2012 Global R & D Funding Forecast: China's R & D Momentum

Fri, 12/16/2011 - 3:14am
Martin Grueber, Research Leader, Battelle and Tim Studt, Editor-in-Chief, Advantage Business Media

2012 GFF Globe ImageThe media seem to be filled with two perspectives on China’s R&D capabilities: (1) comments on its technology accomplishments and (2) attempts to put those accomplishments into perspective. Indeed, China has accomplished much over the past decade. Its spending on R&D has increased steadily from about 0.6% of GDP in 1995 to about 1.6% in 2011. R&D as a percent of GDP has remained fairly stable over the past five years for the U.S. (2.7%), Japan (3.2%), and the total Organization for Economic Cooperation and Development or OECD (2.2%). The U.S. and Japan are members of the OECD.

While China's economy has steadily grown by 9% to 10% over the past several years, its R&D investments have increased annually by about 12%—about seven times the annual percent increase in the U.S. Several years ago, China announced a goal of increasing its R&D as a percent of GDP to 2% by 2010 and 2.5% by 2020. However, its GDP is growing sufficiently fast that even with impressive increases in the rate of R&D spending, investments presently lag the goals that China had set forth.

Intellectual Capital Marks Progress
China is making significant gains in intellectual capital as measured by the total volume of patents and in the number of published scientific papers and articles, according to a report by Thomson Reuters. Japan and the U.S. hold the #1 (35%) and #2 (27%) positions, respectively, for the largest combined number of patents granted by the patent offices in the U.S., Japan, Europe (European Patent Office), South Korea, and China (which together administer 75% of all patents worldwide). But China has steadily increased its number of granted patents at these five offices, doubling the number granted to Europe and South Korea, countries with which it held a similar ranking just five years ago.


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Graph shows expected 2012 R&D changes.
Source: Battelle, R&D Magazine Survey

The technology profile of China's patent portfolio is similar to that of other major patenting countries. Japan, the U.S., Europe, and Korea have similar ratios of patents in IT, audio-visual technology, electrical devices, consumer goods, analysis instruments, agriculture, telecommunications, and chemical engineering. Japan and the U.S. compete for the top two spots in these categories, except for chemical engineering where the U.S. is #1 and China is #2. For its part, China focuses its patents (in declining order) on digital computers, telephone and data transmission systems, broadcasting, radio and line transmission systems, natural products and polymers, and electro-(in)organic materials.

The Chinese government provides a fertile environment for increased patent filings by allowing greater and easier tax deductions for R&D expenses, increasing government-backed loans and discounting interest rates for R&D investments. Also, local city governments have made large monetary grants to the owners of invention patents that had been successfully registered in foreign countries, with a lesser amount paid for patents registered in China.

At the same time, the volume of filings tells an incomplete story. Controversy exists over the depth of innovation typically involved in Chinese patents. An August 2011 report in The Wall Street Journal noted that "more than 95% of the Chinese applications were filed domestically with the State Intellectual Property Office, with the vast majority covering innovations that make only small changes on existing designs." The report also noted that China is significantly weaker on patents granted outside of the China patent office.

Publish or Perish
The health of a national research enterprise is a key qualitative factor in projecting future R&D capacity and funding, as well as relative global R&D competitiveness. Publications are an important current and leading indicator.


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Graph shows the U.S.'s offshore R&D operations.
Source: Battelle, R&D Magazine Survey

The Chinese Academy of Sciences (CAS) is equivalent to the U.S. National Academy of Sciences in terms of supporting research within China. Founded in 1949, the CAS has a staff of 54,600 academics with branch offices in 11 cities and more than 100 affiliated institutes throughout China. The CAS is the world's largest science and technology research organization with close to 100,000 staff, technicians, and students conducting research in basic and applied sciences. Despite increasing domestic and international competition, the CAS is contributing more primary research than ever before, according to an article in Nature, the international weekly journal of science.

China has increased its annual output of scientific papers to more than 120,000 annually, second only to the U.S. with its 340,000 annual publications. In 2006, China surpassed the scientific papers from Japan, the U.K., and Germany, who have plateaued at about 80,000 publications per year. There have been publicized efforts by the Chinese government to calibrate standards for academic publishing more consistent with Western standards. At most scientific journals, the academic level is not high enough, as Li Dongdong, vice director of the General Administration of Press and Publication (GAPP), noted in a recent article in Science magazine. The GAPP regulates China's publications. China publishes about 4,700 scientific periodicals and, though the number of articles published ranks China second, it ranks last in a list of 20 countries polled in citations for articles, with an average of only 1.5 citations per article, according to reports by Elsevier.

The incentive provided to patent holders noted above also applies to lead authors who attain an article impact of at least 15. The incentive is the equivalent of $47,000, but the goal has not yet been attained by a Chinese journal.

R&D > Commercialization > Innovation
Effective commercialization is essential for establishing sustainable R&D funding and for achieving contemporary expectations for R&D ROI discussed elsewhere in this report. In fact, commercialization funding is a natural part of the funding continuum that begins with investments in basic research and leads to the economic impact of innovation.

Last summer, China’s Ministry of Finance announced that it had allocated about $125 million to promote the application of China's R&D results into the commercial sector. The goals were to accelerate the transfer of S&T achievements into production, promote corporate technology innovation, and speed up economic reforms. The allocation is expected to be directed toward projects in key mechanical components and low-carbon, environmentally friendly industries this year. The average subsidy for each project is about $1.2 million, up about 20% from similar allotments last year. The maximum subsidy for any single project can now approach about $7 million.

A recent report by the CAS noted that reform of its research funding system is vital to the growth of innovation in China. The management of government-funded research projects should also be reformed, according to State Councilor Liu Yandong. Liu stated that reform, innovation, and cooperation should be the keys for China's S&T work over the next five years, when the government will increase funding for research in new strategic industries that include new energy, biomedicine, and high-end manufacturing. Over the past five years, China's government spending on S&T has grown annually by about 20%. However, despite the large increases, some researchers complain that problems in the funding system hinder innovation and progress. Inflexibility in the management of government funds allows researchers little freedom to adapt their projects to new developments in their research fields.

The success of China's high-tech commercialization efforts are exemplified by the continued growth of Huawei Technologies, which is now the world’s third-largest manufacturer of mobile infrastructure equipment and the fifth-largest manufacturer of telecom equipment. With substantial government support, low manufacturing costs, and strong R&D investments, Huawei has built up a global infrastructure that consists of more than 30,000 R&D employees; R&D centers in Dallas, Bangalore, Moscow, and Stockholm; and established joint ventures with Symantec and Siemens. Huawei is being closely followed by other Chinese manufacturers who also want to grow their global capabilities.


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