Young visitors try a VR medical equipment in an innovaion exhibition in Beijing (XINHUA)

Zhao Yi was quite happy as her company, KLT, won the first prize in the national finals of the Maker in China Competition, which was held in Guangzhou, south China's Guangdong Province on October 10, 2018. KLT is a pharmaceutical company based in Qingdao, east China's Shandong Province, and won the prize for its anti-tumor biopharmaceutical project called KLT-1101. Proven to be capable of restoring bone marrow hematopoiesis, immune regulation and inhibiting tumor cell growth, so far the only known cytokine to be able to do so, KLT-1101 can avoid or reduce bone marrow suppression caused by chemotherapy and other cancer treatments. This can help cancer patients to complete all cancer treatment procedures.

Zhao, a doctorate degree holder in medical science who returned to China after studying in the United States, founded KLT in 2011. In an interview with local media in Qingdao, Zhao said that similar projects are being developed in some developed countries. She doesn't want China to lag behind in the development of this new drug.

"Currently, most of China's cancer drugs are imported, with high prices. This medicine, when put into production, can reduce the economic burden of cancer patients in China," she said.

In the national finals, Zhao competed with high-tech teams from all over the country in fields such as aerospace, information technology, artificial intelligence and high-performance materials, for a prize of up to 100,000 yuan.

Incentive policies

Money is not the only factor that attracted these teams to the competition. Launched by the Ministry of Industry and Information Technology (MIIT) of China, the competition is an important measure to stimulate mass innovation and entrepreneurship, and promote the transformation and upgrading of small and medium-sized enterprises (SMEs). It provides SMEs and individual businesses a platform for exchange and demonstration, where promising projects and teams are spotted and supported with necessary services, especially financing, according to Wang Zhijun, Vice Minister of the MIIT.

At the finals of the 2018 competition, investment institutions such as the Investment Association of China and CCB Trust Co., Ltd. signed letters of intent with teams of some of the top 24 projects, including a wireless stereo headset project, an absorbable bone inducing material project, and an Internet plus smart parking system project, with a total intended investment of 490 million yuan ($71 million).

China has been laying emphasis on unleashing the innovation potential of enterprises, especially hi-tech enterprises. According to the MIIT, the total investment in research and development (R&D) across China in 2017 stood at 1.76 trillion yuan ($255 billion), about 80 percent of which was made by enterprises. China's 136,000 hi-tech enterprises spent 900 billion yuan ($130.5 billion) on R&D, accounting for 68 percent of all R&D investment by enterprises.

China has introduced a number of policies to create better conditions for corporate innovation. For example, the country has strengthened the role of government procurement in promoting innovation, and established an insurance mechanism to promote the development of strategic equipment related to national security and lifelines of national economy, where manufacturers of such equipment are compensated for insuring the first batch of production. Tax incentives have been given to promote R&D. In a recent effort to support the country's integrated circuit and software sectors, companies in these sectors that meet given conditions are exempted from income tax for two consecutive years.

In the medical field, China set up a special funding program in 2008 for developing important new drugs targeting malignant tumors and other diseases that seriously endanger the health of the people. The KLT-1101 project received funding under this program in May 2017.

Over 19 billion yuan ($2.8 billion) of funding from the Central Government has been invested into this program as of the end of 2018, according to the National Health Commission of China. With its support, a total of 117 new drugs have been approved, of which, 35 are Class-1 new drugs that were not marketed at home or abroad before their invention.

Local support

KLT is located in the Qingdao Hi-tech Industrial Development Zone established in November 1992. Over the past 27 years, it has developed into a complex of six pillar industries including IT, medicine and intelligent manufacturing. It is home to 935 major projects with a total investment of 217.6 billion yuan ($31.6 billion).

China began to build hi-tech zones 30 years ago by drawing lessons from developed countries. Today, there are 156 such zones across China, which have become the major bases for the development of hi-tech industries in the country. According to the MIIT, in 2017, over 38 percent of China's hi-tech businesses were located in hi-tech zones, and these zones generated revenue of 33.2 trillion yuan ($4.8 trillion).

To attract high-quality hi-tech projects to these zones, local governments have provided generous support in terms of land for industrial use, tax benefits, and accommodation for staff. By building platforms that connect industries, universities and research institutions and promote financing and human resources exchange, they have created optimum environment for business incubation and innovation.

That was an important reason for Zhao to start her business in the Qingdao hi-tech zone. She made her decision immediately after she learned about the environment for industrial development in the zone and, in particular, the policies for medicine R&D. After the company was set up, she received strong support and encouragement from the zone.

Core challenges

China's enhanced investment in R&D has led to prominent results. In the field of artificial intelligence (AI), for example, China ranked first in the world in terms of the number of AI research papers and patents, according to a report released in 2018 by the China Institute for Science and Technology Policy at Tsinghua University.

Compared with developed countries, however, China still has a big gap to fill in terms of innovation capacity of its enterprises. Problems include insufficient R&D investment in some specific areas and insufficient supply of key generic technologies, according to Wang.

China's urgent need for improved innovation capacity was once again highlighted when the U.S. restrictions put ZTE and Huawei, two of China's major hi-tech companies, into the risk of insufficient supply of high-end components.

Wang believes that owning core technology is the key for China's manufacturing industry to upgrade to the next level. To this end, China's enterprises have a major role to play and they should be guided and encouraged to make innovation.

In the area of R&D for new drugs, there is also a large gap for China's enterprises to fill. With years of experience in the industry, Zhao is fully aware of the gap and believes innovation is the solution. "For us to catch up with the world's first-class pharmaceutical producers, the most important task is to make our own innovations," she said.

In October 2017, the KLT-1101 project was approved for clinical trials. It is expected that the product will be available in 2021. The cost of innovation is huge considering the time span of its development, but Zhao is confident in the outcome of their efforts. She anticipates a market demand of $1 billion for the medicine.

(Comments to hufan@chinafrica.cn)