China‘s Future: Have Talent, Will Thrive

When China’s leaders surveyed their development prospects at the onset of the 21st century, they reached an increasingly obvious conclusion: Their current economic development strategy, heavily dependent on natural resources, fossil fuel, exports based on cheap labor, and extensive capital investment, was no longer viable or attractive. For a range of pressing competitiveness, national security, and sustainability reasons, they decided to shift gears and as a result have embarked on an effort to move their country in the direction of building a “knowledge-based economy” in which innovation and talent are positioned as the primary drivers of enhanced economic performance. Their actions are driven by a rather pervasive sense of urgency about the need for China to catch up more quickly with the rest of the world, especially in terms of science and technology (S&T) capabilities. In fact, the top echelon of Chinese leaders, foremost among them both President Hu Jintao and Premier Wen Jiabao, has recognized that solving the country’s talent issue is crucial to China’s ability to cope with an increasingly competitive international environment; build a comprehensively well-off and harmonious society; and, more important, consolidate and fortify the ruling base of the Chinese Communist Party (CCP). China’s leaders further understand that the successful creation and growth of a knowledge-based economy requires a greatly enhanced talent pool composed of high-quality scientists, engineers, and other professionals.

Indeed, in fulfilling the policies of “revitalizing the nation with science, technology, and education” (kejiao xingguo) and “empowering the nation through talent” (rencai qiangguo), China has turned out millions of college students since 1999, especially in science and engineering, and more recently in management, to meet the country’s new innovation imperatives. Government officials have tried to upgrade the existing Chinese S&T workforce by dispatching many talented individuals overseas for advanced training and research experience to expose them to international standards of world-class science and know-how. Today, it almost has become common practice, even for a large number of Chinese undergraduates, along with their counterparts at the graduate level, to obtain foreign study experience. Exposure to the outside world, particularly Western education and modern technology, appears to have stimulated entrepreneurial activities among many returning Chinese S&T personnel as they seek to harness their newly acquired know-how and convert it into new, commercially viable products and services. China also has encouraged multinational corporations (MNCs) to move up the value chain in their China operations, upgrading their manufacturing activities and adding a substantial R&D capability to their local presence in China. Meanwhile, MNCs are on the lookout for Chinese brainpower, thus creating the context for the possible emergence of talent wars in China.

This new, very positive orientation toward talent and high-end knowledge seems to have begun to pay off, as China in the early 21st century is significantly different from the China that existed when the reform and open-door policy started in the late 1970s or even Chinese society in the early 1990s when China tried to step out of the shadows of the Tiananmen Square crackdown. In fact, it is increasingly clear that China is now not only better positioned but also steadily more confident about becoming a true economic and technological power on both regional and global levels. Moreover, it also is obvious to Chinese political and scientific leaders that the country’s recent progress and future potential can be directly attributed to the increasing productivity and performance of the nation’s emerging talent assets. The rise of China as a global technological power will have important consequences for the country internally as well as externally.

The new China

Numerous indicators suggest that China is well on its way to becoming an established global technological power. China has significantly increased its gross expenditure on R&D (GERD) to U.S. $49 billion in 2007, still far below the United States’ level of U.S. $368 billion. China’s GERD was 1.49% of its gross domestic product in 2007, and the official goal is to raise this to the developed-country level of 2.5% in about a decade—though this may be an overly ambitious target. Investment in R&D has been growing almost twice as fast as the overall economy. In addition, China’s share of publications in the international S&T literature has been increasing. These and other similar indicators reveal a clear picture that China no longer sits on the sidelines of world S&T affairs. The ability to sustain this effort, however, as well as the ability to leapfrog ahead in a number of key areas, are heavily dependent on the ability of Chinese leaders to spur on the sustained development, deployment, and mobilization of a high-quality, high-performance cohort of scientists, engineers, and R&D professionals who can position China at the cutting edge of global innovation and scientific advance. China today possesses the largest human resources in S&T in the world (3.13 million scientists and engineers at the end of 2007) and the second-largest “army” in terms of scientists and engineers who are devoted to R&D activities (1.74 million full-time equivalents as of the end of 2007), and the country remains the largest producer of S&T students at the undergraduate as well as at the doctoral level. Even taking into account the unevenness of quality across the spectrum of Chinese higher education, it is clear that China’s top institutions have the ability to produce graduates that are as well-prepared and technically competent as their Western peers coming out of similar top-tier institutions in the United States and Europe.

To say that China will soon emerge as one of the world’s leaders in global S&T affairs, however, does not necessarily indicate that a growing confrontation between China and the incumbents is on the horizon. Instead, when viewed from the perspective of talent, the most probable and desirable scenarios for the future are characterized by a much more positive-sum set of possibilities and outcomes. First, although China has yet to become a full-fledged epicenter of technological innovation, its domestic scientists have become actively involved in the production of new scientific knowledge on a global scale. One of the key indicators that underlie this orientation is the rather impressive Chinese S&T publication record. In 2007, Chinese papers accounted for 7.5% of the total in journals catalogued by the Science Citation Index (SCI), and Chinese scientists and engineers contributed more than 9.8% of the world’s S&T literature. In addition, with Chinese science steadily moving toward the international frontiers of scientific research, more and more foreign scientists have sought collaborative opportunities with their Chinese colleagues. Between 1996 and 2005, for example, the number of China’s international collaborative papers doubled every 3.81 years, slightly faster than the total number of Chinese papers catalogued by the SCI, which doubled every 3.97 years. Between 2001 and 2005, China’s leading S&T collaborators, measured by the number of coauthored papers catalogued by the SCI, include the United States, Japan, Germany, the United Kingdom, Australia, Canada, France, and South Korea, all technologically advanced nations. China’s investment in S&T infrastructure in the past decade or so has been extensive, and many new big-science state-of-the-art facilities are being constructed. These facilities have made China an attractive hub for research, not only providing a foundation for expanded international cooperation but also offering opportunities to produce first-rate achievements that will attract international attention. In other words, China’s scientific community has become steadily more prominent in international networks of new knowledge creation.

For countries such as the United States, collaboration with China offers possibilities for redefining the R&D world of the 21st century. Finding solutions to some of the pressing global problems with scientific significance such as energy and climate change, avian flu, and HIV/AIDS will be impossible without China’s participation. Meanwhile, participation in these globally oriented, cross-functional, and cross-cultural knowledge networks represents an important learning platform for China’s scientific community. As the world has moved steadily toward a more collaborative model of research and transborder R&D cooperation has become more commonplace, China’s growing involvement has served as a valuable mechanism for a new form of technology transfer. By being able to bring its extensive pool of brainpower to participate in these vibrant networks of new knowledge creation, China has been able to move up the R&D value chain to become a more critical participant and partner. As these knowledge networks increasingly populate the world of R&D and innovation, China’s broader and deeper involvement will serve as a strategic mechanism for bringing China’s own S&T capabilities closer and closer to the forefront of the global S&T frontier.

Despite the problems it will face as it is implementing the comprehensive 15-year S&T development plan announced in early 2006, there is little doubt that China is becoming an important player in world S&T innovation. Both countries and corporations will be affected by China’s S&T development trajectory, and face the challenge of devising competitive and collaborative strategies to prepare for and take advantage of these changes in China. Not surprisingly, many governments throughout the world are entering into or expanding and deepening S&T relations with China. Moreover, among the growing number of MNCs that are focused on tapping into the global talent pool, more and more are establishing R&D centers in China. In addition, there is a rush among universities and research centers in Asia, Europe, and North America to build relationships with Chinese educational and research institutions. The changing complexion of China’s S&T relations and cooperative linkages reflects the deepening of the country’s talent pool and strengthening S&T capabilities. To ignore or underestimate the potential of these developments in China is to miss one of the most important strategic transformations and structural changes in the global economy of the 21st century.

Second, foreign direct investment (FDI) in China has been moving steadily up the value chain over the past three decades. Since China joined the World Trade Organization in late 2001, many MNCs have decided to relocate to China more and more of their high-end business operations, including the establishment of R&D laboratories. According to the Chinese Ministry of Commerce, the country is now host to more than 1,200 foreign R&D centers, including IBM, Cisco, GE, Procter and Gamble, Nokia, AstraZeneca, Panasonic, and Samsung. The purpose of these R&D laboratories is not simply to adapt their products for local markets but also to assemble native talent to carry on genuine R&D activities that could benefit the MNC’s global as well as regional competitive standing. For example, Microsoft Research Asia, the successor to Microsoft Research China, established in 1998, has expanded into an organization that employs more than 350 researchers and engineers, most hired locally; has published 3,000 papers in top international journals and conferences; and has achieved many important, albeit incremental in most cases, technological breakthroughs. Technologies from Microsoft Research Asia have not only made it into Microsoft global products but have also had an influence on the broader information technology (IT) community. MNCs now see enhanced prospects for migrating more of their outsourcing operations to China. Foreign firms also have expanded their collaboration with Chinese institutions of learning on various research fronts.

Third, China’s S&T talent has the ability to help support scientific enterprises in other countries. The quality of Chinese graduates, especially those at the top universities, is well known internationally. Chinese graduates, including many of the best and brightest, are working all over the world as part of a globally networked S&T diaspora. In the past, these were the people who were least likely to return home immediately after finishing their foreign stint. Some 62,500 Chinese-origin Ph.D. holders were in the U.S. workforce in 2003, and it is certain that other highly qualified Chinese-origin scientists and engineers are now staffing universities, research laboratories, and enterprises in many technologically advanced countries.

Fourth, as Chinese companies become more internationally active and expand their operations beyond the physical borders of the People’s Republic of China (PRC), they will extend their overseas technological reach, not only deploying their skilled research personnel but also looking for new opportunities to hire local scientists and engineers. The acquisition of IBM’s personal computer (PC) business by Lenovo represents the type of effort by which a Chinese-based firm, albeit one globally oriented, secures access to critical knowledge, high-end talent, and advanced management know-how. Huawei, China’s leading telecommunications firm, is another example of a PRC company that has begun to globalize and establish R&D hubs and listening posts around the world to ensure that China remains aware of the most cutting-edge developments in hardware and software. With U.S. $2 trillion in foreign exchange reserves, China is likely to become much more active in global mergers and acquisitions and thus much more prominent in international S&T affairs.

China’s talent challenge

Although China enjoys the benefits of a larger and more capable talent pool, four factors are still contributing to a serious talent challenge for the country. First, the pain and aftereffects of the Cultural Revolution, especially its damage to higher education, continue to be felt more than three decades later. The country faces a serious shortage of seasoned specialists and professional R&D managers. Second, the numerous overseas study and research initiatives that have occurred in conjunction with China’s open-door policy have resulted in some critical brain drain. Although it is true that there continue to be positive links between those who have remained abroad and China’s domestic S&T community, the loss of some extremely talented people has hurt China’s S&T enterprise. Third, as Chinese society has begun to age as well, the changing demographic composition of the scientific community also has started to have an impact on the potential for progress in the future, especially as the limited number of more experienced scientists and engineers enter retirement. And finally, the majority of Chinese S&T graduates still are not up to the international quality standards required to meet the steadily increasing skill demands of the overall economy. For example, almost half of the more than one million students who graduated in engineering in 2008 have completed programs that are only three years in length, and their skills are not on par with graduates of four- or five-year engineering programs at home and abroad.

Numerous analysts have cautioned about taking the publicly available official Chinese statistics about supply at face value. The rapid expansion of higher education since 1999 and the emphasis on the number of graduates has raised serious questions about quality. One problem is that the dramatic increase in student admissions in China in recent years has not been matched by a corresponding increase in government investment in higher education. As a result, China’s overall investment in education still ranks among the lowest in the world, thus further complicating and confounding the task of growing its S&T workforce and improving its quality.

The government estimates that at least one-third of 2007, 2008, and 2009 graduates have had serious problems with finding employment matched to their field of concentration, and the questionable quality of their skills is one reason. The actual situation may be even worse. Unmet expectations increasingly fill the air among the ranks of recent graduates. Whereas the Japanese developed the concept of “just in time” in manufacturing, in the field of talent, China’s emphasis has been on “just in case.” There seems to have been an unrealistic expectation among some Chinese officials that a quantitative leap in enrollments would yield substantial qualitative improvements across the ranks of the available talent pool and an accompanying scientific or technological leap forward. Obviously, it will take more time than anticipated by the current leadership for the desired type of sustained concerted advance in S&T and innovation to occur, a development that leaves Beijing increasingly uneasy in a world where innovation and technological advance have become the hallmarks of global leadership in economic, military, and even political terms.

Given the size of its population, China still lags behind most developed countries in terms of the number of researchers per capita. Indeed, using this metric, China has a long way to go before catching up with the talent situation in Korea, Russia, and Singapore. Of China’s 758 million individuals aged between 25 and 64 years in the labor force in 2005, only 6.8% had attained a tertiary level of education; across the Organization for Economic Cooperation and Development (OECD) countries, the average percentage is 26%.

At this point, it also is important to consider the evolving demographic shifts that in years to come will influence both China’s high-end talent pool in S&T and those of its counterparts around the world. It is well known that China has started on the path toward becoming an aging society, with a larger percentage of its workforce, including scientists and engineers, reaching retirement age and surpassing the percentage of those in their college-bound years by around 2017; some expect that Chinese universities will begin to face an admissions challenge as early as 2010. As an aging society, China will move into a comparatively disadvantageous position vis-à-vis its chief competitor India, which has a younger population. Accordingly, China must act quickly to expand and improve the ranks of the educated to create a qualified, highly competent talent pool capable of meeting the country’s goals. Otherwise, the goal of becoming “an innovative nation” by 2020 will not be realized easily.

The road ahead

With these challenges in mind, China could take several actions to better ensure that its talent pool evolves and grows. First, China will need to overcome the structural obstacles that hinder the effective training and use of the S&T workforce by filling in the gap between classroom education and quickly evolving job requirements, attracting qualified high-end talent to assume leadership positions, providing continuous on-the-job training to upgrade the knowledge of the existing workforce, and so on. One of China’s distinctive attributes is its second-tier provinces and cities that are not necessarily inferior to coastal regions in S&T development and education. Therefore, more attention should be given to Anhui, Hebei, and Shandong, along with Liaoning, Shaanxi, and Sichuan, in terms of development of local talent as well as the local S&T infrastructure. Shandong is geographically close to the Yangtze River Delta, and Hebei is close to Beijing and Tianjin, China’s newest development hot spot. Hefei city in Anhui province is home to the famous University of Science and Technology of China, one of the strongest S&T talent training centers in the country. Another city that is on the rise is Dalian, located in northeast China, which aspires to become the “Bangalore of China,” a software and outsourcing base. These provinces and cities are busy creating a new array of incentives to become serious hubs of innovation and sources of opportunity for talented professionals. The three existing technological hubs of Beijing, Shanghai, and Shenzhen simply are not enough to fulfill Chinese dreams.

Second, China will need to further increase and deepen its investment in R&D, not only to absorb more scientists and engineers but also to raise the sophistication and efficacy of their activities. In view of the inefficiencies and frustrations associated with the use of talent by domestic institutions and enterprises, an increasing number of skilled young scientists and engineers and other professionals choose to work for foreign-owned businesses and joint ventures in China as they seek out their best career opportunities. Although unintentional, a new, perhaps no less problematic, internal brain drain to foreign-invested enterprises has started to occur, at least in the short term. This could slow the development of an indigenous innovation capability. Meanwhile, the more general underuse of the Chinese S&T workforce also has further opened the door for MNCs to outsource more of their operations to China, because those in the domestic talent pool are looking for better, more prestigious career opportunities and work experiences. Retention and effective use of the current talent pool are both extremely important tasks, because the group currently in place represents the reservoir of needed scientific, engineering, and managerial human capital that is indispensable for China’s future S&T development.

Third, China will need to foment and instill, more deeply and more broadly, a culture of creativity into its students, S&T workforce, and overall education and R&D environment. Rote learning has been blamed for the lack of creativity among many Chinese. Students are seldom encouraged to think outside the box, take risks, or tolerate failure as a means to progress. Following the tradition of respecting the elderly and experienced, Chinese are sincere in their deference to their seniors; consequently, many students feel uneasy about daring to challenge their teachers and other forms of authority. Therefore, Chinese education needs not only to reconfigure its curriculum to accommodate the evolving social, economic, legal, and political environment, but also to introduce a new pedagogical approach to stimulate more inventive and innovative thinking. This task must involve not only the formal education system but also the entire social system in China, a rather daunting task in view of the cultural and sociopolitical complexities that must be addressed in the process.

In a word, China’s top priority regarding the growth of its talent pool will be to lift the professional standards of its S&T workforce so as to change the nation from simply being the world’s largest manufacturer to a leading nation in innovation. Although this is, of course, a high-level strategic goal requiring long-term commitment and investment, Chinese leaders have to take concrete steps now to enhance the chances of substantially realizing China’s innovation goals in the future. One mechanism for facilitating such a transition is the increasing emphasis placed on securing the return of top scientists and engineers who continue to live and work abroad. No less than the head of the Organization Department of the CCP Central Committee, Li Yuanchao, recently announced a series of concerted efforts to attract back a substantial number of senior Chinese experts from abroad in the hope that they can become a vanguard across the country to drive China to the next level in its S&T development. Missions are being sent from various provinces and cities across China to recruit persons of Chinese ethnic origin to leave their university positions and corporate jobs overseas to take on attractive and often well-compensated positions back in China. The “Thousand Talent Program” has brought back several renowned scientists such as Xiaodong Wang, a Howard Hughes Medical Institute investigator at the University of Texas Southwestern Medical Center, who was elected to the U.S. National Academy of Sciences in 2004 at age 41, and Yigong Shi, a chaired professor of structural biology at Princeton University.

Talent and China’s political development

The analysis of China’s talent must take into account the political environment. The plight of intellectuals throughout the history of the communist regime has been inextricably linked with the ebb and flow of Chinese politics, most noticeably and decisively during the heyday of the decade known as the Cultural Revolution (1966–1976). The links run historically deep as well. For example, it was the intellectuals in China who advocated the enlightenment value of science and democracy during the May Fourth Movement of 1919. This same type of advocacy became embedded in the pro-democracy movement and demonstrations that occurred in Tiananmen Square 70 years later. It was the intellectuals who introduced Marxism into China and eventually helped establish it as the guiding ideology of the CCP. The ranks of the leadership of the PRC over the past 20 years have been dominated by technocrats, most having been educated in science and engineering; since 2007, there has been an inflow of those trained in economics and law into the top ranks of the Chinese leadership.

Politics has at times been a barrier to the development of talent, and not just during the Cultural Revolution. The June 1989 Tiananmen Square incident discouraged the return of a significant number of overseas Chinese students and scholars under Chinese government sponsorship, thus exacerbating the current shortage of Chinese talent at the high end. Within the prevailing institutional climate that has been established under President Hu Jintao and Premier Wen Jiabao, there is every reason to believe that Chinese leaders in power today recognize the huge costs and damage to the country from the unbridled intervention of politics into the realm of science, technology, and education affairs. Accordingly, barring any sudden reversals in the prevailing political climate in China, it is expected that knowledge, expertise, and talent will be valued in their own right as well as in their contribution to improving the innovation system and sustaining the economic growth trajectory of the country.

The regime has granted more authority to scientists and engineers in areas related to their profession because they are no longer viewed as posing a direct challenge to state power. Furthermore, because intellectuals were one of the primary sociopolitical forces that intensively pushed the CCP to undertake more progressive and substantive political reforms to make China more democratic during much of the 1980s, the post-1989 leadership has changed its tactics and strategy toward managing intellectuals and private entrepreneurs by co-opting them and giving them new elite status. Professionals have been recruited into the CCP and appointed to powerful administrative positions in universities and research institutions and even in the central government. In the spirit of support and encouragement, the government also parcels out professional recognition, along with material perks, to a select group of intellectuals and scientists as rewards for their achievements and contributions.

Although talented Chinese professionals are neither organized nor primed to be mobilized as a democratizing force, they have political interests. One day, they may feel a need to assert themselves politically, if not for larger democratic values, then for their own self-interest. Along with other members of the middle class, in all likelihood they will demand an increase in political choices commensurate with their increased economic independence and perhaps agitate for greater political openness and participation. In a word, they may leverage expertise to advocate for a more fundamental change of the political system. Therefore, it remains to be seen how long Chinese professionals will maintain their cozy relationship with China’s political leadership, which soon may need to develop some new tactics to manage the potential political rise of China’s new and perhaps increasingly cohesive talent pool.

In spite of the multiple challenges and issues that Chinese leaders must address in cultivating and nurturing an effective S&T human resource pool, it has become increasingly clear that China’s science, technology, and managerial base does constitute an emerging source of competitive advantage in economic and technological terms. However raw or immature the Chinese talent pool may be at this time, there are good reasons to believe that the present set of shortcomings, which frequently have made talent issues into a serious liability, are now being addressed in a concerted, coherent fashion. The question is not if talent will become a source of competitive advantage, but when and under what conditions.

The critical missing piece of China’s innovation puzzle seems to lie in better deployment and use of the evolving contingent of S&T talent. The associated hurdles that must be overcome are as much about the workplace environment and performance expectations as they are about macrostrategic issues such as setting S&T priorities and funding levels. Some observers have suggested that there are deep cultural inhibitors standing in the way of the establishment of a more creative, innovative atmosphere in China. The persistence of the guanxi or relationship culture, for example, is one of the most important elements that continue to influence the nature of cooperation and economic exchange in China. In addition, petty jealousies and personal rivalries continue to be ever-present features of the research environment. That said, however, the more significant underlying shortcomings derive from the still transitional nature of the reforms and incomplete structural changes taking place in the S&T system. In essence, China has yet to fully realize the onset of an achievement-oriented set of norms and values that fully define the framework of performance, compensation, rewards, and incentives. Another way of saying this is that there still is too much socialism left in the Chinese research system. Nor have many Chinese organizations been able to assimilate completely into their own operating environments critically needed notions of personal responsibility and accountability that sociologists such as Talcott Parsons and others long have associated with sociopolitical and economic advance in the West. Although these limitations will not stop China’s S&T ambitions, they create enough friction to reduce the efficacy of several of the new policy initiatives and financial investments coming out of Beijing.

Nevertheless, the attractiveness of the Chinese talent pool will continue to raise its profile in global S&T activities and knowledge networks. In some cases, key segments of this pool will become the engine behind the formation of a series of emerging pockets of excellence in Chinese S&T, which will be characterized by a somewhat different set of operating features and principles than the bulk of the country’s S&T system. Evidence of Chinese capabilities already is apparent in the life sciences, nanotechnology, high-speed computing, and fuel cell technology. Members of this talent community, large numbers of whom will have spent time abroad for work and/or education, will represent the cutting edge of an emerging wave of Chinese technological entrepreneurs who will help to redefine the operating environment for knowledge creation and innovation in China by introducing successful Western practices. Most important, however, this critical mass of high-end talent will be the mechanism through which more and more foreign collaboration and cooperation occurs. It is incumbent on interested observers of the Chinese S&T scene, therefore, to be able to identify the unique features of these emerging pockets as well as to understand where and how they will emerge. Competition for the brainpower that resides in these pockets will become one of the key defining features of the West’s interactions with the PRC over the coming decades and could become the primary vehicle for helping to ensure China’s role as a stakeholder in global S&T affairs.