Innovation in China - Market Failures in a Copycat Nation

Abstract: Since the Chinese innovators suffer from unfair competition from imitators, the thesis identifies three obstacles facing the entrepreneurs. First, the entrepreneurial environment lacks networks and collaboration between industries and research institutions. Second, weak property rights and government interventions generate a vague and insecure legal system. Third, SOEs enjoy soft budget constrains and government guaranteed bank loans. Due to the three market failures, it is stated that the inefficient and unfair market environment is more expensive to the entrepreneurs, whose progress is a wider process than the imitators’. Thereby, the imitators enjoy unfair advantages. The thesis argues that to help the innovators overcome the copy-cats; the national innovation policies ought to implement an efficient and competitive market-environment for the innovators. The hypotheses claim that more networks and collaboration; a more trustworthy legal system; and less government ties, would improve the Chinese innovation output. The result shows that more collaboration and networks within research, and a more established trustworthy legal system is vital to improve the Chinese innovation output.