Is China Catching the US in R&D?

Against a belief that industrial China is good at copying and stealing but not much else, in fact the government has been pushing hard since at least 2006 to pour money into research and development.

In the last two years in fact, China has surpassed Japan to become the world’s second-biggest spender on R&D behind only the United States, which is forecast to pour US$436 billion into industrial research spending compared to China’s US$198 billion, It should be pointed out that, as with everything else in China, it can do research and development from a far cheaper cost base, in everything from scientists’ salaries to the cost of the buildings they work in to the equipment they use.

Nonetheless, the US also maintains a large lead over China in percentage of gross domestic product spent on R&D, at 2.84 percent of forecast gross expenditure, compared with China at 1.60 percent, according to figures compiled by the website World of R&D from Battelle, R&D Magazine, the International Monetary Fund, the World Bank and the CIA World Factbook. Japan also outspends China on a percentage basis.

It is also questionable how good some Chinese research actually is. Zhao Zhijun, the vice director of the Institute of Scientific and Technological Information, in a 2010 interview with the Internet news site Global Times, expressed concern over the lack of high-quality work, saying that “the primary (reason) is our current stage of development. In all institutes and universities, assessment of research is done mostly by quantity.”

Too often, scientists are evaluated by how many papers they publish regardless of quality, Zhao said. While sometimes Chinese research is at the pinnacle of science, he continued, too often research focuses on pragmatism and short-term gains.

Nonetheless, since 2006, with the publication of its report on Medium to Long Term Plan for Development of Science and Technology, the government has increasingly sought to drive innovation not by government policy but through local businesses and their appetite for turning R&D into profits.

Contradicting Zhao, others applaud Chinese R&D for forsaking so-called “blue sky research” for searching for immediate solutions to immediate problems in fields such as health care and other pressing problems.

The country’s reputation for outright theft of intellectual property continues, for example such as one involving AMSC, a US manufacturer of software to run wind turbines, which alleges that a former Chinese customer stole its technology and began manufacturing the product as a rival. There have been countless such cases. China tops the US Trade Representative’s Priority Watch List for intellectual property theft as it has for years. Nonetheless, the USTR pointed out in its 2011 report, authorities are making efforts to stop it. Over the past few months, local and provincial branches of China’s Administration for Industry and Commerce said they had conducted 1,372 raids involving more than 700,000 law enforcement personnel, logging 5,000 trademark violations in 16,000 cases valued at over $15 million in an effort to nail the counterfeiters.

Often, leading Chinese companies use what is called “reverse engineering” to tweak German or Japanese technologies, creating their own designs that are either cheaper or more suitable for the Mainland. Too often, that “tweaking,” as in the case of AMSC, is outright theft.

However, “China has been increasingly conscious about the value of intellectual property as it now understands it will have plenty of its own to protect in the future,” according to a new report on R&D by the Shanghai-based financial research firm Research-Works. For example, patent applications in China grew tenfold between 2000 and 2011, increasing 34 percent in 2011 alone, the report notes. “Even if not all of these are high quality innovative patents, more like the petits patents that drove Taiwan’s R&D in the 1980s and 1990s, this shows that many in China already “get it” and see the potential value added.

China’s fast-improving education system, although it far too often still depends on rote learning and while some educators are simply unable to teach, should also provide a boost to innovation. By 2030 China is expected to have as many as 200 million college graduates, more than the entire work force of the United States – 42 percent of them majoring in science, technology, engineering and mathematics.

One science professor at a state university in California said privately that there are almost no native born science or engineering students in his classes. Indeed, only 14 percent of American students major in science, technology, engineering or mathematics. Most of the students in his classes are foreigners, the professor said. Although many end up staying in the US, many more go home, taking their knowledge with them.

“Currently China’s growing efforts to encourage innovation are closely linked with the need to upgrade its industrial base,” the Research-Works report notes. “For years Chinese manufacturers have been known for their ability to copy foreign designs at very low costs. The change in their attitudes towards R&D, especially at the privately-owned small and medium enterprises, has been related to rising costs: business owners are not able to protect margins with very little value added on factory floors amid plenty of fierce competition. This forces businesses to increase their productivity and requires innovation.”

China is also diversifying its R&D efforts into relatively new industries including information technology, internet services and alternative energy where Chinese companies are leapfrogging older technologies and beginning to compete globally, Research-Works notes. The company expects many of China’s leading future technologies to be introduced by private enterprises or multinationals with a significant presence in China, as they use R&D resources more efficiently than SOEs, partly because of Chinese requirements that multinationals entering the mainland to do business share their technology, which has caused a furor in political circles in the United States, with the Republicans accusing the Obama administration of allowing the Chinese to steal secrets.

“Some argue that Chinese creativity is stymied by too much desire for central control, but private Chinese companies have adapted to the circumstances in which they operate,” Research-Works notes. opportunity for Chinese entrepreneurs. The country needs affordable but modern medical equipment and IT systems to keep relevant healthcare databases. In its growing energy needs.

“Institutions in China often suffer from what we call the ‘green tea mentality’, Research-Works notes. “Creativity is not rewarded due to lack of proper motivation and management, so employees sit around talking, reading and sipping green tea – a familiar sight in the China of yesteryear. The key is to unlock this potential and use the resources efficiently. Green tea mentality can be changed by the private sector that can transform these employees into innovative producers.”