Professor Peter Adriaens Weighs in on the Roles of the US and China

Shannon Beeman
October 27, 2010

China has been in the news as the debate continues over the country’s role in the global economy. The Zell Lurie Institute is paying particular attention to developments in clean technology. We recently sat down with Dr. Peter Adriaens, an associate professor of entrepreneurship at the Institute and clean tech expert on business development and technology integration, to get a better understanding of the ongoing battle for clean tech dominance. Professor Adriaens travels to China regularly where we works with students at a Suzhou-based industrial park focused on advancing clean technology innovation and recently returned from there.  Here is what he had to say:

Q. You travel to China regularly and are there now. What is the reason for this trip?
A. This trip took me to China and Taiwan. In China, I was there to teach local MBA students on clean tech venture assessment, and to seek investment in a new technology for deployment in China’s lakes. In fact, a lot of the material mirrors what I teach MBAs in my Clean Tech Venture Assessment and related courses at the University of Michigan. These particular students are all employed by private ventures or state-owned enterprises, and are affiliated with the China-Singapore Industry Park in Suzhou, one of the largest industry parks in China and the only one with a section dedicated specifically to clean tech (EcoPark). With the help of these students, and companies founded at or insourced from the US, it wants to become the hub for clean tech innovation, in China and worldwide.

Q. China is known primarily for manufacturing, not its innovation. Is there a concerted effort to change this as the clean tech industry evolves?
A. Yes, there has been significant government movement over the past few years to move up the value chain, and become the technology innovators and manufacture both for local consumption and for export. Entrepreneurial industry parks have been set up all over the country and top universities are co-locating institutes with these parks to ensure a local pipeline of inventions. A number of government-backed venture capital funds have launched to support the innovations coming out of the parks and universities. They are not traditional venture capital firms in the same way that we think of them in the US; they are underwritten by government capital that invest in later-stage technologies, once the technology has been de-risked. These funds don’t generate the types of returns we expect in the US, but are more similar to a non-dilutive form of investment.  Since the financial crisis, US-based VCs have taken advantage of the up to 60 cents on the dollar (up to a maximum amount) cross border investment receive in these parks.

Q. If China is investing in later-stage technology, how do early-stage innovations get the funding they need to take off in China?
A. From my experience working here, the Chinese have a very different perception of what we in the US would classify as “early-stage” investment and entrepreneurship. Entrepreneurs in the United States start with earth, wind and fire when we invent new technologies and aren’t afraid to take risks – that is a major strength. In China, they do not have the same appreciation for risk and for the most part, lack the expertise to take an early-stage technology through the de-risking process. Co-investment by government and corporations fills the occasional technology de-risking gap. Their strength is in taking later stage technologies (including those developed in the US or elsewhere) and bringing them to the next level.

Q. Are you implying that China is stealing and taking credit for the US’s clean tech innovation and intellectual property?
A. No, not at all, though of course there is risk in sharing IP with China because of reverse engineering. In fact, I’d argue that the US needs China because they are the ones that create the economies of scale for clean technologies and bring down the cost for them to be effectively deployed.  Many of China’s leaders come from engineering backgrounds, so they are more quick to embrace innovation than the US, which is run primarily by lawyers. From the national to the provincial to the city level, they quickly put policies and subsidies into place that enable them to deploy clean tech, a lot of which we developed in the US, at scale and at very competitive prices. They serve as a (loss leader) test bed and after two to three years, when they have deployed wind, solar, water, and smart grid technologies, for example, will help drive down costs for the rest of us.  US companies like Dow, GE, IBM, Duke and Cisco are major players in China clean tech and will stand to gain from opportunities of ‘reverse innovation’ (i.e. Reimportation of technology developed and deployed outside the US).

Q. So in the race for clean tech dominance, who will be the winner: the US or China?
A. Neither, because it’s not a race. With the upcoming midterm elections, a lot of politicians have tried to pit us against China for violating trade agreements, setting up clean energy subsidies, and limiting competition of foreign companies unless they share IP, and the like. But in reality—and once the dust from the election settles—it is really a matter of co-opetition more than competition. US companies are very much involved in China’s CleanTech industry.  The fact that China is successfully deploying clean technology developed in the US is not necessarily a bad thing for us. We can learn a lot from them and their economies of scale. And let’s not forget:  it has and will continue to be cheaper to manufacture in China than in the US and they are converting their trade surplus into greening their economy, but they are still very much behind us in terms of creating a culture of innovation and entrepreneurship.