China has seen its expenditure on research and development (R&D) as a proportion of the nation’s gross domestic product (GDP) rise steadily in recent years, boosting the country’s innovation capabilities. But it is still a halfway house as authorities realize that more fundamental work needs to be done if the world’s second largest economy is to realize its full potential.
One particularly important task that is coming into focus is the need to rationalize the relationship between the government and the market in order to enhance the development of science and technology.
At a bi-monthly session of the Standing Committee of the National People’s Congress, the country’s legislature, Finance Minister Lou Jiwei said recently that the country’s R&D spending reached 1 trillion yuan (US$164.1 billion) in 2012, accounting for about 1.98 percent of its GDP, up from 1.54 percent in 2008.
R&D expenditure as a percentage of GDP is viewed as an important indicator to evaluate a country’s investment in innovation. The increased spending has helped development of science and technology, and improved the country’s innovation capabilities, Lou said on Oct. 22.
China is keen on becoming a technology power in the world as it does not want to rely on foreign technologies, especially in sectors such as communications that have a bearing on national security. However, its R&D capability still lags behind those of western nations such as the United States. Lou blamed this for the unclear role of the relationship between the market and the government.
Experts meanwhile say the government is lacking a macro view in technology policy management, as the current administrative mechanism was chalked out during the planned economy period. With the opening up of the economy and deeper reforms, the government’s existing framework is failing to adapt to the fast growing technology world through efficient collaboration.
In addition, the role of the government in the private sector with regard to R&D also raises questions as to whether official intervention in enterprises’ business decisions on investment will benefit the technology sector as a whole, or otherwise. Experts say enterprises should have control on their R&D direction and be free to commercialize the results for profit. Government intervention will only make things worse, they warn.
Instead, the government should position itself as a market driver, to push enterprises to investing in innovative projects, as well as ensure protection of intellectual property rights. Inadequate fund-raising channels and talent pools also need government policy intervention to resolve the issues, as Lou admitted.
The lack of top-level collaboration with regard to technology R&D policy, including on issues such as intellectual property rights, external trade and taxation, has led to a poor foundation for the government to lure more R&D involvement. Authorities should stimulate market demand for new technology products, on top of the current special policy to boost R&D investment, experts say.
In the seven years to 2012, the government has boosted its technology related spending to drive developments in science and technology. In 2012, fiscal expenditure on science and technology development increased to 560 billion yuan, up from 168.9 billion yuan in 2006, an average annual growth rate of 22.73 percent.
China’s total expenditure in science and technology in the last seven years has reached 2.42 trillion yuan, accounting for 4.37 percent of the country’s fiscal expenditure.
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