Contradictory or Complementary? Indigenous Innovation and Manufacturing Policy in China's Wind and Solar Sectors

Abstract

In support of renewable energy industries, China’s central and local governments have pursued divergent goals, as central government policies have encouraged industrial upgrading through ‘indigenous innovation’ (Liu and Cheng 2011, State Council 2006), while local governments have continued to provide incentives and policy support for traditional manufacturing activities. In this environment, China’s wind and solar firms have often shunned central government requirements for autonomous technology development, drawing instead on local government resources for mass production. To date, China’s wind and solar firms continue to rely on global partners in the development of renewable energy products, even as China has become an important location for the commercialization of new wind turbine and solar panel technologies. Has local government support for the manufacturing economy undermined the central government’s indigenous innovation strategy for renewable energy sectors?This paper argues that local manufacturing policies have not prevented the establishment of innovative capabilities in Chinese wind and solar firms. Rather, local government policies have provided an important corrective to some of the weaknesses inherent in China’s indigenous innovation policy framework, most importantly its inattention to the collaborative nature of innovation in contemporary supply chains and the importance of innovative manufacturing capabilities in product development. Based on 107 interviews in 43 Chinese wind and solar firms, I find that China’s wind and solar firms have build on local government resources for manufacturing to establish highly innovative capabilities in mass production. By utilizing local manufacturing resources to establish innovative manufacturing capabilities, Chinese wind and solar firms have not defied upgrading and innovation, but have followed global trends toward niche specialization and collaboration in product development. These findings suggest that local government policies to support the manufacturing economy are not in conflict with central government goals for upgrading and innovation. Resources for manufacturing firms provided by local governments have enabled new options for the establishment of innovative capabilities in manufacturing itself -- options which have been neglected by the narrow conceptualization of innovation underlying the central government’s indigenous innovation framework.