Author Archives: mlaperro

#29 in the Global Innovation Index

According to the annual report released by INSEAD, China now ranks #29 (up from #43) in the global innovation index – and #1 among developing countries.
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Source: INSEAD (2011) Global Innovation Index
As with many synthetic indexes, it is always worthwhile to dig further into the data. It turns out that China has a number of strengths and weaknesses. Among the former, the report lists patent applications, gross capital formation, high-tech imports and exports (a large majority are MNC-driven). Among the latter, one can find regulatory quality, press freedom and time to start a business. True enough, both business and market sophistication have notably increased over the years and so has scientific output.If China aims to reach the top 20 or higher it will have to wiork hard (and fast) on its institutions.

A new wind is blowing

Chinese wind turbines may not be as advanced in terms of technology as their overseas competitors’ but they are up to 30% cheaper. This explains partly how Chinese wind manufacturers emerged from nowhere – before 2006 there was no Chinese firm in the top 10 global manufacturers - and managed to capture a significant share in the world markets. Help from the government to develop “indigenous technology” and traditional market-for-technology probably explain the rest of the success.

In addition to selling turbines, a number of Chinese companies are taking further step by establishing themselves directly abroad. The Longyuan Power Group acquired rights to develop a 100 megawatt project in Canada. Sinowell just agreed on a EUR 1.5 billion investment to build a 1500 megawatt windfarm in Ireland and is exploring offshore farms in Greece. It is no surprise either that a couple of month ago, Sinovel released a 6 megawatt turbine prototype (with 128 meter blades in diameter) and announced it is working on a 10 megawatt turbine, the world’s largest.

The question now is how Western governments and companies can counter China’s succesful industrial policies.

Of cyberthreats and supply chains

Until recently the high level discussions between the United States and China focused on traditional issues of defense and economy. This year one of the topics addressed was cybersecurity.

While the concern on the Chinese side seems to be the policing of the network, the Americans worry increasingly about the protection of the network. In a nutshell, there is a concern that, as pointed out by a recent report of the conservative Heritage Foundation, “China could exploit its position as one of the world’s largest producers of computer chips, motherboards, and other physical parts of the Internet to affect infrastructure”. For James Mulvenon, the real problem is not about testing hardware at the point of entry (including third party certification) but rather controlling everything that takes place afterwards (e.g., remote maintenance and upgrades).

While some of the Washington hawks fret about network maintenance conducted from Shenzhen, I wonder what the Chinese do with the upgrades and patches from San Jose and Redmond.

Looking East, looking South

For sure it is hard to miss the growing relationship between China and Africa. Be it for natural resources (oil, copper or agricultural land) and infrastructure (construction of highways or railways), Chinese firms are now a common sight across the continent – part of the success of these partnerships is attributed to the fact that, unlike aid from the West, no particular conditionalities are attached to the deals.

According to Nature, China is now adding scientific collaboration to its vibrant trade relationship with Africa. An ambitious scheme launched in 2009 set the ground for scientific exchange, including funding for scientific projects (e.g., solar lighting in Tunisia, biogas in Ethiopia or hydropower in the Central African Republic) and scholarships for African students.

So far not all the objectives have been met but that shouldn’t be a real problem given China’s track record to plan and deliver. Like with any technology transfer (soft or hard) the real success will lie with the beneficiary’s capacity to appropriate the knowledge and make it work in a domestic context over the long run.

CCB (China Celebrity Branding)

Telefonica is going the extra mile to crack the Chinese market. The Spanish firm, which now owns 9% of China Unicom, has announced a 3-year exclusive branding deal with the Chinese star pianist Lang Lang.

The partnership will cover three aspects: technology (broadband, mobility, social networks, etc,), culture (exclusive performances for Telefonica customers and partners) and society (development of musical training for young people).

Let’s hope that Telefonica will succeed where all other telecommunication operators have so far failed (i.e. breaking into the Chinese telecom market) and that Lang Lang will throw in a couple of ring tones for Telefonica.

China #1 in happiness ranking

Given the rising level of social discontent in China it may be hard to believe that the country made it to the top of the Gross National Happiness (GNH) index.

The explanation? The GNH ranking was established by North Korea. For sure the Hermit Kingdom knows how to chose its (rare) friends since all of them are at the top of the list, right behing China and North Korea (modestly ranked #2); Cuba comes third, Iran comes fourth and Venezuela comes fifth.  Unsurprisingly, South Korea is ranked #152 and the USA ranks last at #203.

Who said that North Korea’s propaganda department didn’t have a sens of humour?

P.S.: No wonder some North Koreans are fleeing to China: they all want to go and live in the happiest country on earth.

World’s tallest dam

With the gigantic Three Gorges Dam China had managed to break a number of world record, including the highest number of displaced people and the fastest filling reservoir. Chinese engineers will now be exporting their newly gained mastery over water and attempt to reach new heights.

In what appears to be an increasingly solid friendship China has signed a deal with Iran to build the world’s tallest dam in south west Iran. With a height of 315 meters and the capacity to produce 1,500 Megawatts of electricity (slightly more than the “average” nuclear reactor) the dam shall contain 4.8 billion cubic meters of water.

Priced at USD 2 billion, 15% of the project will be undertaken by the Iranian partner and the rest by Sinohydro. The deal follows the project to build more than 5000 kilometers of railway for USD 13 billion. One can just imagine whether the Chinese firms will get paid in cash or in “liquid”.

Cyber-blue(s)

For those who doubted the importance of China’s emergence on the Internet scene, the past week has shown that the country is getting its act together when it comes to make use (and abuse) of the electronic media.

It all started with the announcement that the People’s Liberation Army (PLA) had set up a cyber blue team to detect and fight back against cyber-attacks. Almost at the same time came the banning of social media for PLA soldiers – no blogs, no RenRen account for the 2.3 million soldiers. In an ironic twist the week ended with Google uncovering a phishing campaign originating from the Chinese Jinan Province that targeted goernement officials in the USA and other Asian countries.

As Facebook contemplates entering the Chinese market, strategic choices seem to be de rigueur.

The cost of Chinese piracy

According to the International Trade Commission the cost of Chinese intellectual property rights infringements (IPR) to the US economy amounted to USD 48.2 billion in 2009 or, to be more precise, somewhere between USD 14.2 and USD 90.5 billion… Such large variation is explained by the fact that many firms are unable to calculate the losses incurred. The ITC goes as far as computing the number of jobs (2.1 million) that could be created if China was to comply with its IP obligations.

The sectors most suffering from losses are information (USD 26.7 billion) and high-tech manufacturing (USD 18.5 billion) and the largest type of infringment is copyright (USD 23.7 billion). Surprisingly, consumer goods manufacturing is thought to suffer losses below the USD 1 billion mark. Another surprise comes from the fact that 40% of IP-intensive firms doing business in China do not report IPR infringments. Finally, it turns out that Guangdong, Shanghai and Beijing are both the best and worst locations for IPR protection (depending on which sector one looked at).

IPR infringments remind me to an extent of the drugs issue: it is all very well to look at the supply side but what about the demand side?

Forchlorfenuron + watermelons = Boum

It is not a prank: watermelons have been exploding due to a chemical that farmers in the Jiangsu province used to increase the size of their crops. The incident even got national coverage as the Chinese government is attempting to improve food safety standards across the country following numerous deadly scandals.

Forchlorfenuron, the incriminated hormone, is used to promote plant cell division and lateral growth. According to the American Environmental Protection Agency which registered the chemical in 2004, it could find a niche for kiwi fruits, table grapes and raisin grapes.

The watermelons explosion is a reminder of China’s overuse of fertilizers and of their limits. The consumption of nitrogen fertilizers almost doubled in the past two decades while grain production increased by just 22%.