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RIO Country Report China 2015

RIO R&I International Country Reports analyse and assess the research and innovation system, main challenges, framework conditions, regional R&I systems, and international co-operation, including with the European Commission's Joint Research Centre (DG JRC).
 

 
 

Chapters

1. Overview of the R&I system

As a result of the post financial crisis stimulus package, China is going through a transition from rapid development (2011 annual GDP growth rate at 9.49%) to a slower but more sustainable economic growth rate of 7.25% in 2014 (EU: 1.3%). However, GDP per capita of China (2014: 9,913 EUR) is much lower than EU average (2014: 27,300 EUR). Gross Expenditure on R&D (GERD) amounted to €277,554 million (USD 368,731 million, current prices and PPPs) in 2014 and R&D intensity (GERD as percentage of GDP) increased from 1.93% in 2012 to 2.05% in 2014, surpassing the level of the EU28 (2014: 1.94%) (OECD, 2015). Government debt of China is 39.2% of GDP in 2014, increasing from 36.7% in 2012 and showing an increasing trend. As for the economic structure of China, the shares of primary, secondary and tertiary industry in the GDP are 4.8%, 47.1% and 48.1% in 2014 (China Statistical Yearbook, 2015). Innovation plays an increasing role in the Chinese economy as China became the world’s second largest spender on R&D in 2005. As China enters a stage that the Chinese leadership terms the “new normal”, facing challenges of sustaining its economic growth and social development, the Chinese leadership called for pursuing innovation-driven development strategy at the18th National Congress of the Chinese Communist Party (CPC) held in 2012 and announced a major reform on the S&T financing system in 2015. Guided by the innovation-driven development strategy and other policies, China has strengthened the R&D investment and continued to provide incentives for innovation activities in recent years.

2. Public and private funding of R&I and expenditure

The Gross Expenditure on R&D (GERD) as a percentage of GDP in China increased steadily from 1.79% in 2011 to 2.05% in 2014, which reflects the growing R&D intensity in the Chinese economy. However, with a large population, the GERD per capita of China is still at 20% level of the EU average in 2014. China performed well in comparison to the EU average in terms of the share of Business Expenditure on R&D (BERD) and the percentage of R&D funded by the Business Enterprise Sector (BES). Public investment in R&D in China also plays a significant role in reaching the national R&D targets. The sum of S&T expenditures by the central government and local governments increased from €74.25 billion (RMB 66.8 billion RMB) in 2011 to €100.33 billion (RMB 81.9 billion) in 2014, representing a 20 percent increase over the four years, while most of the R&D funding is allocated based on competitive project funding. Although the scale of public R&D funding increased, the fragmentation of the system and the concentrated power in the government became salient and needs to be solved.

3. Framework conditions for R&I

As Chinese economic growth slowed down from 2012, the government responded with policies to curb the power of bureaucrats, simplify the process of starting a business and reduce tax. The measures to streamline and simplify the process of business registration have had a positive impact. The number of newly registered businesses in 2014 increased by 46% compared with the number in 2013 and China is placed 84th in the World Bank “Ease of doing business index” rankings for all economies benchmarked to June 2015, which implies China’s general business regulation environment is friendlier than the world average. Another major effort that the Chinese government made in coping with economic slowdown is to promote “mass entrepreneurship and innovation”. The policy mix includes providing tax relief for SMEs, creating incubators supported by government and providing them free of charge to the “makers” who start their own businesses, organizing competitions in universities to encourage university students to start their own businesses, and removing the legal and regulatory barriers for professors and scholars in public research institutions and universities to engage in technology transfer or start their own businesses. All these measures aim to generate sustainable and quality growth and implement an innovation-driven development strategy.

4. Smart specialisation approaches

It is common that some industry sectors and technologies are selected by the governments as priorities for intensive investment in Chinese R&I policies and programmes. As sub-national governments contribute about one-third of the total government investment in R&D, however, in terms of priority and agenda setting in the R&I policy, the central government is more authoritative than the local governments. The most important policies and guidelines are discussed and enacted at the level of the central government, while Beijing’s autocratic system of governance provides ample room for the Chinese government to enact and implement industrial and innovation policy to enhance the technological capabilities of Chinese companies. However, development across regions is not homogeneous and balanced. The economically developed provinces can appropriate substantial budgets to finance S&T activities. S&T funding, and R&D investment and activities are largely concentrated in the coastal regions in the east. Although regional governments (provinces and municipalities) in China are granted a high degree of autonomy for regulating and managing the local economy and society, the challenge remains in the underdeveloped regions and areas.

5. Internationalisation of R&I

China has become an important global player in terms of R&D and innovation, with the volume of innovation output steadily growing. China aims to go from manufacturing centre of the world into world-leader on innovation by 2050. China has been opening up for foreign companies to invest and in particular to set-up R&D centres. All these favourable conditions have been providing many opportunities for China to cooperate with foreign countries including European countries, the United States and so on. Over the last decade, multiple cooperation programmes and initiatives have been established between China and Europe, most of which improve researcher mobility and strengthen joint laboratory collaboration. Given that the landscape of R&D activities in China is rapidly changing, and both the European and Chinese sides are continuing to define their priorities, it would be important for both to continuously monitor general trends, study new developments and engage in discussion.

Conclusions

China has experienced rapid economic growth over the last three decades. However, the recent economic slow-down in China means it faces challenges of sustaining economic growth and social development, in order to escape the “middle income trap”. The Chinese government calls for implementing the innovation-driven development strategy. More specifically, there are several challenges that China is facing: High reliance on foreign products and technologies, the fragmentation and abuse of the S&T funding system, difficulties of technology transfer at universities and public research organizations. To tackle those challenges, the Chinese government announced a major reform of the S&T financing system that is to be completed by 2017, with the aim to enhance transparency and reduce fragmentation, launched 13th Five-Year Plan (2016-2020) to continue to sponsor research in the frontier technology fields and fund the R&D mega projects, and amended the Law on Promoting the Transformation of Scientific and Technological Achievements in 2015 to reduce barriers to technology transfer in universities and public research organizations.

Geo coverage
Report year
2015
Official publication date
Tuesday, 11 October, 2016
Country Report file
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