Is China a Global Leader in Research and Development? from wisepowder's blog

Is China a Global Leader in Research and Development?


Research and Development (R&D) is the backbone of innovation. It supports the development of new products and services, which have the potential to touch all aspects of modern life in the ways that personal computers and smartphones have and that artificial intelligence and robotics are expected to in the near future. In a global community built on technology, how countries leverage their R&D efforts has a profound impact on their economic prosperity and the quality of life enjoyed by their citizens.To get more news about china industry research centers, you can visit acem.sjtu.edu.cn official website.

China has leaned on its manufacturing prowess for decades to support economic development, but it is increasingly seeking to contend with countries whose economies are deeply rooted in innovation-based growth. China has made considerable progress in establishing itself as a pioneer in emerging industries and its leaders are increasingly looking toward innovation as a driver of its economic growth.
Decades of rapid economic growth have enabled Chinese leaders to dedicate more resources to R&D. According to the Organization for Economic Co-Operation and Development (OECD), China’s R&D spending accounted for just 0.72 percent of its GDP in 1991. At the time, China’s economy was the 10th largest in the world, just behind Canada, which contributed 1.53 percent of its GDP to R&D in the same year. Economic leaders during the early 1990s, such as the US and Japan, averaged higher R&D to GDP ratios, at 2.5 and 2.7 percent, respectively.

By 2015, China’s R&D expenditure had surged to 2.06 percent of its GDP. This shift was propelled in part by government measures. For instance, China’s 12th Five Year Plan (2010 – 2015) set an R&D spending target of 2.2 percent of GDP by 2015, a mark it narrowly missed by 0.14 percent. Beijing has since renewed its support for R&D through the 13th Five Year Plan (2015 – 2020), which targeted spending 2.5 percent of GDP on R&D by 2020. China’s spending on R&D continues to grow, but likely fell short of the 2.5 percent goal in 2020. According to the OECD, China’s R&D expenditure reached 2.14 percent of GDP in 2018, and Chinese government figures show R&D spending at 2.23 percent of GDP in 2019.
While China may narrowly miss these goals, China’s nominal spending on R&D is rapidly growing. China’s R&D expenditure witnessed a more than 35-fold increase from 1991 to 2018 – from $13.1 billion to $462.6 billion. In 2018, China spent as much on R&D as the next four countries – Japan, Germany, South Korea, and France – combined, and China’s spending accounted for nearly one-quarter of global R&D expenditure.1 Chinese R&D spending still lagged that of the US by nearly $89 billion in 2018, but the gap between the two countries is rapidly narrowing.

The OECD delineates four sources of R&D financing: business, government, foreign funding from the rest of the world (ROW), and other national-level sources. In developed economies, business typically finances a substantial portion of R&D initiatives. The average amount of R&D financed by business in OECD countries was 62.5 percent in 2018. Japan, South Korea, and Taiwan all had ratios well over 75 percent.2

This trend is mirrored in China, with its businesses financing 76.6 percent ($354.4 billion) of the country’s gross expenditure on R&D in 2018. However, this high concentration of business financing has not always been the case. In 1994, business contributed only 32.4 percent of China’s R&D spending. This uptick can partially be attributed to the growing number of Chinese enterprises. According to the World Bank, the number of domestic listed companies in China more than tripled from 1,086 in 2000 to 3,777 in 2019.

However, analyzing trends in business funding is muddled by the importance of state-owned enterprises (SOEs) in the Chinese economy. SOEs are subject to orders from “government officials functioning as representatives of ownership,” which in some cases makes the R&D initiatives financed by SOEs akin to government funding. SOEs also have preferential access to bank loans from China’s state-owned banks, which reduces the cost of borrowing and provides SOEs with stronger financial backing compared to private companies. Unlike their counterparts in the United States and Europe, which commonly rely on venture capital to finance R&D, private firms in China often fund their own innovation efforts, which further widens the financing gap.