OECD report: China is becoming an R&D force

Manufacturing & Technology News, Sept 17, 2007

China is well on its way to becoming the world's largest exporting nation "and is regaining its former historic place in the world economy," according to the OECD. But the majority of its exports of information and communication technology products are primarily from foreign companies that have opened plants there, and the country is beset with problems associated with inducing economic growth based on innovation and investments in science and technology, says the OECD.

China has set a goal of creating an innovation oriented society by 2020, which "seems likely," says the OECD in its "Review of Innovation Policy, China, Synthesis Report." Its intention to invest heavily in R&D "would allow China to emerge in time as a significant contributor to global innovation and to benefit better from international technology flows."

But the country must overcome a "large scope" of issues for it to become an innovation powerhouse. It has problems with an educational system that stresses passive learning and exam-based performance; it lacks corporate governance systems driven by market forces rather than heavy investment in government owned enterprises; its financial system is underdeveloped with severe shortages of capital for new ventures. It doesn't have a legal and regulatory structure for the creation of venture capital, or protecting intellectual property. There are few firms and professionals with the experience necessary to invest in high-risk or long-term ventures. The country's standards system is skewed to protecting current industries.

Nevertheless, research spending in China has been growing at a "stunning annual rate of almost 19 percent since 1995 and reached $30 billion in 2005, the sixth largest worldwide," says the OECD. "The R&D/GDP ratio has more than doubled in a decade and reached 1.34 percent in 2005, compared to only 0.6 percent in 1995. This is a spectacular achievement, but does not mean that the innovation capabilities of the Chinese economy are already on a par with those of OECD countries which have a similar R&D intensity of production."