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R&D EXPENDITURE/
CHINA
source: www.oecd.org/dataoecd/0/60/
33998255.pdf
www.fiscalstudy.com/2003-globa
l-news-flash/40-china-third-in-r-d-
spending.php
www.economics.utoronto.ca/
brandt/Science&Tech_29Oct
2004.pdf
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China is facing a golden opportunity to achieve technological catch-up with the West despite its relatively backward condition just 25 years ago. The country has made striking progress in reforming its S&T system and creating the conditions for successful R&D and sustainable technological development…- an intense R&D activity, low or high-tech, has propelled China to the world’s number 3 spot in terms of R&D spending, according to a report published by the Organization for Economic Co-operation and Development (OECD) in October 2003. In 2001, OECD said China’s R&D expenditure reached US$60bn, after the US ($282bn) and Japan ($104bn). About 60% of such spending came from domestic and foreign firms and the rest from the government;
- from 0.6% in 1996, China’s statistics show its R&D intensity accelerating rapidly to 1.3% in 2003. At 1.3%, China’s R&D intensity is 1/2 that of the US. Among the 88 countries reported in the UNDP Human Development Report, 2001, China is the only low or low-middle income country whose level of R&D intensity has risen beyond 1%;
- in 2002, China had the second highest number of researchers in the world (811,000); moreover, China is producing new scientists and engineers at a substantially higher rate than any of the OECD countries. However, the intensity of scientists and engineers (% per 10,000 population) in China is comparable to Turkey (10) while the proportions for Italy (28), Austria (48), the UK (55), and Canada (58) lie between the proportions for China and the US and Japan;
- the number of papers published by Chinese scientists in journals included in the Science Citation Index had increased from 5,408 in 1991 to 35,685 in 2001 moving China’s rank in the world up from 15 to 8; (1)
- according to the Semiconductor Industry Association, in 2003 China accounted for 11% of world demand for semiconductors and yet China’s semiconductor industry was able to meet less than 20% of this demand. The first major step the Chinese government took to rebuild its electronics industry was to turn over 100 military plants into dual-purpose (65%) or exclusively civilian (35%) plants. In 1985 the transfer reached its peak of 1 billion Yuan. Of the 21 semiconductor manufacturing plants currently operating in China, 9 have been built during 2001 to 2004 and 4 of these are 100% owned by foreign investors;
- electronics industry was a major beneficiary of this massive technology transfer that saw its output growing at an annual rate of 23.3%. Another major boost the Chinese government has provided to the electronics industry is the various national information technology infrastructure projects it started to implement in 1993. China has injected 50 billion yuan (US$6.02 billion) since 1998 to upgrade traditional industries with high and new technologies;
- within China, the electronics and telecommunications industry is illustrative of China’s emerging high-tech industries. During the latter half of the 1990s, the ratio of R&D spending to value added in the two sectors accelerated by 250% to reach nearly 7.5%. The market share in total industry sales doubled over this period;
- this explains the principal source of China’s growing R&D intensity: the shift in consumption and production patterns within the country. As living standards rise, the composition of goods and services shifts from those that are low in their technology content to goods and services that are more technologically intensive. This association between rising R&D intensity and growing market share is also exhibited by the other China’s equipment and machinery industry and the instrumentation sector;
- at 16.5%, China’s adult illiteracy rate in 1999 was approximately twice that of Singapore, similar to those of Brazil (15.1%) and Turkey (15.4%) with substantially higher incomes, and well below that of India (43.5%). These comparatively high rates of literacy in China are likely to enhance the demand for and utilisation rate of technology intensive goods and services, such as telecommunications services, computing, and medical services;
- multinationals are clamoring to set up production for these R&D intensive industries in close proximity to China’s burgeoning consumer markets. This phenomenon of the commercial desire to set up production in close proximity to large markets may explain why S&T takeoff has not occurred in certain smaller OECD countries (e.g. Norway, Australia, Belgium, Austrialia, and New Zealand) while it has occurred in all of the largest OECD economies;
- of greater significance, is also the rapid growth of the high-tech composition of China’s exports, rising from about 6% in 1990 to 23% in 2002, according to the World Bank’s figures;
- this shift toward the consumption and production of goods and services with comparatively high technology content is likely to result in growing S&T roles for the business sector and research institutes. China is moving away from central planning in which the government was the primary source of S&T resources: in 1991, government sources accounted for nearly 30% of S&T funding, a category that closely tracks with R&D funding. The firm sector, which in market economies is the primary source of R&D financing, accounted for just 28%;
- by 2002, government’s financing share fell to 1/4 while the share of the enterprise sector (LMEs - large and medium enterprises) rose to over 57%. The enterprise sector performed 61% of all R&D expenditure, followed by the independent research sector, which accounted for 27%;
- in China, the central government also stimulates R&D though the provision of grants and tax incentives to the enterprise sector. China’s National Bureau of Statistics (NBS) conducts an annual census of its approximately 22,000 large and medium size enterprises (LMEs). These enterprises, which account for 3/4 of China’s industrial R&D spending and over 50% of its industrial sales, receive the majority of these R&D grants and tax subsidies;
- from 1995 to 2001, the adoption of R&D operations within the industrial LME sector and the intensification of R&D operations among existing R&D performers significantly increased: R&D performers rose from 19.7% to 28.7%, a rise of nearly one-half. Over the same period, firms that had been R&D performers in 1995 intensified their R&D operations. The number of high performing LMEs with R&D sales ratios in excess of 3% grew from 544 to 1,581. All but 275 of these were domestically owned LMEs.
- according to the LME census data, in 2001 total R&D expenditure within China’s domestic industrial LME sector was approximately 4 times that of the foreign funded enterprise (FFE) sector. Domestic firms accounted for 78% of every R&D dollar spent by the enterprise sector;
- for 2002, China reports on the activities of 4,347 research institutes. Of these 744 are directly supervised by the central government, including the 98 institutes that comprise the Chinese Academy of Sciences. Together these institutes account for 70.3 billion Yuan (about US$8.49 billion) in S&T spending, which represented 24% of China’s S&T funding;
- not surprisingly, China’s eastern provinces dominate the country’s R&D spending. Furthermore, within the eastern region, the cities of Beijing and Shanghai and Guangdong and Jiangsu provinces account for 2/3 of the region’s R&D spending;
- after two decades of pursuing high-tech investment, China is now home to dozens of R&D centres of multinationals – a phenomenon that has led to suggestions that China is competing with India as the technology hub of Asia. Almost all the global giants in automobile, telecommunications technology, computer, software, machinery, electronics, biotechnology, pharmaceuticals and other major industries have made such high-tech investments in China. These companies include General Electric (GE), General Motors, P&G, Unilever, Microsoft, Intel, IBM, Motorola, Siemens, Ericsson, Nortel, AT&T, Lucent Bell and Samsung;
- even Japanese firms, which have been conservative in investing in China, have increased their R&D spending substantially. Since 2001, at least 6 major Japanese firms – NEC, Oki Electric, Sony, Toshiba, Hitachi, Fujitsu and Matsushita Electric – have either set up new R&D centres or concluded R&D joint ventures with Chinese partners. These projects involve work in integrated circuit design, system software, cellular phones and other digital products.
(1) China Statistical Yearbook on Science and Technology 2003.
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