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U.S.-China Economic and Security Review Commission, "Hearing: Assessing China's Efforts to Become an “Innovation Society” – A Progress Report," May 10, 2012

This hearing was conducted by the U.S.-China Economic and Security Review Commission on May 10, 2012. The U.S.-China Economic and Security Review Commission was created by the U.S. Congress in 2000 to monitor, investigate, and submit to Congress an annual report on the national security implications of the economic relationship between the United States and the People’s Republic of China.
May 10, 2012

Thursday, May 10, 2012
Room 562 Dirksen Senate Office Building

Hearing Co-Chairs: Chairman Dennis C. Shea and Commissioner Carte Goodwin

Opening Statement of Commissioner Dennis Shea

Good morning, and welcome to the fifth hearing of the U.S.-China Economic and Security Review Commission’s 2012 Annual Report cycle. My name is Dennis Shea and I am a co-chair of today’s hearing. We will be examining China’s efforts to foster innovation through a variety of policies, some of which are likely to have a profound effect on the economy of the United States.

China has made no secret of its ambition to shift its economy from one dependent on manufacturing products invented elsewhere to a more integrated economy that can invent, develop, and produce works whose intellectual property originated within China. The 15-year “medium and long term plan,” adopted in 2006, describes 402 technologies in which China seeks to gain expertise. The plan also calls for China to limit its dependence on foreign technology to just 30 percent by 2020.

The 12th Five-Year plan, adopted last year, identifies seven “strategic emerging industries” in which Chinese corporations are expected to become global champions. They include clean energy technology; next-generation information technology; iotechnology; high-end equipment manufacturing; alternative energy; new materials; and clean energy vehicles. The goal is to triple the contribution that these industries make to Chinese GDP from 5 percent to 15 percent by 2020.

To do this, the Chinese government intends to increase spending on research and development from 1.75 percent of GDP in 2010 to 2.2 percent in 2015. By contrast, the United States spent 2.9 percent of its GDP on research and development in 2009, slightly higher than the developed country average of 2.4 percent, according to the Organization for Economic Cooperation and Development. Total expenditures by the Chinese central and local government and private sector are expected to total $2.16 trillion over five years, according to the 12th Five Year Plan.

China hopes to accomplish its goals through some traditional government policies, such as expanding education in science and technology and increasing basic research through government support. Those methods are consistent with international norms and China’s aspirations to become a technological power are understandable.

But China’s intention to follow shortcuts is not acceptable when it conflicts with long accepted international rules. Issues such as forced technology transfers, the promotion of exclusionary domestic technology standards, and extensive cyber espionage directed at key U.S. industries and technologies continue to complicate the U.S.-China relationship.

Today, we shall also hear about China’s self-imposed barriers to becoming an innovation society. Despite years of promises and many volumes of laws and regulations issued to protect intellectual property from piracy, China has not followed through with anything approaching adequate enforcement. Until China provides protection for business software from rampant piracy, it cannot expect its own software industry to thrive.

Experts on the first and second panels will testify this morning. We will adjourn for a lunch break at 12:00 noon, after which the hearing will resume in this room at 12:50 for the remaining two panels.

Before I turn the floor over to my co-chair for this hearing, Commissioner Carte Goodwin, I would like to thank Senator Ben Nelson and his staff for securing this hearing room for us today.

Opening Statement of Commissioner Carte Goodwin

Good morning. I’d like to thank our witnesses for their willingness to share their research and their expertise with the Commission. And I’d like to point out that this hearing is being webcast and a transcript will eventually be posted on our website, The written testimony being submitted for the record is also being posted on our website this morning.

China and the United States have taken different approaches to developing a capacity for innovation. China relies on central government planning, passed down to the provinces and to China’s large state-owned and state-controlled enterprises. The major actors are government-funded institutions, such as the Chinese Academy of Sciences.

The United States has traditionally relied more on the efforts of individual scientists, engineers, inventors, and entrepreneurs, supplemented by government funding, particularly for basic research. When the United States created a government program, such as our manned space flight program, it drew heavily on the work of publicly owned corporations. The history of American innovation was written as collaboration between government and private industry. Some technologies we take for granted today—radio broadcasts, naval and aircraft radar, the global positioning system or GPS, the interstate highway system--were government creations. But those government creations have today been melded with private enterprise.

We will be looking at some areas where the Chinese government has been a direct participant: supercomputers, cloud computing, and weapons systems. In the case of supercomputers, which have both commercial and military applications, we will see that the United States is still dominate in quantity while the Chinese have built the faster machines, using western microprocessors and indigenous Chinese software. China has recognized the value of cloud computing and its government programs to advance this technology are being adopted by state-owned and controlled corporations. In the area of weapons systems, much of China’s innovation is incremental and duplicative of Western technology. But China’s anti-ship ballistic missile program, in development, represents a potentially radical and game-changing advance in naval weaponry and strategy.

We’ll now hear from our first panel, which will provide an overview of China’s approach to fostering innovation. As a reminder to all the panelists, please limit your opening statement to seven minutes. This will allow plenty of time for questions and answers.

Opening Remarks
Commissioner Carte Goodwin
Commissioner Dennis Shea

Panel I: China and innovation
Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation
Dr. Danny Breznitz, Associate Professor of International Affairs, Georgia Institute of Technology

Panel II: China’s innovation infrastructure
Richard P. Suttmeier, Professor of Political Science, Emeritus, University of Oregon
Dr. Denis Fred Simon, Vice Provost for International Strategic Initiatives, Arizona State University

Panel III: Information and communications technology innovation
Dr. Earl C. Joseph II, Program Vice President, IDC
Dr. Horst Simon, Deputy Director, Lawrence Berkeley National Laboratory
Timothy K. Harder, Director, EMC Cloud Infrastructure Division

Panel IV: Defense sector innovation
Kathleen Walsh, Associate Professor of National Security Affairs, U.S. Naval War College
Dr. Thomas Mahnken, Professor of Strategy, U.S. Naval War College



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