2.1. Innovation Policy under the NIS Framework
According to Edquist and Hommen [
27], innovation policy is the governmental behavior that affects technological and other types of innovation. Liu and White [
28] further explained that innovation policy is an integrated concept that gradually forms a comprehensive policy system with specific aims and certain references derived from previous economic policy or technology policy. The Chinese Science and Technology Committee defined innovation policy as the synthesis of direct and indirect policies and measures that governments use to regulate and promote innovative behavior [
29]. In short, there is no uniform definition of innovation policy. Therefore, we argue that innovation policy is a comprehensive policy system that includes policies that directly and indirectly affect technological innovation activities.
The NIS concept appeared and became popular as a way of meeting the needs of innovation policymakers and researchers. Lundvall [
30] suggested that the excessive specialization of policy institutes and policy analysts is a practical problem. Thus, the development of concept that helps analyze and solve problems is important, especially those that can be applied to the analysis of innovation policy and science policy. The NIS provides such an institutional framework for policy formulation and an analytical framework for the study of innovation policy. Innovation policy, in turn, affects the NIS. That is, it affects the operations of innovation actors in the NIS and their exchanges and cooperation through specific policy tools or methods, thus affecting the performance of the NIS, and therefore, the performance of the whole country. In other words, the NIS and innovation policy are interdependent.
With the evolution of the national political economy, China’s innovation policy has undergone complex and significant changes. In addition, the NIS has gone through a period of transition. Huang et al. [
31] pointed out that innovation policy in a transition period may not involve the typical policy factors of a mature market economy. Assuming the active shift of the NIS from actor-oriented to activity-oriented, we used a policy analysis method with multiple actors and multiple activities to identify the components and characteristics of China’s innovation policy under the NIS framework. The position and role of SMEs in the NIS were examined through an exploratory investigation of innovation policies for SMEs. As the core of China’s innovation policy, the NIS’ composition includes financial policies, business innovation support system, human resource (HR) policies, and legal policies. The main content and concise descriptions of these items are listed in
Table 1. All of the categories contain government policy decisions at the national level, relative responsibilities for innovation policy, and policy formulation and implementation.
In 1978, China’s national science and technology policy launched a market-oriented, multilayered management reform, involving several government departments and organizations. In 1998, the National Science and Technology Leading Group was founded by the State Council and became the top-level coordinating institute for innovation policy, coordinating important issues between the departments of the State Council and national and local departments. It studies and designs China’s medium and long-term science and technology development programs with the Ministry of Science and Technology. The Ministry of Science and Technology is currently one of the main institutes that design and implement China’s innovation policy, together with the National People’s Congress, the State Council, the National Development and Reform Commission, the Ministry of Commerce, the Ministry of Finance, the State Taxation Administration, the Ministry of Education, the Ministry of Industry and Information Technology, the Ministry of Human Resources and Social Security, the Chinese Academy of Sciences, the National Natural Science Fund, the State Intellectual Property Office and other departments, which are parts of China’s innovation policy system. As one of the most influential research institutes in China, the Chinese Academy of Sciences, an important part of the innovation policy framework, after years of market reform, remains the largest beneficiary of government technology funding. Statistics show that in 2008, the Chinese Academy of Sciences undertook 21% of all nationally funded projects (representing 82% of all national scientific research), 42% of the 973 Program, and 65% of the scientific support program for tracking key problems [
32,
33].
With regard to the components of financial policies, the priority of the Chinese government is to use grants, loans, interest subsidies, and planning grants to encourage scientific and technological innovation activities. Current science and technology projects are mainly financed through appropriation, such as the National Natural Science Fund, the 973 Program, the National Science and Technology Support Plan, the 863 Program, and the Science and Technology Condition Platform [
32,
33]. Policy guidance for science and technology projects and other special projects are mainly financed by state loans and self-financed with a supplementary state allocation. Since the reform and opening up policy in 1978, China’s economic growth and the development of national innovation capacity have benefited from FDI to some extent, and the Chinese government has continuously improved its investment promotion policies. For example, the Ministry of Science and Technology and the Ministry of Commerce issued the catalog of industries for foreign investment and introduced a foreign investment transition from low-tech and labor-intensive industries to high-tech manufacturing and service industries using financial and tax policies, to encourage and support technological innovation, technology diffusion, and international technology transfer. One of the important components of China’s financial policies is the financial support system, especially its risk investment support for innovative SMEs. However, the technological base and the necessary legal conditions of the risk investment system are incomplete. In addition, although the scale of the SME Boards, Sci-Tech innovation board (STAR Market), and the Growth Enterprise Market (GEM) is limited, the Chinese stock market has, to some extent, supported the growth of listed high-tech companies.
A country’s business innovation support system can best reflect the dynamic development of an innovation system, including the innovation activities of firms, the emergence of new firms, and the diffusion and absorption of knowledge and technology. Through the Torch Program in China, a wide range of high-tech development zones and business incubation centers have been established. In recent years, National Agricultural Science and Technology Parks, National Sustainable Development Pilot Zones and National University Science and Technology Parks have been created to coordinate with China’s long-term science and technology development planning. Since 1999, the national hi-tech fair, held once a year, has been an important window for China’s high-tech sector in foreign markets and is also the high-end platform of high technology industrialization. Productivity promotion centers are science and technology intermediary service institutes, which aim to promote technological innovation in firms, especially SMEs.
Human resource policies involve education, higher education, and special human resources awards, a funding and training plan, the latter consisting of rewards and funding for teachers and students, and international cooperation and exchange programs. In recent years, the Chinese government has greatly expanded its human resource policies and paid particular attention to scholarships and the creation of businesses by scholars returning from overseas.
China has had great success in developing related laws. The fields of science and technology and innovation have Trademark Law (1982, revised in 2019), Patent Law (1984, revised in 2008), Copyright Law (1990,revised in 2010), Regulations on The Protection of Computer Software (1991, amended in 2001), the law of Science and Technology Progress (1993), the Law of Agricultural Technology Extension (1993, revised in 2012), Regulations on The transfer of Research and Achievement (1996, revised in 2015) and the Promotion of Small and Medium-sized Enterprises (2003, revised in 2017), among others. The field of education includes, among others, the Compulsory Education Law (1986, revised in 2006), the Teachers’ Law (1994), the Education Law (1995, revised in 2015), the Vocational Education Law (1996) and the Higher Education Law (1999, revised in 2018). The field of firm management involves the Bankruptcy Law (2007) [
34], among others. In addition, many rules and laws are enacted to strengthen supervision and enforce the law. Currently, the legal system for innovation in China is still under construction, and law enforcement needs to be further strengthened.
The above analysis shows that China’s innovation policy involves multiple activities, including innovation, commercial and social applications from multiple actors, such as firms, universities, research institutes, government bodies and others, and the interaction between different participants. In addition, the financial and legal environments support these activities, reflecting the key elements of the NIS.
Figure 1 illustrates the five parts of China’s innovation policy under the NIS framework. Each oval represents a part, with the part of the organizational structure being located in the center surrounded by the other four equally independent parts.
2.2. SME Performance in China’s Macroeconomy
According to the Regulations on the Classification of Small and Medium-sized Enterprises and Measures for the Classification of Statistically Large, Medium-sized, Small and Micro-enterprises (2017) [
35], entrepreneurs in China are divided according to three indicators: The number of employees, business income, and total assets. For medium-sized entrepreneurs, the standards are as follows: The number of employees must be between 300 and 1000, and business income must be between 20 and 400 million yuan. For small-sized entrepreneurs, the standards are as follows: The number of employees must be between 20 and 300, and business income must be between 3 and 20 million yuan.
SMEs play a very important role in the development of the economy, and their development status has a great impact on the operation of the macroeconomy. Data adapted from the National Bureau of Statistics Database of China suggest that SMEs have a significant effect on China’s aggregate economic growth. By the end of 2017, there were about 363,000 industrial SMEs in China, contributing 85% to the growth of the total number of enterprises in China. All SMEs contribute more than 50% of China’s tax revenue, more than 60% of its GDP, more than 70% of its technological innovation achievements, and more than 80% of its labor force employment. In 2017, the industrial SMEs’ main business income was 6.81 trillion yuan, accounting for 60.1% of all industrial enterprises above designated size, and the total profit was 4.22 trillion yuan, accounting for 56.33% of all industrial enterprises above designated size.
Figure 2 shows that the increase in annual sales revenue in industrial SMEs above designated size significantly affects the GDP growth rate during the sampling period. The growth pattern of these two variables is essentially similar. In 2008, the annual growth rate in sales revenue in SMEs above designated size decreased slightly (from 29% to 28%), while that of large firms decreased more significantly (from 25% to 19%). In addition, China’s GDP growth rate declined. In 2017, the opposite scenario can be observed: The increase in the GDP growth rate seemed to be driven by the strong recovery in sales growth in SMEs. The variation in the gap in the annual sales growth rate between SMEs and large firms shows the same pattern as the annual GDP growth rate when we eliminate the significant time lag effects in certain years. To maintain the sustainability of economic growth in China, the government has focused on strengthening the construction of its NIS and has emphasized the central status of firms in the NIS, with the implementation of an independent innovation development strategy. However, in practice, the contribution of SMEs to China’s macroeconomic growth and their status in policy supply and the NIS are not proportionate. At times, the actual status of SMEs has even deteriorated, with a lack of financial support and limited market access in, for instance, times of financial crisis and tight monetary policy.