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Basic research accounted for over 6 per cent of China’s total R&D expenditure in 2019, according to the National Bureau of Statistics. Photo: Reuters

Chinese companies ramp up basic R&D spending as US tech decoupling looms: report

  • But outlays as a share of economic output still lag US, Japan and South Korea, statistics bureau says
  • Government urged to direct more fiscal support towards critical core technologies
Chinese companies increased their spending on basic research by more than half last year amid the growing risk of US-China decoupling in technology and Beijing’s ambitions for innovation to drive the economy.

Outlays in the area rose by 52 per cent in 2019, more than triple the rate recorded for the previous two years, according to an annual report released on Thursday jointly by the National Bureau of Statistics, the Ministry of Science and Technology and the Finance Ministry.

For the first time, basic research – crucial for long-term self-reliance in critical core technologies – accounted for over 6 per cent of China’s total R&D expenditure, the bureau said.

But even though R&D as a share of its total economic output reached a record high of 2.23 per cent, the level remains behind that of the United States, Japan, South Korea and advanced European countries, according to the bureau.

“The share of basic research expenditure is still far behind developed countries’ average of 15 per cent, and often the R&D outputs are abundant in quantity but lack quality,” the bureau’s senior statistician, Deng Yongxu, said.

US increasingly excludes China from coronavirus research projects

Deng said the country’s total R&D expenditure by government institutes, universities and companies had grown by double-digits for four consecutive years, with an increase of 12.5 per cent to 2.2 trillion yuan (US$319 billion) last year. The spending was the second-highest in the world – a position China has held since 2013 – and further closed the gap with the US.

Companies remain the main drivers for R&D investment, accounting for 76 per cent of spending in the area; while Beijing, Shanghai, Tianjin, Guangdong, Jiangsu, Zhejiang and Shaanxi are the most committed municipalities and provinces in outlays in research and development.

Government fiscal support for science and technology development also increased 12.6 per cent to 1 trillion yuan last year.

Deng recommended that the government should concentrate its fiscal resources for R&D in critical core technologies, while opening more financing channels for the private sector.

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The report’s release comes after Chinese President Xi Jinping told a group of academics and economists this week that the government supported efforts by companies to be the main driver of technological innovation in the upcoming long-term economic plan. The government would also commit more resources to long-term basic research, Xi said.

At the same time, Chinese telecommunications giant Huawei Technologies is reportedly preparing to launch a project, code-named “Nanniwan”, to develop products entirely free of US technology. The company also released its own mobile phone operating system last year to replace Google’s Android system after US sanctions were imposed on the Chinese tech giant.

Nevertheless, China is still not a strong innovator, with the bulk of its R&D spending going on short-term product development instead of basic research, according to a study released in November by the State Council’s policy think tank.

The study warned that the present level of basic research would not be able to support Beijing’s ambition of technological upgrade in the manufacturing sector.

Despite having an edge in terms of quantity, studies by Chinese researchers were not cited as often as the international average. The commercial value of Chinese patents was also low, with the revenue from Chinese intellectual property trade accounting for less than 5 per cent of the world’s total, the study said.

US increasingly excludes China from coronavirus research projects

That point was underlined last week in the OECD’s Main Science and Technology Indicators report, which covered statistics up to 2018. The report said the US committed 2.8 per cent of its GDP to R&D expenditure, while Germany earmarked 3.1 per cent and Japan 3.3 per cent. Mainland China spent 2.1 per cent in the area for the same period, compared with Taiwan’s 3.5 per cent.

The contrast is even clearer when basic research spending is expressed as a percentage of GDP. The US commitment stood at 0.47 per cent in 2018, while China’s share was 0.12 per cent only.

This article appeared in the South China Morning Post print edition as: China ramps up R&D outlay amid decoupling fears