Technological innovation in China often gets a bad rap as being merely derivative. How true are these allegations? Today we had the opportunity to meet with a medium sized chemical company and see Chinese technological innovation at work. The company was especially interesting because of their history. The company was set up in the late 1990’s and located their headquarters and factory in an area which was then outside of Shanghai in order to receive tax incentives from the local government. One of the most interesting aspects of the company was the way the management’s religious beliefs influenced the company. The company actually had a Buddhist sanctuary in the office, complete with a large golden Buddha statue and burning incense.

It was clear that the founder’s religious beliefs played a major role in the management of the company. Beyond the interesting management style, the company clearly had technical skill. The founder was a researcher at a nearby university, and was able to commercialize his research to create products for textile manufacturing which were able to be produced at around 1/5th the cost of competitors. The advantages of the company were the low cost labor combined with the new manufacturing technique. The manager we talked to also mentioned that one of their key advantages was their size. Unlike a large state owned enterprise, they felt nimble enough to engage in further chemical research. On the other hand, their medium size allowed them to maintain a small manufacturing base to actually mass produce their products and a sales force to sell their product to other businesses.

The companies innovation was helped in large part by government “projects” which sounded similar to America’s system of research grants. In China different governmental departments create a list of specific innovations they’re interested in funding. Companies can apply for these grants at any point in their own design process, from an idea to an actual product. The central government then selects companies that it considers meeting its requirements for grants.

The company benefited from the system because they were often able to target their research at these grants, which are released yearly. The innovation system seems well established, and it appears to work well for small companies.