China second only to the USA in total spending on R&D
R&D as a proportion of GDP will reach Western levels by 2020
Serious cultural hurdles to innovation are being tackled systematically
China is determined to supplement its position as the world's chief manufacturer of high-tech goods with a level of innovation that will match the USA, Europe and Japan. Doing this will require a huge increase in R&D, as set out in an ambitious 15-year plan that aims to see the country match the rest of the world in R&D performance by 2020. Spending on R&D is already high in absolute terms, and although it remains low as a proportion of GDP, this gap will be filled by 2020. Harder to overcome are the cultural and structural barriers to innovation: for administrators, the limitations to what is possible with top-down management and the difficulty of picking winners; in education, a historical emphasis on quantity over quality, in both graduates and research papers; in industry, high levels of state control and and the fact that by far the largest fraction of companies still have no R&D stake in their products. All these factors are being systematically addressed, however, and there seems little doubt that by 2020 China will be, if not a world leader in innovation, far from its current position as a manufacturer of technology designed elsewhere.
THE WORLD'S NUMBER 2 IN R&D SPENDING
By 2020 China wants to be a world player in its capacity to turn science into wealth.
Among individual nations, China is now second only to the USA in R&D spending, having overtaken Japan by 2011. In 2012 China's estimated gross expenditure on R&D (GERD) was USD 199 billion, compared to USD 436 billion in the USA and USD 338 billion for the whole of Europe (all figures in terms of purchasing power parity (PPP)) (Table 1). Annual growth in R&D spending may currently be below the 20% figure that is often quoted, but it is certainly well ahead of China's fast-rising GDP.
In its volume of scientific publications China already leads both Japan and Europe, and may overtake the USA this year. The number of overseas patent applications by Chinese institutions, though still low, is rocketing.
The driving force behind this growth is China's centralised leadership, which until recently has been dominated by scientists and engineers - "the world's largest technocracy". An ambitious growth plan published in 2006 draws on China's formidable ability to mobilise resources in pursuit of national goals, from cancer cures to manned space flight.
Yet Chinese R&D still has a long way to go. GERD is still less than half that for the USA, which has only a quarter as many people as China. GERD as a proportion of GDP remains low (1.6% compared to 2.8% for the USA). The great majority of companies don't own the key intellectual property on which their business depends. Most R&D spending is on improving existing products, not basic research.
Some Chinese attitudes may work against effective research and especially innovation. Central control and "picking winners" may not be the best ways to foster innovation. There is an emphasis on quantity over quality, while traditional ways of thinking deter originality and perhaps over-value the ability to copy. The situation is changing, but the transformation will probably take longer than the raw R&D spending figures suggest.
A 15-YEAR PLAN FOR R&D LEADERSHIP
Long ago, Chinese inventions - paper, printing, the compass, gunpowder - were key to the development of the modern world. But subsequent centuries of isolation left China technologically backward by the time the country re-opened to Western influence in the mid-19th century. Following the Communist revolution in 1949, two decades of Soviet-style technological progress were largely undone by Mao Zedong's Cultural Revolution.
Not until 1976 did science, technology and innovation reappear on the political agenda under the leadership of Deng Xiaoping. Jiang Zemin and Hu Jintao, both engineers by training, followed Deng's example in pinning China's future to progress in science and technology. Xi Jinping's leadership has continued the trend.
2006 saw the pace of change quicken with the launch of a hugely ambitious 15-year Medium to Long Term Science and Technology Development Programme. Three years in the making, this ambitious plan recognised that the existing drivers of the Chinese boom - cheap manufacturing, technology imports and foreign investment - would not carry the country through its next phase of growth in the face of challenges such as shortage of energy and resources, pollution, and poor capacity for innovation.
The plan says that China should aim to be among the top five countries worldwide in terms of patents and scientific citations, with advances in science and technology eventually accounting for 60% of economic growth. "By the end of 2020… China will achieve more science and technological breakthroughs of great world influence, qualifying it to join the ranks of the world's most innovative countries," said President Hu Jintao in 2006.
The Medium to Long-Term Programme charts China's technological future through a wide-ranging set of application areas, goals, special research projects and large-scale research programmes. Topics include microchips, nuclear reactors, transgenic crops, nanotechnology, quantum research, and projects of national prestige, notably space exploration.
To fund all this, China will increase spending on R&D from 1.4% of GDP in 2006 to 2.5% in 2020 - a target which should be achievable if the current rate of growth is maintained (Table 1 and Table 2). Other supporting measures include improvements in the coordination of research, including military applications across public institutions; a new benchmarking system for research institutes and researchers; new banking policies and fiscal incentives to support innovative start-ups and promote R&D investment by established companies; and a new national strategy on intellectual property rights.
RESEARCH ORGANISATION IN CHINA
Besides the governing State Council, China has six ministry-level organisations dealing with science and innovation:
The Ministry of Science and Technology (MOST) has the main responsibility for science and technology policy and strategy. It finances a large amount of research, primarily through special programmes, administers technological development zones and oversees international collaboration.
The Ministry of Industry and Information Technology (MIIT) oversees broadcasting and the Internet, the national knowledge economy, and the manufacture of electronic equipment and software. MIIT includes the State Administration for Science, Technology and Industry for National Defence (SASTIND), which controls aerospace and the nuclear industry.
The Ministry of Education (MOE) is responsible for education policy and management of higher education. It oversees key laboratories and research institutes in universities, and has established initiatives to commercialise research.
The National Natural Science Foundation of China (NSFC) is a key funder of research, with a rapidly-growing budget which by 2010 had reached USD 1.6 billion.
The Chinese Academy of Sciences (CAS), founded in 1949, is China's most prestigious science organisation. The CAS runs more than 100 research institutes which in turn have spun out several hundred companies, including Lenovo, the world's largest PC supplier. It also runs research programmes and graduate training schemes, and advises the government on science policy.
The Chinese Academy of Engineering (CAE) is involved in policy advice and development, but does not run its own research institutes.
PEOPLE, SKILLS, ETHICS AND RESULTS
There is no doubt that under the right circumstances Chinese researchers are capable of true scientific breakthroughs. Examples in medicine include Gendicine, the world's first licensed gene therapy, which has been successfully treating cancer since 2003, and stem cell research. In both cases, China's less-cautious approach in moving from lab to licensing has helped to create rapid progress. China is also a global force in nanotechnology, and by 2009 was publishing nearly a quarter of all papers in this field.
China produced 1.5 million science and engineering graduates in 2006. Though the country's top universities are world-class, graduates of the other 1700-odd universities and colleges are still very variable in quality. There is often an emphasis on graduate numbers over quality, and terms like "engineer" are defined loosely by Western standards.
Starved of opportunity at home, Chinese scientists and engineers have traditionally travelled abroad - notably to the USA - for education and work. As in the past, most remain outside China, but rising salaries are now tempting them home in increasing numbers. Traditional Chinese education favours rote learning; there is evidence that training abroad makes Chinese people more independent in thought, and hence more quickly able to innovate.
With China's new research jobs comes relentless pressure to publish. A 2011 study by the UK's Royal Society suggested that by 2013 China could be producing more scientific papers than any other country. According to data from science publisher Elsevier, in 1996 the USA - the current leader - published more than ten times as many papers as China. By 2008, the USA was publishing 316,317 scientific papers a year, while China had surged to 184,080. China still ranks low in terms of citations, which measure the quality and also the accessibility of publications, but the quality is rising.
Pressure to produce results has sometimes pushed researchers into scientific fraud. One prestigious Chinese journal reported in 2010 that nearly a third of articles submitted for publication showed evidence of plagiarism - a trend that is by no means confined to China, however.
Security of intellectual property is also a worry. In a high-profile case in 2012, for instance, Chinese wind turbine manufacturer Sinovel was found to have stolen crucial control software developed by US company American Superconductor Corp. (AMSC). In November 2011, US intelligence agencies said that China and Russia use Internet hacking to steal US intellectual property as a matter of national policy. Where it is possible to resort to legal protection, however, Chinese intellectual property law has teeth and is often more cost-effective to apply than its foreign counterparts.
In 2009 China moved into the top 10 foreign countries applying for patents at the US Patent Office, though the 1,655 Chinese applications were dwarfed by 35,501 from Japan, 9,000 from Germany and 82,382 from the USA. In 2010 China filed 12,337 international patents, a year-on-year increase of 56%.
Statistics from the journals confirm that collaboration between Chinese academics and researchers abroad is increasing. This corresponds with the trend towards increased international collaboration across the whole of science, with the benefits it brings to all parties.
The rise in international co-operation also acts as a check to the nationalism that is a significant driver in centrally planned ambitions for Chinese research. One goal of nationalistic science must surely be a Nobel prize for research carried out in the People's Republic. Since 1957, eight Chinese scientists have won Nobel prizes in science, but none of these has been for work carried out in mainland China.
R&D IN CHINESE AND FOREIGN COMPANIES
Compared to the top universities and state-funded research institutes, Chinese manufacturers - both private and state-owned - in general have a poor R&D record. Technology transfer between industry and academia is poor, and the huge majority of firms have no stake in the intellectual property that underpins their business.
Many large companies that are becoming well-known outside China are taking R&D very seriously, however. Examples include PetroChina and CNOOC in the oil and gas industry, Huawei and Lenovo in information technology, Haier in white goods, Bank of China, Air China and China Mobile. As policies and attitudes change, it will also be no surprise to see SMEs leading the R&D stakes.
For two decades now, multinational companies have also been opening research centres in China. The trickle that began with Motorola, Nokia and Microsoft has latterly turned into a flood, with an estimated 1,600 R&D centres now operating or being built. Of this number, perhaps a quarter are genuinely innovating rather than customising existing products for the Chinese market or fulfilling a mainly political role.
Originally, the main attraction of research in China was the low cost of hiring qualified staff. As salaries have risen and even production has started to return to the home countries, R&D costs have taken second place to the ability to service fast-growing Chinese markets - and in some cases to create global products through Chinese research.
Analyst McKinsey says that multinational drug companies have invested more than USD 2 billion in R&D in China in the past five years, with Chinese R&D sites opening or growing almost as quickly as European and US sites are closing or shrinking.
In Shanghai, PepsiCo recently opened its largest R&D centre outside the USA, a USD 40 million project that will enable the company to get new products to market in as little as two weeks. BASF has rationalised its Chinese R&D in a €55m pan-Asian innovation centre in Shanghai. BASF agrees that access to qualified employees is key factor, and that its decision to locate one-quarter of R&D staff in Asia by 2020 "is not a cost-containing exercise".
(The trend reports are developed for DECHEMA by international experts and journalists. DECHEMA does not accept any liability for incomplete or wrong information.)
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