Response from: China Law Blog

Since this post repeats common misconceptions about China, I want to take the time to respond in detail. I also want to clear up some views you ascribe to me that I have never held. You state that "Harris [China Law Blog], along with Cody [in this Washington Post article], maintains that China lacks the inherent creative drive and that there are fundamental cultural obstacles." You fail to finish your thought, but I assume you meant this to say the following: "Harris [China Law Blog], along with Cody, maintains that China lacks the inherent creative drive and that there are fundamental cultural obstacles [to China ever becoming an innovation economy]. I never said what you ascribe to me. If anything, I said the exact opposite: "I never ascribe China's lack of innovation to anything inherent in Chinese culture. I do not know Chinese culture well enough to know whether it is conducive to innovation or not." I am not a believer in culture as immutable destiny. I have worked with too many countries that have undergone massive change (Korea comes first to mind here) to believe culture is immutable. The closest I came to saying this was quoting the following from the Washington Post article: China's traditional culture may be an obstacle. For centuries, schoolchildren here have been taught to conform and belong. "The bird that flies out of its flock is the first one targeted by hunters," goes the Chinese proverb. Schools still emphasize group activities and discipline over individualism. Class performances mostly involve synchronized banner-waving by rows of identically dressed students. Children are traditionally trained to learn by rote, memorizing material without questioning the teacher and parroting it back at exam time. The method produces high test scores but little innovation. "Chinese people are educated to be the same," complained Zhang Da, 38, another Shanghai fashion designer, whose dresses hang in the trendy boutique Younik. "If they are the same as others, they feel safer. That's a problem." Though Cody does use the word "culture" here, it really is more about education. More importantly, both this post to which you are responding and my previous post (to which this post was essentially a follow-up), dealt with education as the cause of China's innovation shortfall, not culture. I view China's unwillingness to fund and protect innovation as additional causes, but no need to go into that here. In addition to mistakenly ascribing to me the opinion that there is something "fundamental" in Chinese culture that makes it impossible for the Chinese to innovate, you also assert that I view the Chinese as lacking "the inherent creative drive" necessary for innovation. Most of my post is devoted to attacking China's educational system, as is all of "Chinese Education Gets an F Post." I never used the word "inherent" in either post, nor did I use any word like that. If there were something "inherent" in the Chinese people that makes it impossible for them to innovate, why would I bother devoting two posts to how the Chinese educational system shortchanges innovation? If the Chinese are "inherently" incapable of becoming innovative, why call for changing the educational system to encourage innovation? Inherent means existing as an essential constituent or characteristic occurring as a natural part or consequence; belonging by nature. I do not believe there is anything "inherent" in the Chinese that makes them incapable of innovation. Just so the record is absolutely clear, I do not believe there is anything inherent in any race, country or people that makes them incapable of innovation. I actually think that to believe otherwise is both racist and stupid. You then use "straw man" and illogical arguments to counter my claims (exactly what claims, I do not know): "CVN's response counters these claims. Do that many Silicon Valley VCs have it wrong? On the pure venture capital side do we discount the investments made by Warburg Pincus, Walden International, Sequoia, Carlyle, 3i, New Enterprise Associates, HSBC, and Vertex.[?] And what have we witnessed from IDG China VC fund? Have they found innovation in those companies they chose to invest in? There are many new VCs, including this blogger, that see tech companies moving up the food chain. Have we not already observed the advent of "incubators" in China's science parks? Sure, previously, there were real bottlenecks caused by financing difficulties faced by SMEs. But that is the past. Now the Ministry of Science and Technology is providing relative [sic???] free reign to the rise of venture capital and to the funding of more innovative tech companies. Innovation in China, I expect to see even more new developments before the year-end." But what you say here does nothing to counter my claims about China's lack of innovation: 1. I said China was "not yet an innovative country" and I also said China has "an innovation problem." But, I certainly never said China had no innovators or innovative companies. Saying the United States has a crime problem is not saying there are no honest people here. Saying Afghanistan is not yet a wealthy country is not saying nobody there is wealthy. It would have been absurd for me to assert that in the country that invented paper-making, printing, gun powder, and the compass (so much for the inherent argument) nobody among its 1.3 billion present day occupants is innovative. It would have been absurd to say this of everyone in any country and I never said it. So if all you are saying here (and it appears to be all you are saying here) is that there is innovation in China, then I will readily and most emphatically agree. 2. Instead of pointing out recent Chinese innovations to prove the Chinese are capable of innovation (again, a point which nobody can reasonably dispute), you "counter" by making the ethnocentric argument that there must be innovation in China because various Western VC firms have given Chinese companies funding. You ask whether "that many Silicon Valley VCs have it wrong?" Wrong about what? Wrong about believing China is capable of innovation? Absolutely not. Wrong about believing the companies in which they are investing are innovative? Maybe. Much of the VC investment going into China is not going to particularly innovative companies; it is going to Chinese Internet companies that are essentially Chinese versions of previously successful online companies elsewhere. VCs are in business to make money and the mere fact they invest in a particular company is much less an indicator of that company's innovation abilities than it is of its perceived future profitablity. Indeed, a disproportionate number of the Chinese companies drawing Western VC funding are run by Chinese who have returned to China after securing their education and training elsewhere. I am not sure what you mean with your reference to Chinese tech companies "moving up the food chain reference," but if you mean growing and thriving, then I cannot disagree. But again, companies grow and thrive all the time without being innovative. I do not understand why you refer only to "new VCs" seeing this movement up the food chain as I would have thought all VCs would be seeing this. Again, I have to ask why you are citing to growth as a substitute for citing to actual innovations from Chinese companies? Why do you not address the fact that China spends only 1.23% of its GDP on research and devolpment? I also disagree with your assertion that the funding difficulties of Chinese Small and Medium Enterprises is in "the past," as it most assuredly is not. You seem to think that because China's Ministry of Science and Technology is providing "relative [sic?] free reign to the rise of venture capital and to the funding of more innovative tech companies" the floodgates of funding for private Chinese companies have opened. Private company funding in China is still very difficult to secure. Indeed, until today, I was not aware anyone contended otherwise. Did you write this post post from China and use the word "relative" in an effort to let us know (wink, wink) that funding from relatives is still often the only funding option available to SMEs? Did you do it this way to get past China's internet censorship (another thing that is not exactly good for innovation)? You conclude your post by elliptically stating the following: Innovation in China, I expect to see even more new developments before the year- end. Sounds like what one might find in a badly translated fortune cookie, but to the extent you are saying Chinese innovation is on the increase, I agree. To the extent you are saying it is already where it needs to be, you stand alone.

Response from: Marin

The problem with "innovativeness" of Chinese is more a consequence of Westerners not understanding the environment and cultural circumstances in China. For almost all of the western companies (and managers) this is causing problems for which they "blame" locals! Unfortunately, due to language barriers, for most Westerners is hard to have a look at some of Chinese start-ups and see the developments around disruptive technologies and services. On the "creativeness" of Chinese employees/partners: Definitely it is a problem for the Western companies in China, but again, it is because these companies are pushing for practices and techniques, to improve the creativeness, developed in the West but not considering the local environment, cultural and historical background - not to mention the education background. I will hardly agree that VCs, the western ones, are the only ones who are able to recognize the innovations in China. A closer look on the portfolio of foreign VCs will show that mostly the investments are in start-ups adopting "proven" in the West technologies and business models! China spends ~1.5% on R&D today – quite low, but since 2000 the annual growth is 20% - double the economy growth. In comparison - one of the bastions of modern R&D and S&T - Europe(EU25), spends ~2%, growth ~0% Finally, on the opinions of Mr. Harris and Mr. Cody: “Harris, along with Cody, maintains that China lacks the inherent creative drive and that there are fundamental cultural obstacles.” I would recommend to two gentlemen first to understand China, respectively China’s innovation (eco)system, innovations, and education system, before offering us such judging. It sounds to me that “fundamental” is the problem of the West to understand what China is about– “pure” Western perspective will not be helpful.