Research & Development in China (R&D):
Advancing Scholarship

The rise of China is not limited to the role of a momentous economic powerhouse and the outlook to become the dominant economy globally. It should come as no surprise that this rise has seen the increase of various other related aspects of development.

China’s overall spending for research and development (R&D) has increased across the board, and already now, when directly compared to developed nations and other developing nations, the amount the Chinese government and companies are investing is staggering – $409 billion were spent in 2015.

There are several economic growth models describing the development of economies. Most famously, the Solow model assumes some basic factors of growth, but effectively assumes technology, machines and people drive growth.

China still has a reputation for imitating products and providing very little innovation on their own. However, China itself has understood the need to invest heavily in technology since they increasingly cannot just compete with low labor prices anymore. It has officially been identified as one of the most important stepping stones to move up the value chain in many 5 year plans and other position papers.

The general education of the population in form of basic schooling is usually not implied but a focus on research and development within university institutions clearly is. However, it should be obvious that they are strongly related.

 

China research and development at work China has prioritized spendings on R&D already for many years

 

Comparisons to Competing Countries

While the United States is well-known to be the forerunners of research and development, China is strongly expected to surpass their absolute annual spending on investment in research and development by 2019. This is based off trends and future predictions, with China following its plan to increase funding for research and development to represent 2.5% of their GDP – a significant rise from their current 2.1% of their current GDP (2015). These and the following numbers include both governmental and corporate expenditures.

China’s investment on research and development (as a percentage of GDP) is trumped by other East Asian countries. South Korea invests the most worldwide (4.36% of GDP) – significantly more than Japan (3.35%). Most established, Western economies spend 2 to 3 percent of their GDP. In absolute terms, however, China is about to overtake the US and become the number one in the world.

 

China Research and Development in Education

The Chinese will to climb up the value chain. Most importantly, China citizens place a high emphasis of the importance of education themselves. It has a high prestige that is extremely important to many Chinese, which is shown in the high enrollment rates with 23.9m students being enrolled in about 300 universities in 2012.

While China has not participated in the Program for International Student Assessment (PISA), certain districts like Hong Kong, Shanghai and Macau entered on their own accord. Results were extremely high and favorable, which shows China is able to provide world class education (Shanghai internationally won all three categories by far, Hong Kong always in the top 3).

However, recent studies have shown that the education system in certain areas is severely lacking social fairness, which needs to be addressed. While most Westerners presume China to offer extremely high class of education to everyone based on stereotypes, the reality is often only the elite can afford to pay for a level of education that is so outstanding. Most citizens are unable to pay for adequate education, and a recent study showed only 7.6% of Chinese graduates had skills valued by the international market. A similar phenomenon applies to Chinese universities: Universities such as Peking University and Tsinghua University are world-class, but many provincial universities are far away from this level.

As China looks to expand their growth and solidify their position internationally, the government understands the importance of producing high quality graduates who can use their skills globally. Therefore, over recent years, there has been a significant shift in the focus of the public education spending of China. Now, many more education schemes are receiving increased funding, aiming to increase quality of teaching, technology and providing a better overall level of education for the masses.

 

China research and development at a local university Education has a high significance in many Asian countries – clearly also in China.

 

China Research and Development in Companies

Chinese companies seek to move up the value chain. As many other countries can offer cheap labor, competing on price is a race to the bottom that many companies do not want to be a part of. Through shifting away from cheap goods to higher quality goods, moving up the value chain should be coupled with economic growth.

Over the last several years, Chinese firms have really started to commit to investing in research and development. This is seen in many areas. Firstly, according to the World Intellectual Property Organization, the most amount of applications for patents are from China since 2012. Furthermore, while other nations still spend larger amounts on research and development, China saw an increase in their own spending of 46% year on year, coming to a total of $30bn for 2014. This can definitely be interpreted as being on the right way. Investments of Chinese companies in Western companies or the hiring of Western employees can be seen in this context, too.

 

Conclusion

When compared to other established nations, it is clear that China still has a long way to go. However, what cannot be questioned is the commitment being seen by the country to get there. China has shown that they have the ability to produce world class graduates from their education system, but also understands that there are shortcomings in the education quality they can provide to everyone which is important for the overall research and development success of the country.

About the author

Jan has an intimate knowledge of strategic planning and operations management he acquired in the German military and in academia. Having graduated from Peking University, he possesses an acute knowledge of the Chinese economy. Jan routinely consults on short and medium term company strategy and is currently working on the company’s 3 year plan.

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