Microsoft, Qualcomm, General Electric among multinationals boosting R&D investment in China

Major technology multinationals have been under the microscope in China but this issue has failed to hold back their development plans.
Microsoft Corp and Qualcomm are being watched closely by China’s antimonopoly regulators while Apple’s iPhone was once branded a national security threat because of its ability to track users’ locations.

However, the tech giants have largely brushed off these obstacles and appear to be taking a long-term view of China, where they continue to upgrade their research and development capabilities.

The China-based R&D centres of General Electric, International Business Machine and Microsoft are emerging as global innovation bases for the companies, which have stepped up their R&D investments in order to deliver breakthrough technology in next-generation environmental, health care and information products.

The Microsoft Asia-Pacific R&D Group, which includes the company’s Beijing-based Asia research lab, is investing more than US$600 million each year in technology incubation, product engineering and research on areas such as big data and cloud computing. The results will support a range of products, including the Bing search engine and Xbox One. The company sees the investment as a way of ensuring its “continued leadership” in information technology, an area that Beijing counts as a strategic emerging sector and in which it doesn’t hesitate to exert its influence. The company says it will continue to support innovation in China, with the firm’s success “always about partnership ecosystems and co-operating with governments”.

General Electric is also increasing R&D investment in China. Last year, the company had spent more than US$250 million to boost its 11-year-old Shanghai-based China technology centre, where it plans to increase yearly investment by 5 per cent, according to reports. GE is working on an advanced membrane that could withstand high alkaline and temperature environments, computed tomography and energy-saving turbines, while developing technologies in what is known as the internet of things (IOT), which stitch together machines through the internet to allow better data transmission and more effective remote collaboration.

IBM is strengthening its IOT push through its research centres in Beijing and Shanghai, catering to a market whose size has surpassed 500 billion yuan (HK$631 billion) last year, nearly 30 per cent from 2012.

However, such sophisticated R&D centres are still few in China. Max von Zedtwitz, director of the Centre for Global R&D and Innovation (GLORAD), a research institute with a focus on studying innovation in China, said they accounted for about 2 per cent to 3 per cent of the at least 1,600 research facilities that had sprung up across the country over the past two decades.

“The capabilities they process in their R&D centres are unique in that these centres have become the go-to R&D centres worldwide for this particular company, but these are really just a handful of R&D centres in China,” he said.

The overall situation is improving. Douglas Fuller, a professor at the School of Management at Zhejiang University, said many R&D centres in China were no longer designed for manufacturing and product localisation, as the country tried to shift to a more innovative growth trajectory. The US-based Battelle Memorial Institute said R&D spending in China was likely to reach US$284 billion this year, up 22 per cent from 2012, compared with a 4 per cent growth rate in the US for the same period.

China is pinning its hopes on seven strategic emerging industries, arguing that they will provide a cushion to the economy’s downward pressure. Beijing is supporting the development of sectors such as energy saving,  environmental protection, information technology, bio-technology, advanced equipment manufacturing, new energy and new-energy vehicles.

One factor deterring foreign firms from investing more in those areas is China’s escalating cyber-security tensions with the US. The mounting mistrust in cyberspace does nothing to ease the concerns of foreign investors, who are already anxious over intellectual property infringement in the country, said Cyrus Mewawalla, director of research at the Britain-based CM Research, which focuses on the technology, media and telecoms sectors. “Several technologies, like internet of things, enable spyware and malware to be embedded in all kinds of devices. It is very difficult to detect them,” he said. “As we move towards the internet of things, there will be more mistrust.”

That mistrust was less pronounced in environmental and energy sectors, where the investment mood hadn’t been affected by intellectual property disputes or government probes, said Derek Scissors, a resident scholar at the Washington,DC-based American Enterprise Institute. Clean energy companies, for example Gamesa Corp    Tecnologica SA (GAM), Spain’s biggest wind-turbine maker, are willingly sharing their technologies in exchange for better access to the Chinese market. Gamesa just won a contract to supply 112 megawatts of machines to two projects in China.