53 0.51 3.47 110 52.6 4Guangdong 31 206 123.84 0.60 3.99 101 49.0 3Guangxi 12 47 -1.23 -0.03 -0.10 23 48.9 2Hainan 5 14 1.50 0.11 0.30 1 7.1 0

Central regionShanxi 14 52 59.66 1.15 4.26 33 63.5 2Inner Mongolia 5 23 -3.08 -0.13 -0.62 13 56.5 3Jilin 14 84 4.86 0.06 0.35 53 63.1 4Heilongjiang 12 165 106.10 0.64 8.84 113 68.5 9Anhui 10 89 61.50 0.69 6.15 58 65.2 6Jiangxi 20 69 4.22 0.06 0.21 35 50.7 2Henan 10 72 9.94 0.14 0.99 47 65.3 5Hubei 28 167 218.26 1.31 7.80 120 71.9 4Hunan 18 126 58.69 0.47 3.26 95 75.4 5

Western regionChongqing 13 60 29.94 0.50 2.30 30 50.0 2Sichuan 45 260 174.04 0.67 3.87 133 51.2 3Guizhou 6 23 -0.70 -0.03 -0.12 3 13.0 1Yunnan 8 53 -10.36 -0.20 -1.30 34 64.2 4Shaanxi 27 169 145.88 0.86 5.40 102 60.4 4Gansu 14 70 18.37 0.26 1.31 46 65.7 3Qinghai 3 4 0.21 0.05 0.07 2 50.0 1Ningxia 1 1 0.00 0.00 0.00 0 0.0 0Xinjiang 21 48 9.92 0.21 0.47 23 47.9 1

National 569 4311 4523.41 1.05 7.95 2429 56.3 4

S & T enterprise

Source: http://www.cutech.edu.cn/ (retrieved on January 20, 2008).

Overall, universities in China have increasingly assumed commercial roles and are important players in many science parks. Top university professors, in particular, are finding commercial applications for their research projects. The diffusion effect of university-based innovation and entrepreneurship, however, should not be overstated. In 2001, only about 40 percent of university enterprises were involved in S&T related activities (Ma 2004). Their sales

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revenue made up a mere 3.7 percent of all high-tech enterprises nationwide, while nearly half of such revenue was contributed by enterprises affiliated with Beijing and Qinghua Universities (Xue and others 2005). The national estimate is that only about 10 percent of university research and innovation has been commercialized (Science & Technology Industry of China March 2000, p. 52). This is not surprising giving that the history of university-based research and industry linkages is still short in China. Many of the early spinoffs simply provided technology services to other firms, and skilled personnel were more significant than research results. Nearly none of the transferred technology is what could be considered world-class as is the case in U.S. universities such as MIT and Stanford, but rather is adequate for the Chinese market (Chen and Kenney 2005).

Chinese universities, however, frequently work with domestic enterprises to adapt foreign technology for the domestic market. Redevelopment is one of the key areas of academic research. For example, more than 300 faculty members in Shanghai Jiaotong University havestudied in Japan, and they are the bridges to transfer Japanese technology to Chinese firms (personal interview). Tsinghua University was involved in developing Chinese scanner for its affiliated company – Ziguang (Unis), founded in 1988. Ziguang had been in the business of selling scanner for Taiwan companies since its founding. After the Taiwanese scanner maker decided to drop Ziguang as its market representative in 1995, Ziguang decided to develop its own scanner with the assistance from Tsinghua University. The company’s scanner became the best seller in China within three years and continues to be China’s leading brand for popular use (Zhou 2008). However, the company faces major challenge in recent years as high-speed and high-quality scanners for industrial use become the main area of market growth and brands made by TNCs are becoming more dominant in such areas. This case exposes both the benefits and limitation in relying on redevelopment of existing products as a main growth strategy.

The role of academia in inducing industrial clusters is still limited. While university-based science parks are proliferating across China (more than 40 nationally), they tend to involve largely affiliated enterprises and small business incubators for recent graduates, far from forming true clusters with core competence and networked relationships. One successful exception is the Zhongguancun Science Park in Beijing. Some of China’s leading high-tech companies emerged in this park, such as Lenovo (affiliated with CAS), Founder (affiliated with Peking University), Ziguang (affiliated with Tsinghua University), Tongfang (affiliated with Tsinghua University), and many other smaller ones. They formed the backbone of Zhongguancun – China’s first science park (Zhou 2008). The commercial success of these companies in the 1990s generated considerable optimism for the major roles that universities could play in China’s high-tech industries. However, most of these firms owed their rises to the backings of major universities and research institutes. As more leading international companies tapped into China and more competitive local companies emerged, the prominence of university-affiliated enterprises declined in the 2000s.

It appears that many firms continue to be unwilling or uninterested in collaborating with universities. According to the annual Survey of S&T Activities by the National Bureau of Statistics, only about 15 percent of large and medium-sized firms in the manufacturing sector outsourced S&T activities to universities between 2000 and 2002. Less than 3 percent of patent applications between 1985 and 2003 were filed jointly by collaborating pairs of firm and

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university (Motohashi 2006). A 2006 survey of 703 private enterprises in Shanghai shows that about half of them have never used universities as a source of knowledge. Among those who have interacted with academia (52.4 percent), the large majority resorts to technology contracts (27.5 percent) and a much smaller number of them conducts joint R&D with universities (13.8 percent). The rest uses more informal forms of collaboration such as sharing equipment and labs, and developing joint training programs (Shanghai Chamber of Commerce 2006). Not all of these surveys, however, capture informal contact between firms and university faculty. Faculty often prefers to work with firms directly through consultancy or other informal arrangements to maximize personal income and to avoid sharing profits with the university/department as is required in patent licensing.

Clearly, there are barriers impeding university-industry linkages, although they are perceived in different terms by firms and universities. According to the survey of manufacturing firms in Beijing, key barriers to collaboration include lack of efficient communication channels with universities, uncertainty of market perspective for research results, high cost to commercialize a research, and immature technology from academic research (Guan and others 2005). Private enterprises in Shanghai have reported several major problems (ranked by percentage of responses): university R&D lagging behind market trends (22.5 percent), high costs associated with outsourcing to university (16.6 percent), lack of communication channels (13.8 percent), difficulty reaching mutually agreeable profit-sharing schemes (9 percent), and immature technology and lack of marketability of academic research (7.7 percent). Since Beijing and Shanghai are places where university-industry linkages have been most active, as discussed in the previous section, these results are likely representative of firm perspectives across the country.

These concerns by firms, however, are not always shared by universities because of different cost-benefit calculations. For some university administrators, research commercialization and university enterprises would divert faculty resource and time. In fact, some universities discourage faculty to collaborate with small and medium-sized enterprises because of their low technology content and the large amount of time needed to train their staff in order to do collaborative R&D. For elite institutions, their academic prominence and reputation also do not reply on entrepreneurial activities. As such, faculty promotion guidelines continue to give much less credit to commercialization than to scholarly publications.

For most of university faculty, the costs associated with university-industry linkages can outweigh the benefits. They remain uncertain about the degree to which commercial pursuits can co-exist with academic ones. Many feel that commercial interests may interfere with the long-term research agendas, particularly the emphasis on basic research. Faculty involvement in commercialization activities also depletes resources for classroom teaching, even though theoretically faculty is required to devote most of their time to university responsibilities. While the pull of financial gains is undeniable given that faculty salary level remains moderate in general, the stronger likelihood of outside engagement for the more applied disciplines has led to a situation in which faculty income can vary significantly across programs. Some faculty feels that university enterprises serve merely as cash cows to generate profits for universities and do not involve genuine research commercialization. They become particularly concerned when unsuccessful firms have to be backed by university general funds, which is more of an intrusion

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to the traditional academic culture.

Despite such concerns about academia’s commercial involvement, there is increasing pressure externally for universities to become more responsive to societal needs. Some local governments require universities to quantify their contribution to the local economies, and have probably over-emphasized research commercialization. For instance, elite institutions in Shanghai receive matching funding from the municipal government for participating in the national “985” program. In return, they must meet enrollment quotas for local students. Moreover, as market reforms deepen, universities, even the elite ones, begin to assume more responsibilities for securing revenue incomes. Commercial pursuits can become an important source, so can local government funding for collaborative activities. In fact, the rapid rise in the number of university-affiliated enterprises in the 1980s was partially a response to tightened government funding to the university sector.

Overall, we can expect to see a shift of industrial linkages from university-affiliated spinoffs into more flexible and market-based arrangements, such as joint R&D, licensing, contract research, sharing research labs, and consulting. In addition, a recent new form through university-sponsored enterprise incubator likely will become more widespread as universities seek to expand their influence. This typically involves a university-affiliated company serving as a developer and manager to establish a science park on land close to, and/or owned by, the university. The incubator form has the advantage of avoiding rigid institutional hierarchy, and providing firms with name recognition and technological and business assistance.

Incentivizing commercialization of university R&D

Since technology spinoffs are considered as a type of university-affiliated enterprises, university administration has control over their ownership, management, and associated IP rights. As such, spinoffs are a different form of technology diffusion in China from common patterns elsewhere and are not integrated with other mechanisms of commercialization. On the other hand, Chinese universities are effectively learning from the West (particularly from the U.S.) in the development of organizational capacity for managing more conventional forms of technology transfer such as patenting and licensing.

University incentive structure clearly encourages patent applications, although faculty disclosure of invention tends to be a voluntary process. Many universities underwrite most of the costs associated with patent application and maintenance (required for three years after approval). Some even earmark funds to cover filing costs, drawing from both university budgetary allocation and patent licensing income. This resembles the practice in U.S. in that universities retain the rights to IP and absorb the associated costs. As shown by the experience in many Japanese universities, faculty lacks the incentive to file for patents if the rights of IP are reverted to them and they have to pay for patent application and maintenance (Kneller 2007, Yoshihara and Tamai 1999).

Despite this incentive structure, disclosure and patent filing remain low. Some faculty prefers to work with firms directly through consultancy or other informal arrangements to maximize personal income and to avoid sharing profits with the university/department as is

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required in patent licensing. Once parent licensing or sale is complete, in Shanghai Jiaotong University, faculty gets 60 percent of profits, school/department 20 percent and university 20 percent. In Nanjing University, distribution of royalty rates between inventors and university is even more favorable for faculty, who receives 70 percent for both patent licensing and equity investment. The university receives 20 percent and department 10 percent. In the case of patent licensing, royalty income for both the university and department for the first two years is used to reward the faculty involved. For the next two years, half of such income serves this purpose.

Another factor underlying the limited efficacy of patenting and licensing relates to the inability of many domestic firms to conduct in-house R&D. The embryonic nature of academic research makes faculty participation in further development a crucial factor in commercialization. This is particularly true for universities with strong disciplinary scope in basic sciences. But it is rare that faculty gets to continue to work on an embryonic technology after the basic concept has been licensed out. Hence, licensing sometimes is embedded in technology contracts, as this can reduce the risks for firms. Universities with distinctions in engineering offer a clear advantage in traditional technology transfer since results from faculty research tend to be more than embryonic, while basic or applied scientific research in universities focusing on science and humanities (e.g. Beijing University and Fudan University) requires a much lengthier path to commercialization.

As such, institutions continue to offer a great deal of amenities and assistance to enterprising faculty through university-based science parks. Ordinarily, they are joint efforts between universities and local entities, with management undertaken by a holding company that also helps enterprises raise investment through establishing various venture-capital funds. Local governments also provide significant in-kind assistance including free land allocation and updated computers. There are often small, short-term incubator grant programs for startup enterprises by university graduates and faculty. Business services provided by the incubators includes training and assistance in obtaining local or national innovation grants and applying for licenses and high-tech designation as well as relevant incentives.

In summary, there is a remarkable similarity in the incentive structure adapted by Chinese universities and those in the U.S. Overall, faculty is enticed to disclose inventions and pursue commercialization. They receive university support in patenting, obtain favorable positions in sharing royalty, and get additional assistance through incubator programs in university science parks. However, university policies on faculty reward and promotion – perhaps the most important incentive – continue to place more value on scholarly publications than commercial pursuits. This shows that university officials seem to be of two minds in terms of promoting commercialization. As a result, faculty research output grows more rapidly in academic papers than patents. Given the embryonic nature of basic or applied scientific research and lack of in-house R&D capacity of many domestic firms, universities with less engineering or technical prominence fall further behind in making industrial connections.

4. Higher education and skills for R&D in China

Under reform, China’s higher education has transformed from a system based on specialization and centralized control to more market-based and comprehensive in nature. A

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major thread is to allow more creativity in students, by giving them a broader basis in undergraduate education. The curricular have become more flexible, interdisciplinary, and relevant, upon eliminating repetition of specializations and excess subjects. For instance, in the mid-1980s, there were more than 1,400 undergraduate majors. By mid-2000s, there were less than 300 (Min 2005).

Universities are looking into new ways to enhance student learning and research experience. Many are moving toward an interdisciplinary approach. Students are encouraged to take courses, even majors, in fields outside of the universities’ strong areas, such as business management in engineering-oriented institutions. Some have begun to allow students to change their majors, a practice unseen in many Chinese universities. This shows that universities are prepared to adopt more flexibility in managing education. For instance, since 2004, Fudan University, has gone a step further to set up a School of Humanities and Sciences to provide instructions to all freshman students, who would declare a major only in their second year no matter what choice they have made during the national college-entrance exams (personal interview). This is very similar to the general education programs widely seen on U.S. campuses, in which faculty from many units of the university provides course instructions and only a small core faculty are administratively located there. Fudan also has established the "Student Scientific Research Fund" and the "Student Summer Fieldtrip Fund," to encourage student engagement in research and experiential learning.

In addition, many universities (particularly the elite ones) have established a wide range of exchange programs with overseas institutions with instructional and/or research content. For instance, one technical college in Kunming which has had a joint instructor training program with a college in Shanghai and German GTZ to introduce an advanced German concept of teaching. This level of international cooperation, however, remains exceptional and is an endeavor that should be encouraged (Gallagher and others 2009).

To demonstrate their contribution to local economies, universities have worked to cater their teaching and training programs to the needs of the local labor force. In addition to traditional continuing education opportunities, they offer programs for professional certificates and teaching by correspondence programs. Students in some of the extension programs can even take specialized courses. Many also have developed distance-learning programs. For instance, Fudan University has even set up a new school to manage online education, which offers courses in the subjects of English, computer networking and programming, economics and management, and college entrance-exam as well as civil-service exam preparation.

Overall, the more prestigious universities have programs that can compete with similar universities in industrialized countries, but these programs remain out of reach for the vast majority of Chinese students because of the level required for entrance and financial barriers (Gallagher and others 2009). Curricula, in general, tend to focus on a narrow spectrum of knowledge and lack multidisciplinary approaches to better prepare students for real-world problems (Simon and Cao 2009). There is yet to be a local university network to share instructional resources. One reason is that most universities have not adopted the credit system, rather use semester/class system. It is difficult to assess what is transferable among universities.

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In addition, universities are not willing to lose the tuition income from students who otherwise may take classes elsewhere.

There are also a number of issues in graduate education. Standardized exams, a major admission mechanism, continue to emphasize codified knowledge and overlook students’ creativity (Sun 2009). Once in, students have limited choice and autonomy in selecting courses and directions of research. They have even less opportunities to engage in joint research with outside institutions, such as firms and PRIs. Rapid enrollment expansion also brings with it a lack of qualified research supervisors.

The placement of university graduates is now market-based, as a result of reforms. While longer term projections suggest the need to produce a much larger number of highly educated professionals and highly trained technicians, there is an increasing level of unemployment and underemployment problems for college graduates (Gallagher and others 2009). A 2005 survey shows that, overall, about three-quarters of them were able to find placement (including further educational opportunities) upon graduation. Those with graduate degrees tended to fare slightly better (over 80 percent), while those from 2-year colleges had a lower placement rate (about 60 percent). Students from RHEIs directly under central ministries scored the highest (85 percent). About 45 percent of all graduates were employed in various professional capacities (Min and others 2006). More recently, in 2008, the placement rate of college graduates dropped down to below 70 percent overall (http://www.newjerseynewsroom.com/).

In part a result of the recent economic slowdown, this situation indicates deficiencies in the nature of tertiary education itself. There is substantial mismatch between the quality of graduates and the demand of the job market. While the elite level institutions are going much of the way towards delivering the higher level skills that will be needed to move China forward towards a knowledge society, it is not evident that the system as a whole is producing graduates capable of working up to international standards. University curricula as a whole tend to be narrowly designed and delivered, rather than covering a broad range of knowledge and multidisciplinary approaches to problem solving (Simon and Cao 2009). For example, a McKinsey Global Institute study reported that 33 percent of university graduates study engineering but they “focus more on theory and get little practical experience in projects of teamwork.” A worrying conclusion of the study is that “fewer than 10 percent of Chinese job candidates, on average, would be suitable for work in a foreign company” (Farrell and Grant 2005).

With a growing number of foreign firms and local startups, it has become increasingly difficult to recruit and retain quality domestic talent. The looming shortage appears particularly severe for the service sector (e.g. engineers, finance workers, accountants, quantitative analysts, life science researchers, and doctors) (Farrell and Grant 2005). This can be largely attributed to the disconnect between the higher education system and practice. Although nearly one-third of college students in China study engineering, they get little experience working on projects or in team while at school to prepare for actual employment. Other factors may be at work too, including: (1) the very rapid economic changes and therefore changes in job opportunities; (2)the long time lag between students selecting courses of study and entry into the labor market; (3)institutional inflexibility in changing course content and capacity and, (4) restrictions on labor

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mobility even for new graduates, it is impossible to expect that there would be a perfect match between graduates and job opportunities (Gallagher and others 2009).

These issues have received increasing attention from the central government. While China is seeking a shift in the dominant mode of teaching in higher education, from a “knowledge-oriented” model to a “capability-oriented” model, the challenge is far-reaching. Since 2001, MOE has instituted several national initiatives to address learning effectiveness and quality in higher education. Specifically, in 2007, MOE (together with the Ministry of Finance) launched the “Quality Enhancement Project” (Gallagher and others 2009). Two key components of the project are to set up demonstration centers for experiential and research-centered learning, and to set up professional certification systems to meet labor market demands and competence requirement. In practice, universities have been experimenting various approaches. Fudan University, for instance, has established the "Student Scientific Research Fund" and the "Student Summer Fieldtrip Fund," to encourage student engagement in research and experiential learning. Some universities also have hired R&D staff from firms as practitioners-in-residence for their engineering programs. University-based science parks provide another venue for student participation in the industry. Two of the most successful examples are Zizhu Science Park in Shanghai and Zhongguancun Science Park in Beijing. These parks are in close proximity to such elite institutions as Shanghai Jiaotong University and Tsinghua University, whose students (particularly those from engineering and information technology fields) have found internship opportunities in both domestic and foreign R&D firms located in the parks.

Directly related to the quality of tertiary education is university governance. Successive waves of higher education reform since the mid-1980s have allowed for more autonomy in enrollment expansion, curriculum development, faculty recruitment, and international exchanges. For instance, under the general framework set by MOE in designing new interdisciplinary research programs to be funded by the second phase of “985” Program, institutions involved have the latitude to decide how such programs may be formed and administered. Even when universities have no choice but to promote affiliated enterprises under central directives, they can and have used very different investment and management approaches (Wu 2007). However, universities are far from autonomous. Based on a survey of full and associate professors from more than 200 universities in 2000, faculty recruitment was the only item that more than half of the respondents (55 percent) considered their institutions had relatively more autonomy than in the past (cited in Yang and others 2007). Autonomy in the other six areas was considered lacking: student recruitment (70 percent of respondents reported so), academic programs (66 percent), organizational structure (65 percent), allocation of funds (57 percent), promotion process (55 percent), salary determination and income allocation (53 percent), and recruitment of senior administrators and departmental heads (52 percent).

While the central government continues to play a key role in higher education governance, universities are operating in an increasingly market-oriented environment. This inevitably creates tension (Xue 2006). Take the example of higher education funding, for which government appropriation has long been insufficient. Funds from local governments as well as outside firms have become an increasingly important source of research revenues for even RHEIs directly under MOE. In some cases, these two sources together count for more than half of academic research funding (Wu 2007). As such, universities naturally encourage their faculty

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to develop closer ties with industry, or even to become entrepreneurs themselves (Xue 2006). This also helps explain the increasing linkages between academia and industry in China.

Shortfalls in public funding, combined with government control of salary determination, have affected the extent to which universities can attract the best research and teaching talent. Except for academic stars recruited through such national programs as Cheung Kong Scholars and individual endowments, faculty salary remains fairly moderate despite recent efforts to raise compensation. Given the rapid growth of the Chinese economy, investment in education has not risen above three percent of government budgetary expenditures (Simon and Cao 2009). Antidotal evidence suggests that faculty in humanities and social sciences is particularly behind in actual income, because of less opportunities to engage in corporate-sponsored research. Faculty retention is also problematic in the more applied disciplines as academic salary tends not to be competitive against the corporate sector, particularly in multinational corporations (Wu 2009).

5. Conclusion and policy implications

After a period of very rapid expansion, China’s higher education has entered a period of stabilization in an effort to address concerns about quality, equity and apparent imbalances between graduate supply and labor market demand (Gallagher and others 2009). This provides an opportunity for rethinking the role and future of tertiary education in a transitional economy. Much like other aspects of China's transition, this path is full of twists and turns.

Major national programs with impact on academic R&D are generally those with a primary objective to promote basic and frontier research. Universities are less involved in the other type of national programs that promote the diffusion of applied technologies. So far, there are no systematic studies in the public domain that evaluate the effectiveness of these programs, although there are a few scholarly studies appraising the success of the Torch and Spark programs – both aimed at technology diffusion (Hu and Jefferson 2004). Based on the experience of the two most elite institutions – Peking University and Tsinghua University, government investment has produced substantial results. For instance, the first doctoral degree was awarded in Peking University in 1983; but within 20 years, such awardees grew to more than 2,400. Within a similar time span, Tsinghua University expanded its engineering focus and developed into a comprehensive university (Ma 2004). Anecdotal evidence collected during field research also suggests that elite universities are establishing multidisciplinary research platforms under the “985” program. It is fair to conclude that national programs and government funding, particularly through “211” and “985” programs, have been critical for curricular restructuring and capacity building in China's higher education.

Although the national programs have increased the funding and research hardware of select universities, their effect on academic research is moderate at best. Even elite universities that are part of the “985” program have not experienced a quality improvement commensurate to the quantitative expansion. They also have yet to genuinely follow the model of nurturing scientific and creative talent and encouraging unique innovation (Cao 2009). The availability of creative and productive personnel, and not the availability of funding, is likely a major constraint in promoting quality basic research in the universities (Gallagher and others 2009).

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The further enlargement of China’s national innovation system will require continuing efforts to build basic research capacity in selected universities, increase the science and technology researcher pool, and promote stronger processes of knowledge exchange. In addition to provide more funding to faculty research, this should include the development a system of research-centered graduate education and supervision, to help students discover, explore, and formulate solutions to problems. Public funding agencies, such as the National Natural Science Foundation, can establish doctoral research grant programs to provide them opportunities for research and exploration.

A major challenge for higher education is the ability to attract and retain talent. Universities face competition from not only the industry sector and research institutes, but increasingly multinational R&D firms locating to China. Increasing reliance on tuition and fees also will likely present more obstacles for low-income students and families. More can be done to promote the inflow of private funds and donations.

It is important to recognize the historical legacies that Chinese universities need to overcome, both internally and externally. Given the short history of university-based research and commercialization, most academic inventions are not cutting edge. There also continues to be heavy reliance in the industry sector on imported technology by transnational corporations for which local universities can play limited role at best. Even if the cutting-edge products are within the reach of local firms, often weak domestic demands undermine market prospective for such expensive products. Underdeveloped or absent legal frameworks compromise the protection of IPRs, and discourage R&D investment. All of these result in poor endogenous capacities for innovation within universities.

China faces a dilemma in higher education common in many developing countries –expanding access while seeking to improve quality under fiscal restraints (Gallagher and others 2009). With increasing competition in the labor market, social pressure for access to tertiary education will keep growing. To equip students with better preparedness for future employment, universities must continue to reform their curricula and governance. If the experience of the U.S. is any counsel, allowing further decentralization in decision-making and encouraging more competition for universities may be a sensible next step. There is strong contrast between the U.S. and most other industrialized countries in academic organization and governance, particularly regarding the degree of centralization of funding sources (lower in the U.S.), faculty research independence (higher in the U.S.), and the extent of mixing of different disciplines (more extensive in the U.S.). But in China, universities have yet to enjoy the same degree of autonomy as state-owned enterprises.

Perhaps a more salient feature of the Chinese experience is the increasing entrepreneurial bent of its elite universities. University administrators have become more willing to engage in commercial pursuits and set up enterprises. While few institutions frequently collaborate with industry in the development of new products/processes, many function as critical partners in the redevelopment of imported technology for the domestic market. The diffusion of university-based research and technology, however, is still limited in terms of both its scope and geographic distribution. Compared to their counterparts in the West, Chinese universities are significantly less active in utilizing market mechanisms of technology transfer such as licensing and

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technology sales, which tend to allow for less disruption of faculty research and teaching. However, there is some evidence suggesting that a shift has occurred (or about to occur) in the forms of university-industry interaction. Affiliated spinoffs, a favored form early on, are gradually declining in both numbers and economic contribution. Technology contracts continue to be the dominate form, and increasing are signed between universities and private enterprises.

Given that universities’ share in granted domestic patents is increasing steadily, it is conceivable that patent licensing will become a more important mechanism to diffuse academic research. But the adoption of more market-based technology transfer will rely on the improved quality of the local innovation environment. The lack of intermediaries, limited capacity of domestic firms to conduct further development, and mismatch between academic research foci and societal needs continue to present barriers. These and other factors also discourage firms to seek out universities as a source of knowledge or as partners in R&D. Hence, the impact of university-based innovation and entrepreneurship is limited, even though universities have increasingly assumed commercial roles. There is also increasing tension among faculty of different disciplines, as the more applied ones such as engineering and life sciences tend to have higher propensity for research commercialization and subsequently economic gains.

Overall, China's moderate success in modernizing its higher education sector has been predicated upon a state-centered process in which the central ministries determine investment priorities for elite institutions of higher education and critical polities for academic innovation and commercialization. These policy forces, together with the need for universities to diversify revenue sources, have jump-started academic research and industrial linkages nationally. This is expected to be a significant part of the country's effort to shift from “made in China” to “innovate in China.” For RHEIs, specifically, the singular mission of teaching has been expanded to embrace research and economic contributions.

For developing countries aiming to follow suit, consideration will need to be given to the most effective way of steering the changes in higher education. A major task is to clarify the missions of different types of universities and colleges to meet varying needs (Gallagher and others 2009). This calls for the specific need to balance the building of research-based universities that are globally competitive while increasing the capacity of other institutions to contribute particularly to national and local needs in human resources and economic development. Hence, research funds from both public and private sources should be concentrated in those universities that can legitimately expect to become centers of excellence, while most universities would need to concentrate in providing teaching excellence.

Another major task, as shown in China's experience, is to put firmly in place the institutional underpinnings for innovation and technology transfer. Given the critical role faculty plays in knowledge generation and diffusion, it is important to understand how faculty incentives and behavior factor in. Traditionally, university faculty’s main responsibility is teaching in most developing countries, and not in advanced research. To encourage faculty to publish in prestigious, international journals and to collaborate with industry, universities can offer amenities and assistance to promote academic research, invention disclosure, patent filing, and entrepreneurial behavior. But incentives alone will not suffice, as institutional leadership needs to be equally bent towards entrepreneurship.

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Whether there should be limits to university engagement in business activities remains an open question, given the potential conflict between industry’s desire for quick results and the fundamental mission of universities to conduct long-term basic research. Faculty, in both China and elsewhere, has yet to fully embrace commercial engagements and often is troubled by the presence of outside influence on academic pursuits. These point to the challenges – to encourage diverse interfaces between universities and the industrial sector as seen in many industrialized countries while safeguarding academic integrity and allowing for unfettered scientific groundbreaking. In general, universities can and will continue to participate in a development strategy based on innovation and knowledge-intensive activities. Their interactions with firms and businesses likely will be of crucial significance for the pace and geography of future economic and industrial change in China and in other developing countries.

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