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Innovation in Britain and What it Means for China

On the occasion of a high-level British delegation’s visit to Beiing this week, Vincent Ni, the long-time New York-based U.S. correspondent for the independent Caixin Media group, shared his views about China’s ability to innovate relative to what he saw in America and what he's now observing around him in Britain, his new adopted home. —The Editors

Having been slow to emerge from a deep recession, the British economy is beginning to show a promising future. Last month, the country’s unemployment rate continued to fall, and house prices are up amid talk of an emerging “housing bubble.” Moreover, the country’s service sector has rounded off its strongest quarter since 1997, suggesting the recovery is on the right track.

But there is another bright spot receiving far less media emphasis. During my various conversations with officials in London’s City Hall leading up to Boris Johnson’s China visit, two buzz words resonated: “Innovation” and “Smart City.” Deputy Mayor Kit Malthouse told me these words would be “the future of a global city.” Mr. Malthouse proudly mentioned the creation of East London’s Tech City, also known as Silicon Roundabout.

Over the years, London has become a city full of young tech-savvy engineers and software developers, many of whom cluster around a community of ambitious entrepreneurs with big ideas on how to change the world. To encourage this development, the current Conservative/Liberal Democrat coalition government eased visa rules for those with talent, in the hope they would come to Britain and further innovation.

The result? More than 15,000 new businesses were set up inside London’s EC1V postal district. This number outstripped that of any other postcode in the country in the year to the end of March. The EC1V area of London has become the heart of the city’s innovation since the 2008 financial crisis. The East London Silicon Roundabout has started winning admirers from further afield than the U.K.

New York Mayor Michael Bloomberg has been watching cautiously, and perhaps with jealousy. This week, Mayor Bloomberg warned that London’s emergence as a tech powerhouse “is threatening New York’s attempt to take on California’s Silicon Valley.” This impression was reinforced by the news that Chinese gaming giant Rekoo would become the first Chinese tech firm to set up its European headquarters in the Roundabout. The announcement was made just before U.K. Chancellor George Osborne wrapped up his visit to China.

What does this mean for China? President Xi Jinping takes a close interest in fostering innovation in China. In a CCTV report a few weeks ago, he was quoted as saying “innovation-driven development” will “determine the future of our Chinese nation.” Clearly, there will be some large government-led initiatives to “encourage” innovation, which might also become an important component of the the evolving “Chinese Dream.”

This is not the first time Chinese leaders have expressed such aspirations. Almost two decades ago, long before President Hu Jintao’s call for “scientific development,” then-President Jiang Zemin had his own “innovative soul theory.” On May 26, 1995, Mr. Jiang urged that “Innovation is the soul of the advancement of a nation, is an inexhaustible motivating force for national prosperity.” Back then, like President Xi, Mr. Jiang also told the whole nation to be innovative. (A Chinese transcript of Jiang’s speech can be read here.)

Unfortunately, after so many years, China’s performance is still regarded as lackluster when it comes to innovation; the perception remains that it is the global home for knock-off goods, according to various media reports. The Chinese “maker revolution,” identified by journalist Emily Parker, presents a promising future. This is a good start. But the question is, how can China encourage these young innovators to turn their ideas into large-scale businesses to rival Facebook or Google?

Much has been said about why China’s education and censorship systems will not produce a second Steve Jobs. But I think the real problem lies in the country’s support system. There is little help for innovators to secure credit from banks at a low cost; insufficient encouragement to compete with powerful yet mediocre state-owned enterprises without fear; and a lack of assistance in identifying collaboration opportunities, both domestically and internationally.

In November 2010, U.K. Prime Minister David Cameron pledged: “We’re not just going to back the big businesses of today; we’re going to back the big businesses of tomorrow.” He added, “Today we are setting ourselves the ambition of making Britain the best place in the world for early stage and venture capital investment.”

Subsequently, the U.K. Department for Business, Innovation & Skills formally launched various schemes to help small-to-medium-enterprises (SMEs) secure funding at a low cost. Not only that, it also launched a Growth Accelerator program, backed with U.K.£200 million (U.S.$318 million), to help England’s brightest businesses achieve their ambition and potential. According to the document, over the next three years, the program will help up to 26,000 SMEs “overcome barriers to growth and achieve their growth potential.”

So far, According to StartUp Britain, a campaign program Mr. Cameron endorsed to boost entrepreneurship, more than half a million new private businesses will be established by the end of the year.

Britons believe that private enterprises, along with a free flow of information and networking, will foster ideas and innovation, thus fueling the engine of economic growth. In fact, the term “Silicon Roundabout” was coined by an unassuming young developer, Matt Bulddulph. When Mr. Cameron meets with Mr. Xi (purportedly at the end of this year) in Beijing, perhaps Mr. Xi should ask him to explain more about this real formula for development.