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China's research is work in progress

Updated: 2015-05-11 11:17

R&D spending is high in terms of the nation's GDP, but it is likely that statistics are inflated

The British people are reflecting on the results of last Thursday's general election and the scientific community is intensifying its calls for the next government to increase investment in research and development to drive economic growth.

If the last few years are anything to go by, these pleas will fall on deaf ears. An analysis by the Campaign for Science& Engineering shows the proportion of government spending invested in R&D in the United Kingdom has been decreasing since 2003. In that year, 1.37 percent of total government spending went to R&D. In 2013, this figure dropped to 1.18 percent, or 8.4 billion pounds ($12.5 billion).

The government's contribution to the UK's total R&D spending is currently 0.49 percent of GDP. Organizations like CASE want Britain's political parties to commit to increase this figure to 0.84 percent of GDP-the level that exists in Germany. But only the Green Party has shown any appetite for such a policy: It has pledged to double public spending on research to 1 percent of GDP. However, the Greens only had one member of the House of Commons prior to last Thursday's general election.

Concerns also abound in the United States. Senator Dick Durbin is calling for the introduction of an "American Innovation Act", which would pump an additional $100 billion into R&D over the next 10 years. This is a direct response to China's increase in R&D spending over the last couple of decades and fears that US "global scientific leadership" is under threat.

The picture in China is unlike that in developed economies, many of which are still battling to rein in deficits through significant public spending cuts following the global financial crisis.

In 2012, China overtook Europe in a key measure of innovation-the proportion of R&D spending to GDP-when it invested 1.98 percent of its GDP in R&D, compared with 1.96 percent by the European Union, according to the Organization for Economic Cooperation and Development. China's research intensity has tripled since 1998.

The OECD predicts China will outpace the US as the leading R&D spender by 2020. This would mark another important milestone in China's path to becoming an innovation-oriented nation. China's R&D spending has been growing rapidly since 1995, specifically after 2006, when its Medium and Long-term National Plan for Science and Technology Development (2006-20) set a target of increasing its R&D intensity to 2.5 percent by 2020.

Even if an economic slowdown in China delays the moment it surpasses the US in gross expenditure on R&D, China's commitment to increasing R&D intensity-effectively channeling spending into science and technology faster than its economy expands-reflects a firm recognition of the urgent need to rebalance its economy.

While it is clear that China is, in contrast to many cash-strapped Western economies, continuing to prioritize investment in R&D spending, we cannot be blinded by statistics.

There are key differences between China and the US or OECD countries in terms of how R&D expenditure statistics are calculated. US R&D expenditure excludes most or all capital expenditures, which is in fact a big share of Chinese R&D spending; Chinese basic research spending excludes most personnel expenditure, which is included in US figures.

The quality of R&D spending statistics is also different. In the US, the contribution of the federal government to gross expenditure in R&D is available from the Office of Management and Budget, and various science and technology mission-oriented agencies such as the National Institutes of Health, Department of Energy, Department of Defense and the National Science Foundation.

However, speaking from experience, we can collect Chinese data on governmental R&D spending only from agencies that spur this funding. The result is at best an estimate. A simple Sino-US comparison does not reflect reality.

Furthermore, it is likely that statistics detailing China's R&D expenditure are inflated. OECD forecasts use the purchasing power parity approach for international comparisons, which is based on the domestic purchasing power of the Chinese currency. However, most research equipment-for example, chemical reagents, basic data-is purchased on international markets. An increasing amount of research is published in international journals, which Chinese researchers or research institutes have to pay to access.

China's statistical system is still a work in progress as its economy has yet to reach the level of sophistication of those of developed OECD economies. The reliability of Chinese official statistics has long been a topic of discussion in academic and policy circles. Most of the debate is concentrated on China's economic data and GDP figures. But R&D statistics suffer similar glitches.

Our research suggests that Chinese enterprises most likely overstate spending on R&D to meet "official" criterion set for companies to achieve "high-tech enterprise" or "innovative enterprise" status. Local governments may overstate spending on R&D to meet the central government's growth targets and win intercity or interprovincial competitions, and managers of State-owned enterprises or local governments may exaggerate spending on R&D to score higher on performance reviews and secure promotions.

Even if China is set to surpass the US in research spending by 2020, this only shows that the gap between China and the US in R&D spending is narrowing. But this does not equate to the closing of the technological gap between the two countries. Technological advancement is a gradual and long-term process of knowledge accumulation, which requires a sustainable approach to investment designed to enhance an economy's capacity to innovate.

We should also remember that the US has enjoyed a far longer period at the top table of innovation. In 2013 Chinese R&D intensity reached 2.08 percent, a target that the US readily achieved back in 1957 when its R&D intensity reached 2.15 percent.

World-class R&D spending does not guarantee the production of world-class research. Indeed, Chinese R&D spending is not all spent on R&D. According to The Investigation Report on the Status of Science & Technology Staff in China by the China Association for Science and Technology, in 2003, only 40 percent of the budgets for R&D programs were used for actual research programs. Chinese scientists are preoccupied with quick outcomes and immediate returns under the current performance evaluation system. Misuse or abuse of research funding is also widespread.

An engineering initiative launched under China's national plan for scientific and technological development is a case in point. The plan established 16 megaengineering programs in areas such as information and communications technology, biotechnology, energy, defense and health. The Chinese government has earmarked huge amounts of money for each of them.

In contrast to the institutionalized approach to budgetary management that exists in other national science and technology programs, officials running the engineering programs have far greater power to decide where the money goes and who receives it. A large amount of money appropriated to these programs has been spent in a rush and has even led to abuse.

Recent investigations revealed three chief scientists from engineering programs at Zhejiang University, China Agricultural University and Beijing University of Posts and Telecommunications embezzled public funds.

To remedy the problem, China recently launched an initiative to reform the central government's allocation of funds to national science and technology programs.

So while the international science community faces a long struggle to preserve research budgets in the face of government spending cuts, many will look at China in envy as it begins to outspend the US in R&D. But a more complex picture lies behind the statistics: China has a long way to go to not only increase its investment in R&D, but also significantly enhance its innovative capabilities through effective and efficient use of this increased R&D spending.

Yutao Sun is an associate professor at Dalian University of Technology and Cong Cao is a senior fellow at the China Policy Institute at the University of Nottingham. The views do not necessarily reflect those of China Daily.

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