Growth through Innovation An Industrial Strategy for Shanghai By Shahid Yusuf Kaoru Nabeshima April 22nd, 2009

Chapter 1
Introduction and Overview 1

Chapter 2

The Economic Context 9

Chapter 3

Manufacturing Industry:
The Locomotive for Innovation and Growth 21

Chapter 4

Pitfalls of Early De-Industrialization 49

Chapter 5

Shanghai’s Economic Composition, Resources
and Potential for Innovation 65

Chapter 6

Making Shanghai’s Industries Innovative 109

Figure 2.1: GDP Composition of China, 1979-2006 10

Figure 2.2: Share of Exports in GDP and Growth of Exports in China, 1979-2007 10

Figure 2.3: Foreign Direct Investment Inflow to China, 1990-2006 13

Figure 3.4: Relationship between the share of manufacturing and per capita income, 1960-2007 22

Figure 3.5: Relationship between the share of manufacturing and growth for OECD countries, 1961-2007 23

Figure 3.6: Relationship between the share of manufacturing and growth for East Asian economies, 1961-2007 23

Figure 3.7: Industry Contributions to Total Factor Productivity Growth in the US, 1960-2005 33

Figure 3.8: R&D as A Share of Sales 36

Figure 3.9: R&D Intensity by Industry 37

Figure 3.10: Top R&D Spending Sectors among Top 1000 R&D Spenders 38

Figure 3.11: Share of Patents by Industry, 1986 39

Figure 3.12: Share of Patents by Industry, 2006 40

Figure 5.13: GDP composition (%) 68

Figure 5.14: Gross Value of Industrial Output by Ownership Categories in Shanghai 73

Figure 5.15: Expenditure on R&D by Type of Activity in Shanghai 87

Figure 5.16: R&D Expenditure by Type of Institution in Shanghai 87

Figure 5.17: Number of Scientific Papers Published 99

Figure 5.18: Changes in Share of New Product Output in Shanghai 101

Figure 5.19: Amount of foreign direct investment inflow to Shanghai (billion US$) 103

Figure 6.20: Product Space for China, 2000-2004 114

Figure 6.21: Components of The Boston Life Sciences Cluster 144

Table 2.1: Productivity Growth in China, 1978-2005 13

Table 2.2: Gross Enrollment Rates in China, 1991, 2001, and 2006 14

Table 2.3: Major National Programs in China 16

Table 2.4: China's exports as a share of world exports, 2006 19

Table 3.5: Revealed Comparative Advantage in Engineering and Electronics Goods, 2006 27

Table 3.6: Selected Japanese Exports with High RCA, 2006 27

Table 3.7: Selected German Exports with High RCA, 2006 28

Table 3.8: Selected Korean Exports with High RCA, 2006 29

Table 3.9: Germany’s Top 10 Exports, 2006 29

Table 3.10: Share of Engineering and Electronics Exports in Germany, Japan, and the US (%) 29

Table 3.11: Patents Granted to Services-Oriented Firms 34

Table 3.12: Major Innovations by Small US Firms in the Twentieth Century 43

Table 3.13: Share of Intermediate Input Use in the United States, 2002 47

Table 3.14: Share of Intermediate Input Use in China, 2002 48

Table 4.15: Share of National Income (%), 2005 50

Table 4.16: Subsectoral Breakdown for Tokyo by Establishments and Employees, 2006 57

Table 4.17: Fixed-shares growth rate for total factor productivity for different periods 62

Table 4.18: Gini Coefficients in Selected Cities 64

Table 5.19: Share of National Population (%) 66

Table 5.20: Share of National GDP (%) 66

Table 5.21 Subsectoral Composition of Manufacturing Activities in Shanghai, 1994 69

Table 5.22: Subsectoral Composition of Manufacturing Activities in Shanghai, 2007 70

Table 5.23: Share of Manufacturing Activities in Tokyo, 2001 and 2006 71

Table 5.24: Share of Exports for Top European Exporters in 2003 73

Table 5.25: Deposits and Loan Balances of Financial Institutions in Shanghai (billion yuan) 75

Table 5.26: Number of Financial Institutions in Shanghai, 2006-2007 76

Table 5.27: Share of Loans and Savings in Beijing and China, 2000 and 2007 77

Table 5.28: Basic Statistics on Shanghai Stock Exchange 78

Table 5.29: Educational level of population as a % of reference population 79

Table 5.30: Educational level of population, Number in millions 79

Table 5.31: Personnel of Industrial Enterprises, 2005 (Scientists and Engineers) 80

Table 5.32: Number of Universities 81

Table 5.33: Number of Students 81

Table 5.34: STEM share of Undergraduate students 82

Table 5.35: Students enrolled in post graduate programs 82

Table 5.36: Students enrolled in PhD programs 83

Table 5.37: Spending on Training in Shanghai, 2006-2007 84

Table 5.38: Number of People Receiving Training 84

Table 5.39: Ranking of Universities in Beijing, Hong Kong, Shanghai, and Tokyo, 2008 85

Table 5.40: Times Higher Education Global Ranking of Universities, 2007 85

Table 5.41: R&D Spending Share of Regional GDP (%) 87

Table 5.42: Expenditure on R&D and Its Composition in Beijing, 2005-2006 88

Table 5.43: Technological Transfer from Universities (Science, Engineering, Agriculture and Medicine) 90

Table 5.44: Technological acquisition and Transfer by Natural Science Research and Technology Development Institutions (2006) 91

Table 5.45: Technical Contracting in Shanghai, 2006 91

Table 5.46: Technical Contracting in Shanghai, 2006 92

Table 5.47: Areas of Technical Contracting in Shanghai, 2006 93

Table 5.48: Technical Contracting in Shanghai, 2006 94

Table 5.49: Flow of Technical Contracting in China, 2006 94

Table 5.50: Share of Domestic Invention Patents from Beijing, Shanghai, and Hong Kong, 1990-2006 96

Table 5.51: Share of Patent Applications by Different Types of Organizations in Shanghai 96

Table 5.52: Share of Invention Patents by Different Types of Organizations in Shanghai, 2006 97

Table 5.53: Distribution of Patent Applications and Grants in Shanghai among Manufacturing Subsectors, 2006 98

Table 5.54: New Products Development of Industrial Enterprises in Shanghai, 2007 100

Table 5.55: Value of Exports of High-tech Products in Shanghai (2001-2006), billion US$ 102

Table 5.56: Number of Venture Capital Firms and Capital Committed in Shanghai, 2004-2007 104

Table 5.57: Areas of Investment by VC in Shanghai, 2004-2007 (%) 104

Table 5.58: Area of Investment by Foreign VC in Shanghai, 2004-2007 (%) 105

Table 5.59: Distributions of VC Investment in Shanghai, 2006 and 2007 (%) 105

Table 5.60: Factors Considered Important by VC Prior to Investment (%) 106

Table 5.61: Modes of Exit by Start-Up Firms (%) 106

Table 5.62: Number of Employees at VC in Shanghai, 2003-2007 107

Table 6.63: Exports of China and the Share of Commodities in which China Has A Comparative Advantage 114

Table 6.64: Selected “upscale” commodities with highest density in China, 2000-2004. 115

Table 6.65: Export Similarity with OECD 116

Table 6.66: Number of Highly Cited Researchers, 1980-1999 134

Table 6.67: Fiscal Incentives for Innovation Offered in China 141

Table 6.68: Technology Licensing Offices in Tokyo 143

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