Article
R&Dspending

Doubts over impact of massive R&D spending

April 14, 2014 by Nick Compton

China, still derided by many in the West as the “Great Imitator,” is set to become the world’s leading research and development (R&D) spender within about 10 years, according to a report by advisory firm KPMG, which notes that in 2013, China committed $220bn in R&D spending, second globally only to the United States, which is estimated to have spent $424bn. This year, research firm Battelle and R&D Magazine predict in their 2014 Global R&D Funding Forecast that China will spend $284bn, a year-on-year increase of more than 20%, far eclipsing the US’s same-period increase of just one percent.

But for all the flashy figures, there remain serious questions as to the effectiveness of this spending boom. Traditional measures used to quantify outputs as a result of R&D spending are notoriously murky in China. Although the country overtook the US in 2011 as the world’s leader in patent applications, a bulk of these patents are filed for so-called “utility model” designs that usually signify incremental changes with little added inventiveness.

Similarly, while China has increased its global stake in the number of academic journal articles and reviews it publishes from five percent of the world total in 2002 to 13% in 2011, it is marred by accusations of high-level plagiarism and publishes mostly in relatively low-impact, hard-science fields. Further throwing into doubt the effectiveness of China’s R&D spending, a (2004) survey by the China Association for Science and Technology found that only 40% of funds designated for research purposes in China found their way to their stated purpose, the other 60% simply vanished or went to cover unrelated expenses.

Guy de Jonquières, Senior Fellow at the European Centre for International Political Economy, believes China’s policy aims towards innovation are essential, but as implemented are impractical.

“China undoubtedly needs to develop a more innovative, technology intensive economy if it is to jump the middle income gap that confronts all developing economies at a certain stage,” De Jonquières said. “However, a lot of the efforts to accelerate the process look like flag-waving and seem intended more to advertise than to substantiate China’s claims to great power status.”

De Jonquières points to the flat-lining growth in China’s Total Factor Productivty (TFP), a measure of residual economic output (the difference between real GDP growth rate and the sum of growth derived from ICT Capital, Non-ICT Capital, labour quantity, and labour composition), as proof of China’s “dropping off of the technological frontier.” An April chart by the Conference Board China Center shows that in 2013, China’s TFP growth had stalled at zero, a situation signifying no real economic value added from the billions pouring into research and development.

Steven White, an Associate Professor at Tsinghua University’s Department of Innovation, Entrepreneurship, and Strategy, argues that China’s full-throttled quest to catch up to Western powers in R&D may ultimately prove harmful. He argues that China’s push for innovation is too focused on “trophy” outcomes, without enough focus on developing technology that will improve people’s livelihoods.

“What China needs to do is look at the kind of innovation it actually needs,” White said, adding that he sees a serious misallocation of resources away from China’s core developmental needs in areas like food, education, and clean energy.

“There seems to be a general disdain for the countryside,” White said. “So what you have are an aspirational urban elite who want cool and new technologies.”

White notes that when Steve Jobs died, it was like “the world had ended in China,” and when Chinese began to wonder whether their country could give rise to a figure as innovative as the late Apple guru, the question was moot.

“The last thing China needs is a Steve Jobs,” White said. “They need someone who can increase access to electricity, to water, to housing. These are the important problems to solve.”

China’s determined R&D spending boom has been driven in large part by its 12th Five Year Plan (2011-2015), which stipulates that the country should achieve R&D development spending equal to 2.2% of its GDP by 2015 (it is now at 1.9%, compared to the US’s 2.8%). According to Battelle and R&D Magazine, China’s R&D investment is linked to national goals for “industrial growth, stable domestic evolution to an advanced economy, power projection and international prestige.” China’s three biggest R&D funding areas are agriculture and food production, military and aerospace technology and energy technology.

The over-riding goal of China’s R&D spending trend is to create an “innovation-driven” economy by 2020, one that helps the country transition from an economy heavily reliant on manufacturing and government investment to one fuelled by innovation and high-tech industry. Already, KPMG notes, China graduates 900,000 engineering students per year, compared to just 80,000 in the US – although there are serious questions the competency of these graduates.

“China is investing heavily to create an innovation infrastructure that will allow it to develop, commercialize and market advanced technology-based products, moving beyond its established position as a low-cost location for manufacturing,” the Batelle and R&D Magazine study notes.

Despite the lofty rhetoric and sparkling investment figures, China faces daunting challenges in translating its policy goals into reality. Enterprises like Xiaomi and Alibaba – both massively successful private technology companies lauded for their innovative streaks – are still rare. According to Austin Qie, co-founder and GM at Uplooking, a Beijing-based IT firm that trains students in web development skills, risk-taking and innovation is relatively uncommon in most facets of China’s economy, as the status quo and stable growth are valued more than shocking the system with new ways of thinking.

“It goes back to the educational system,” Qie says, questioning whether more investment in R&D will result in China realizing actual results. “Maybe we do not teach our young to think creatively, or creatively enough. [More] Money is good, but maybe not enough.”

To help combat this line of logic, China is doubling its efforts to establish an infrastructure that promotes scientific research and trains critically thinking scientists. Perhaps the biggest star in China’s burgeoning roster of scientific research institutions is Shenzhen’s BGI, the world’s largest genomics research firm that is home to up to 20% of the globe’s DNA sequencing capacity. It is currently China’s fifth-ranked publisher of peer-reviewed scientific articles behind only the Chinese Academy of Sciences (CAS) and three universities, according to the Nature Publishing Index.

Its more than 5,000 scientists have become involved in ambitious projects -ranging from mapping the genome of individuals with autism to searching for a genetic link between genetics and IQ – worth billions of dollars in investment from public and private sources.

But even this institute, and the bio-medical research field in China, is not as innovative as it appears to be on paper, Guy De Jonquières argues. Instead, in places like BGI, massive facilities with hardware whose core components are primarily from Western corporations grind out rote processes that require next-to-no creative bursts.

And while it’s easy to define myriad problems afflicting China’s innovation climate, from lax I.P. protection to bumbling SOE’s and an environment of learning that doesn’t foster problem solving skills, prescribing solutions is fraught with difficulty.

“It’s hard to say what they should be doing, “White says, “but clearly there are some questions. “

Guy De Jonquières contends that with its rush to modernize, China has perhaps bitten off more than it can chew given its developmental level. Now, he says, it’s time for China to reassess its priorities and strategize for the future. “There is real danger that China is trying to go too far too fast towards the technological frontier.”



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