Is OECD hyping China’s R&D spending?

Posted by: Bruce Einhorn on December 07, 2006

Do the Chinese really spend more than the Japanese on R&D? That’s a question that I’ve been asking myself following the startling news from the OECD (Organization for Economic Cooperation and Development) that China’s total spending on R&D for the year will top $136 billion, surpassing Japan’s $130 billion and second only to the U.S.’s $330 billion. (Here’s the OECD press release from Dec. 4.)

I’m sorry, but I don’t buy it. I’ve reported a lot about R&D in China (for instance, see this BusinessWeek story on China’s innovation drive) and I’ve never met anybody in China who thinks that the country is remotely close to the Japanese, let alone ahead of them, when it comes to investment in R&D. Indeed, measured as a percentage of GDP, China’s spending on R&D is much smaller – about 1.3% for China versus 3.15% for Japan.* Hawk Jia, who reports for SciDev.net, is another reporter who’s puzzled by the OECD report. Jia yesterday wrote a skeptical story questioning the OECD’s conclusion. The headline: “China’s R&D budget overrated, warns official.” Jia points out that China’s National Bureau of Statistics had R&D spending for last year at $30 billion. How do you get from $30 billion to $136 billion in one year? You tinker with the numbers. Jia cites Dirk Plat, head of OECD’s science, technology and industry division, saying that OECD’s $136 billion figure is based on the “real purchasing power” of the Chinese currency. Since OECD has that real purchasing power at nearly four times the current exchange rate, the OECD seems to have simply multiplied the official stats by four. Hence a modest $30-plus billion R&D spend becomes an enormous $136 billion one.

I’m sure there are many economists who would argue that this is fair. But Zeng Guoping, a Tsinghua University professor and science expert whom Jia interviews, doesn’t think it is. According to SciDev, Zeng “warned that basing calculations on real purchasing power could overvalue the currency, as much research equipment is purchased internationally.” Zeng’s got a good point. Visit any Chinese lab and you see all sorts of imported equipment, very pricey imported equipment. The companies selling those machines want dollars or euro or yen, not yuan that’s been artificially inflated, OECD-style.

* Corrected on Dec. 12

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Reader Comments

Jake Love

December 9, 2006 11:13 AM

It is true, the Chinese do spend more money than nearly all others on R&D, though figure this does include amount spent on massage services.

Another idea (what I assumed after hearing this figure): These so-called "Chinese" are actually just MNC joint ventures incorporated in China for tax and legal purposes.

And marketing is included as R&D (as it is here in the US in many cases).

BeijingMan

December 10, 2006 07:10 AM

That figure is not believable for Chinese reseach and development.

When MNCs establish R&D centers to China, common reasons include localization of their products, Chinese standards, research projects, inventions, and patent applications.

Funny thing is that Chinese want to be part mainly in international research projects instead of more challenging domestic projects. Blog: http://beijingman.blogspot.com

Study

January 6, 2007 05:09 AM

I've read BeijingMan's blog and I think he is right.
and some R&D money goes elsewhere.

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BusinessWeek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies. Eye on Asia’s bloggers include Asia regional editor Bruce Einhorn, Tokyo reporter Ian Rowley, Korea bureau chief Moon Ihlwan, Asia News Editor and China Bureau Chief. Dexter Roberts, and Hong Kong-based Asia correspondent Frederik Balfour.

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