FREER, FAIRER MARKET EXPECTED

However, Chinese entrepreneurs have mixed feelings about innovation. Some accept the necessity to upgrade themselves through technical and operational reform to gain a steadier foothold, but some complain feeling shackled due to unfavorable conditions.

Small-and-medium sized enterprises (SMEs) have the loudest complaint. Subsidies to support R&D are unfairly distributed to state-owned enterprises (SOEs) and markets in energy, financial services and telecoms are not fully open to private firms.

According to Nobel Prize Laureate Edmund Phelps' observation, one result of the differentiated treatment towards SMEs and SOEs is the unbalanced talent flow.

"It's a pity that so many young people graduating from universities are going into jobs they see as more secure in the public sector instead of startups, the most energetic cradle of innovation," Phelps said.

It takes a segmented and completely competitive market to foster innovation. If the market is not open to fair competition and resources are mainly relocated by government administrative approvals instead of personal competence of each company, then few are willing and capable to invest in new products or services, said Gao Jifan, Chairman & CEO of Trina Solar, Ltd.

The Chinese leadership vowed last year to reduce over one third of 1,700-plus administrative approval items during their stewardship. More than 300 items have been relinquished or delegated to lower governments. The country is gradually opening traditionally monopolistic sectors to all market players and is promoting mixed ownership to combine financial strength with technological advantages.

What the government should do is to invest more in basic research and development to aid enterprises, said Zhang Yaqin, vice president of Microsoft.