The inexact science of becoming a hi-tech power

PUBLISHED : Monday, 22 December, 2003, 12:00am
UPDATED : Monday, 22 December, 2003, 12:00am

China has ambitions to become a major centre of basic science in the 21st century. What are its chances of success? Pretty good, actually.

The Chinese government has made funding of basic research a high priority, and well-equipped Chinese labs now perform world-class work in a variety of fields. Chinese scientists who used to flee to the freer and better-funded environment of American universities and labs are now returning.

Over the next three or four decades a combination of abundant, relatively low-cost brainpower and increasingly well-directed government funding - aided by the many foreign research institutes eager to establish a China presence - will likely turn the mainland into an important world scientific hub.

A further question is whether these improvements in basic science will lead China to become a world leader in commercial research and development. Here the answer is much less clear. In principle, China's very low cost structure and abundance of science and engineering graduates should mean that commercial research and development (R&D) will flourish. So far, it has not. Why?

Lack of money is not the problem. China's R&D expenditure rose from 0.6 per cent of gross domestic product in 1996 to 1.1 per cent five years later. This puts it ahead of India and Brazil and just barely behind Russia. By 2005 the figure will rise to 1.5 per cent and, within a decade after that, China will likely reach the average level of OECD countries - 2.3 per cent.

It is true that all of China spent less on R&D last year than did the top five US pharmaceutical companies. But the strong upward trend is clear. Moreover, more than 60 per cent of R&D spending is now done by companies (rather than universities or government research institutes), up from just over 40 per cent in 1996.

But as R&D has become more commercialised, it has also become more basic. In 2001, 78 per cent of China's R&D spending was on development, up from 68 per cent in 1995. Most of this is last-stage tweaking of products, rather than the creation of innovative technologies or processes.

This low-rent approach is mirrored in the much-publicised R&D centres set up in China by multinational companies. A recent survey by American technology analyst Kathleen Walsh found that fewer than 50 of the more than 200 foreign-funded R&D centres announced in China between 1991 and 2002 perform R&D in any meaningful sense. Most are glorified management training centres. Even the centres doing actual R&D do so on a very low level. 'Many of the products advertised by R&D centres in China are software upgrades or systems integration solutions,' writes Ms Walsh.

A basic reason for this is the poor protection offered to intellectual property (IP) in China. So long as IP protection remains weak, foreign and domestic companies are rightly reluctant to devote vast resources to developing IP that can be stolen by competitors with impunity.

This situation will change only when domestic technology companies become a strong enough lobby to compel the government to enforce IP laws. This is bound to happen, but it could well be years from now.

Research by the China Economic Quarterly