Essay
innovation

by Caroline Watson

Encouraging creativity and Innovation in China

Creativity and innovation in China is a hot-topic at present, as discussion moves away from the notion of China as simply a manufacturer of other people’s goods – ‘Made in China’ – towards the concept of ‘Designed in China’.

A recent BBC series focused on the industries where innovation is occurring and addressed many of the challenges China faces in developing its innovation economy. Recently, I also attended a private session at the World Economic Forum’s Annual Meeting of the New Champions in Tianjin, the so-called ‘Summer Davos’, on Investing in Creativity in China, which offered some insights into the developments happening in the creative industries.

China is going through one of the world’s biggest mass migration movements, with millions moving into the cities from the rural hinterlands of the poorer western regions, bringing with it a more vibrant, dynamic and entrepreneurial culture, particularly in the cities. People from widely different backgrounds are being brought together in the rapidly evolving Eastern seaboard cities, such as Beijing, Shanghai and Shenzhen, exposed to Western ideas and able to take advantage of the myriad work and entertainment opportunities.

The environment is ripe for entrepreneurship and the huge economic growth is an attractive prospect for investors too. This period of great change has been compared with the creative fervor of the Industrial Revolution in Europe and is bringing in its wake new opportunities to leapfrog Western industries in this quest for development.

Technology is one significant area where we are seeing innovation, with mobile technology in particular leading the way. Three of the five biggest mobile phone companies in the world – Huawei, Lenovo and ZTE, are from China, the latter of which ranks as one of the most innovative companies in the world, having registered 50,000 patents last year alone.

China has the potential to leapfrog the West in many respects, developing creative products that appeal to both domestic and international markets. Xiaomi, for example, is taking the mobile phone industry by storm. Although it has many detractors who say it is simply copying many of Apple’s existing innovations, it seems to be offering a highly disruptive innovation in terms of its business model. As a recent article in HBR outlines, Xiaomi keeps it’s models on the market far longer than Apple does, relying on the decreasing cost of components over a two year period to recoup profits, rather than Apple’s model of getting its profits with the introduction of each model and then needing to develop a new model to maintain profits. Innovation is thus in terms of disruptive business models, not just new products and patents.

The recent record-breaking IPO of Alibaba has, once again, proved the success of Chinese innovation in the tech world, with it’s B-to-C platform, Taobao, a facilitator of small businesses to get their products to market, demonstrating how innovations in tech can support micro-economies too.

With a rapidly expanding middle class and the sheer size of the domestic market, the entertainment industry is also experiencing a huge boom. Middle class families have more disposable income and young people are also experiencing more freedom than ever before in how they spend their time.

The film industry, in particular, has seen a massive growth. China’s box-office receipts in 2013 grew 27% year-over-year to $3.6bn, or roughly 10% of total global sales, according to the Motion Picture Association of America, and the global box office’s record breaking revenues last year were largely due to China. The Chinese government has recently announced measures to invest in and support the film industry through a combination of preferential tax policies, grants for film-related funding, the development of high tech hubs for movie production and through the encouragement of the building of cinemas.

Hollywood, too, increasingly does it’s filming in China, with production costs a fraction of what they are in the US and a Chinese billionaire plans to build the biggest ever studio in Qingdao. Hengdian studios in Jiangsu province is the world’s largest outdoor movie set, bigger even than the studios of both Paramount and Universal.

Fashion is another area where we have seen Chinese creativity emerge. Shanghai Tang is one of the country’s most famous exports, a high-end clothing and home accessories brand that incorporates traditional Chinese fashion styles into modern, contemporary clothing. The creation of celebrated Hong Kong entrepreneur David Tang, it has now been taken over by the Swiss-based Richemont group. Their CEO, Raphael le Masne de Chermont, is focusing on making the brand a high-end luxury lifestyle brand by Chinese fashion designers and expanding its global presence.

Jewellery designer Lama Hourani, who runs a Shanghai- and Jordan-based company, Lama Hourani Creations, has this to say about creativity in China: “There are clear and unique cultural movements that are derived from the local Chinese culture. Slowly China is getting perceived as a source of innovation and not just a factory of fake and cheap bad products. Many designers are getting educated abroad and bringing back a Western perspective merged with their identity; on the other hand many design schools are opening up in China, giving access to many fashion and design enthusiasts to develop and nurture their talent.” Hourani goes on to say that her own work has been appreciated and well-received by Chinese clients for its uniqueness. She feels Chinese customers are looking for individuality, they are culturally curious and well-travelled.

There are several factors that support the growth of an innovation economy in China. China still has a relatively low-cost labour force that can be deployed to focus on innovations, enabling a turnaround time on the iteration cycle that gets faster results than Western companies. The rapid growth of the market also provides a way for experimentation and risk-taking, and innovation failures can be quickly refined.

The Chinese central government, too, has done much to support innovation within the economy generally and, increasingly, according to Forbes magazine, provincial governments are also competing with each other to attract investment. Indeed, the Chinese government’s ability to develop large-scale projects that other countries cannot, further fuels innovation. The ground-breaking project of turning Beijing smog into jewellery, in partnership with Studio Roosegaarde, is one such example of high-profile innovation and the central government backing that such projects can attract.

But challenges persist in China truly becoming a global creative force. Adequate protection of intellectual property still remains a key issue, although there has been much improvement. A recent lawsuit involving Baidu and Youku resulted in Baidu being sued for streaming free video content that Youku had paid for. The court ruled in favour of Youku, asserting the importance of respecting intellectual property. Much more needs to be done but this is, at least, a step in the right direction.

In my own time in China I have noticed that copycat products on the markets are not so much direct competitors to established brands, but provide a stepping stone towards the aspiration of one day being able to afford the genuine article. Once lower-income consumers have the money, they still want the authentic product rather than a copy, so there is still enormous value attached to authenticity and original creativity.

In this respect, we can see the value to innovation of brands like Xiaomi, who are able to target their offerings to the aspirational markets of lower-income consumers, rather than posing as a threat to existing high-end players. Such an approach of innovating at the lower end of the market also fosters access to technology for customers in other emerging markets and Xiaomi is now exploring a strategy that stands to make such products available to lower-income consumers in other emerging markets, for example. Technology entrepreneur Kai-Fu Lee sees innovation in China not so much as creating world-changing ideas, but more about taking existing products and applying them in new ways.

Censorship and regulation also restrict the ability for Chinese companies and individuals to be creative. Whilst there has been a surge in creativity within the film industry, those involved complain that it can be hard to break away from the romantic comedies and historical drama genres that dominate contemporary Chinese cinema. China continues to allow more foreign films to be shown, although the numbers are still relatively small.

By far the most significant impediment to developing a truly creative and innovative economy, however, is the education system. Based on a rote-learning model, it has failed to evolve to develop the right skill-set for a more creative economy. China’s education system has, until now, been overly focused on the gaokao, the high school examination that determines university entrance and, thus, future success.

In a country of 1.3bn people, competition is cut-throat and students cannot afford to invest time in developing a more rounded education at the expense of this all-important examination. There is little opportunity for self-expression and debate in class, an aversion to risk that is rooted deeply in the culture and little or no tolerance and understanding of the relationship between failure and success. Students are generally not encouraged to express their opinions and to develop diverse points of view. Although there are undoubtedly cultural and political factors at play, at the same time, there is increasing emphasis and value placed on a Western education and an acknowledgement that giving one’s offspring the ability to study abroad is one of the best investments in their future.

Jennifer Zhu Scott, Founder and Managing Partner of Establish Asia, a venture capital firm based in Hong Kong working on early-stage opportunities in technology, real estate and natural resources, has this to say on the education system: “There are a few key bottlenecks [to innovation] such as effective IP protection, high corporate tax prohibiting more generous R&D budgets and the difficulties of registering new businesses etc. But I would like to highlight the challenges within our education and mentality. Innovation requires people to think outside of the box. Our standardized, results-driven education does not encourage that. This is a global problem but it is more urgent in China. We need to encourage children to make mistakes and learn from them, to break the system that judges children with diverse talents with one single standardized result and to teach children the value of failure. In my view, without effective education reform, we will not be able to build the foundation of a strong ecosystem – the talents.”

Access to talent is a considerable obstacle to future innovation as China experiences an over-emphasis on engineering and business subjects at the expense of the arts and humanities – fertile ground for building the next generation of entrepreneurs and innovators. Staff turnover in companies is typically high, with young people eager to move on after a couple of years, lured by the promise of higher wages that are not necessarily merited, creating an imbalance in supply and demand for graduates and a lack of substance and quality for the jobs that need to be done.

The World Economic Forum’s Global Agenda Council on China has decided to make innovation a key focus for the next two years, which says much about the recognition that this is a priority for the country. Innovation can and must be about more than making incremental changes but about a more radical approach that creates the right conditions for the Chinese Steve Jobs to emerge. To quote Chang Bin in the recent BBC series: “I think maybe Apple generates more creative ideas that change the way we live. Currently our innovation is mostly focused on how to solve concrete problems in existing systems.”

In my own experience of living and working in China, where I have begun innovating on a model for using arts-based approaches to social change, I have found the conversation on growth and innovation to be expressed in terms of developing or systematizing models that can enable large-scale replication – but not those that privilege and value a more innate, original expression of creativity. Indeed, appreciation for the arts generally is under threat in most economies but perhaps more so in China than elsewhere with the dominant paradigms of stability and security and earning money being paramount.

In such an environment, it is hard for a truly creative culture to thrive and a healthy ecosystem for the arts is foundational for a more creative economy. Steve Jobs, in a speech to Stanford students, cited a class in calligraphy whilst at college as being crucial to his role as an innovator. Yet, China shows little commitment to lay the educational and artistic framework that supports innovation in the larger economy. Alison Friedman of Ping Pong Productions has this to say: “The largest barrier to supporting creative industries in China is that everyone in China is funding product, no one is funding process. In order for artists to evolve and improve, they need to, as Samuel Beckett said, “Fail. Fail Again. Fail Better.” Since 2006 and the 11th Five Year Plan, China has systematically been reducing government funding for arts institutions in China. As a result, venues and presenters became overly reliant on ticket sales as the only other source of income, making them entirely risk averse. They only programmed big-name headliners that would sell tickets. The arts industry in China therefore became excessively commercial with little diversity.

“A market, like an ecology, survives and thrives only when there is diversity. China is lustily chasing after “building a Broadway or West End in China,” as the government mistakenly views Broadway as a successful commercial money-making venture. In fact, more than 80% of Broadway musicals fail and lose money, and without off-Broadway and off-off-Broadway and experimental workshopping, the big-ticket, money-making Broadway musicals would never happen. Market industries, like an ecology, need diversity to survive.”

That call of Samuel Beckett to be comfortable with failure is, to me, what separates the truly great imitators from the wannabes. It’s also the key question for China to ask itself. The Steve Jobs of this world have succeeded because they were happy to find their own path, failing regularly and blending the openness of creativity with the rigour and discipline of striving for excellence, the cult of their unique personalities also shaping the enterprises and products that made them so famous. Perhaps what China most needs is those that continue to ‘fail better’, leaving a legacy of truly ground-breaking innovations.

Caroline Watson is founder and director of Hua Dan, China’s first social enterprise that uses the power of participation in theatre-based workshops to unfold individual and community potential. Hua Dan has a particular focus working with China’s rural to urban migrant workers, who work in the manufacturing and service industry, at the heart of China’s economic boom. She is a Young Global Leader of the World Economic Forum and writes, speaks and consults about China, women’s leadership, innovation and entrepreneurship, and arts for social change. For more information, see www.hua-dan.org and www.carolinewatson.info.

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