State Policies, Enterprise Dynamism, and Innovation System in Shanghai, China

Today rapidly growing economies depend more on the creation, acquisition, distribution, and use of knowledge. As such, strategies for enhancing research and innovation capabilities have come to occupy a more important position in many developing nations, including China. Already the leading production center, and often seen as China’s economic locomotive, Shanghai is striving aggressively to retain its national preeminence and has launched concerted efforts to increase local innovative output. The primary purpose of this paper is to understand how state-led efforts have fared in promoting technology innovation. By situating the city in the national and global context, the paper shows that Shanghai has gained a substantial lead in developing an innovation environment with extensive global linkages and leading research institutions. Recent efforts in building up the research and innovation capacity of the enterprise sector have begun to show progress. Although firms are enthusiastic about its future as an innovation center, Shanghai continues to face challenges of inadequate protection of intellectual property, lack of venture capital investment, and the tightening supply of highly qualified knowledge workers. Introduction T he rise of the knowledge economy has underscored the essential role technological innovation plays in economic development. The pillars of such an economy include: an economic and institutional regime that provides incentives for the efficient use of existing knowledge, the creation of new knowledge, and entrepreneurship; an educated and skilled workforce that can create and use knowledge; a dynamic information infrastructure that can facilitate the effective communication, dissemination, and processing of information; and an effective innovation system that can tap into global knowledge, adapt it to local needs, and create new knowledge (Dahlman and Aubert 2001). While the national innovation system is important for understanding how innovations occur in nations, research shows there is a strong regional character associated with them (Cooke 2001; Simmie 2005; Storper 1997). Likely, there are regional innovation systems or regional learning networks Weiping Wu is an associate professor of urban studies and planning at Virginia Commonwealth University, Richmond, Virgina. Her email address is [email protected]. The author is grateful for the comments of three anonymous reviewers. An earlier version of this paper was presented at the annual conference of the Association of American Geographers in Denver on April 5–9, 2005. Growth and Change Vol. 38 No. 4 (December 2007), pp. 544–566 Submitted October 2005; revised October 2006; accepted January 2007. © 2007 Blackwell Publishing, 350 Main Street, Malden MA 02148 US and 9600 Garsington Road, Oxford OX4, 2DQ, UK. consisting of privateand public-sector actors interacting to create local institutions and relationships encouraging innovation and entrepreneurship (Chen and Kenney 2005; Doloreux 2003). Since the 1980s, strategies for enhancing research and innovation capabilities have come to occupy a more important position in China’s development. A series of ambitious initiatives have been launched to enhance the country’s technological capabilities and reform the national innovation system. Perhaps one of the most significant measures is the dismissal of the Soviet model of functionally specialized organizations with minimal horizontal linkages between research and production. As reforms proceed, the positions of key actors in the national innovation system—public research institutes, universities, and enterprises undergo drastic change. The traditionally weak enterprise sector is expected to play a more significant role in technological innovation and to develop closer relationships with research institutes and universities. Within this national framework, regional entities (including the largest cities) have developed different strategies to augment innovation capacity and to take advantage of local resource endowment (Chen and Kenney 2005; Segal 2003). Already the leading production center, and often seen as China’s economic locomotive, Shanghai is attempting to increase its edge over other cities and regions through a “high road” based on efficiency enhancement and innovation. With increasing local autonomy and a rising cadre of younger technocrats, the new leaderships share in the vision of a market system. Together they showcase the rise of a new developmentalist state intent on being fully engaged in the global market. Following national directives, concerted efforts to establish a municipal innovation system began in Shanghai in the 1990s with policies to nurture research and development (R&D) institutions, increase investment in R&D, build a support infrastructure to facilitate research commercialization, develop an adequate regulatory and legal framework, and invest in human capital (Fan 2003). Municipal authorities hoped that a basic innovation system would take shape in the first decade of the twenty-first century and enable Shanghai to remain at the national forefront. The primary purpose of this paper is to understand how state-led efforts (at both the national and municipal levels) in building a local innovation system may allow Shanghai to compete and prosper in the new knowledge-based economy. Specifically, the paper intends to show how these efforts have fared in improving the overall innovation environment and that for the enterprise sector in particular. The city’s path is interesting to a wider audience because it offers a unique case to study the evolving institutional relationships while China’s national innovation system continues to undergo drastic reforms. There is abundant evidence to show that places like the San Francisco Bay Area and Boston provide conducive environments for innovation. How this comes about in the first place or is maintained is not explained well in existing literature (Simmie 2005). In particular, more research is required to show how policy interventions can influence the formation of a local innovation system. This paper attempts to address this question, highlighting how innovation capacity can be enhanced locally, particularly through state-led policies and initiatives (e.g., financial STATE POLICIES AND INNOVATION SYSTEM IN SHANGHAI 545