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Outspend to Outsmart the competition? China’s growing R&D funding

China tends to become unsurpassable in its mature industries, and therefore China’s self-sufficiency, if achieved, will certainly threaten the US’s global position. Nonetheless, the fast-paced nature of the high-tech industry in combination with the domestic and international challenges mean that self-sufficiency is likely decades away.  Still, the rewards of self-sufficiency make it an enticing long-term objective and a coordinated national priority involving government, entrepreneurs, public education, and private enterprise. In the last decade, China’s increased R&D funding puts it on a track to oust the US as top R&D spender.

Capital, capital

Policies promoting R&D will facilitate future competitiveness in advanced logic and memory semiconductor manufacturing, but the industry will take decades to build up.  China specifically lacks capabilities in equipment, foundry, and domestic EDA/ECAD software. The relative underfunding that characterized the early 2000’s is now a thing of the past (Figures 1,3 below). US R&D funding has grown but weakly in comparison to China.

Figure 1: National Gross R&D Spending
Data from OECD

Since surpassing Japan’s total R&D expenditures circa 2008, China’s total R&D expenditures now approach 80% of the US’s total expenditures, making it the world’s second-largest national spender on R&D (Figure 1 above).[4]  Yet Chinese businesses reinvestment in R&D is far below the international average – around 10% compared to 20% – and this represents an opportunity for policy to encourage reinvestment.[5] The intensity of R&D (combined government and private spending as a percentage of GDP) rose from approximately 0.94% in 2001 to 2.2% in 2019 (Figure 2 below); this represents an increase from $12.5 billion R&D spending annually to $315.4 billion annually. 

Figure 2: National R&D Intensity as a Percentage of GDP
Data from OECD

Government R&D spending intensity during the same time-period increased from approximately 0.3% of GDP to nearly 0.45%. This nears Japan’s intensity level of public spending – a country that files more triadic patents than any other OECD country.[6]

Figure 3: Combined Government Spending on R&D (central, local, municipal)
Index 2007 = 100 (Constant USD PPPs) Data: OECD
Figure 4 Triadic Patents
Data from OECD

Innovation Increase

The image of China in popular news media is that China is a copy-cat country with little domestic innovation and invention. While this may have been true at one point in history, it is certainly not true now. The number of triadic patents itself indicates China’s innovative and inventive research. Moreover, The Economist magazine issue of Jan. 16, 2021 cited an Elsevier-published study showing that in 23 of 30 so-called “hot” scientific fields, Chinese researchers publish more high-impact research papers than America (high-impact indicates further citations by other researchers), and corroborated the finding that China’s increased R&D funding is changing scientific research dynamics. The US, to keep its position, will need to respond to this with increased funding of its own and avoid falling on the already-exhausted excuse of IP theft.

[1] “Premier Li on ‘Made in China 2025’.” The State Council The People’s Republic of China, August 10, 2017.

[2] Xinhua. “China to Take Sci-tech Self-reliance as Strategic Underpinning for National Development.” The Top News. March 5, 2021. Accessed April 15, 2021.

[3] Xinhua. “Key development blueprint offers glimpse into China’s sci-tech future.” The State Council The People’s Republic of China. March 10, 2021. Accessed April 15, 2021.

[4] OECD. “Main Science and Technology Indicators.” OECD, March 2021. Accessed April 11, 2021.

[5] Wei Xu. “Software and chip firms get more support.” The State Council The People’s Republic of China, May 14, 2019. Accessed April 17, 2021.

[6] Triadic patents are viewed as especially “high quality” patents, worthwhile filing in three patent offices: the European Patent Office (EPO), the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO).”

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