A Looming Economic Threat

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The second reason for concern is that China is dramatically boosting its supply of advanced degrees in engineering and technology. China produced 12,873 master's degrees in 1995. In the 2004–05 academic year, according to the study, China surpassed the U.S. for the first time, awarding 63,514 master's degrees. The number of Chinese doctorates also has mushroomed over the past decade, from 1,784 to 9,427.

By remaining focused on K-12 and undergraduate education, Wadhwa warns, U.S. policymakers "are fixing the wrong problems." The real threat is that U.S. corporations will shift fundamental scientific and technological research to China to take advantage of its bigger talent pool, subsidized research labs, and low-cost environment for high-tech manufacturing. "Once we lose research and design, we lose the platform to innovate," he said in an interview. And while there is nothing wrong with sharply improving K-12 education, that will be no panacea. "By the time we fix that, it will be too late," he says.

Advantages Remain

A strong caveat is in order. China's numerical superiority in advanced science and tech degrees still doesn't mean it is destined to leapfrog the U.S. In fact, despite China's lavish science investments and breathtaking advances in high-tech manufacturing, its achievements in innovation are underwhelming. The mainland's lack of intellectual-property protections, the state's heavy intervention in key industries, and controls over information still hold the country back.

When it comes to forming new companies to bring the latest technologies to market, the U.S. still holds an overwhelming advantage. There is little sign that China will catch up soon as an entrepreneurial environment (see BusinessWeek.com, 3/31/06, "Blinding Science: China's Race to Innovate").

Still, the loss of leadership in advanced science and tech degrees means that one more pillar of American competitiveness is weakening. And the risk remains that China will solve the rest of the puzzle.

Green-lighting Green Cards

What should U.S. policymakers do? Boosting support for basic science research is important. The Chinese government subsidizes master's and PhD programs, Wadhwa says, in some cases even paying master's candidates to study. At very least, Washington could fund more scholarships for advanced degrees. The U.S. also needs to take another hard look at tax incentives, research grants, and other measures aimed at ensuring that corporations do not export real R&D.

Congress also needs to adjust its thinking on immigration. America still educates the world's best and brightest. But to keep them, it must grant more green cards to master's degree and doctorate holders once they graduate. Indians receive the majority of the 65,000 temporary H1-B visas given annually to guest workers—mainly working in tech fields. But under U.S. law, only 9,800 such applicants from one country can get green cards, Wadhwa notes. That number also includes green cards given to their family members. The backlog of those awaiting permission to stay and work in the U.S. has grown to account for six years of applicants. "Scientists get frustrated and are leaving the U.S.," he says. "We are losing the foreigners who fueled our growth." (See BusinessWeek.com, 3/8/07, "Gates to Senate: More Visas.")

It's great that Congress is finally talking seriously about shoring up American competitiveness. Now it needs to make sure it's focusing on the right things.

Engardio is an international senior writer for BusinessWeek .