Tuesday, March 06, 2012

#MARKETS: "China Plans Increased R&D Spending"

The Central Committee of the Communist Party of China (CPC) recently delineated a five-year plan targeting research and development (R&D) budget levels that rival developed nations, boosting its investment in innovation while sustaining its lead in low-cost manufacturing.

The Chinese government aims to move its technology prowess beyond low-cost manufacturing toward innovative R&D, especially in emerging sectors, by partnering with foreigners. This could present unprecedented opportunities for U.S., European, and Asian enterprises.

Last year the Chinese government widely missed its R&D target to rival developed nations with an R&D budget at least three percent of its gross domestic product (GDP), but the latest Chinese Five-Year Plan aims to remedy that shortfall by targeting emerging technologies with a new strategy that seeks to leverage foreign partnerships to spawn Chinese innovation.

China's new five-year plan targets 22 urban development areas where it hopes to promote increased R&D spending.
"The R&D expenditure goal of three percent of the GDP was set up by the Chinese government as a target," said Richard Jun Li, China research director at Lux Research. "But in 2010, the R&D expenditure in China was around $110 billion, which accounted for only 1.76 percent of the Chinese GDP of $6.218 trillion."

According to the biennial report Science and Engineering Indicators 2012 produced by the National Science Board of the US National Science Foundation, the U.S. still leads the world with R&D spending at about 31 percent of the global $1.25 trillion budget, or about $388 billion, rivaling the combined R&D spending of China, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

China's newest effort to boost its R&D spending to U.S. levels, however, ditches its long-held domestic-market protectionism in favor of partnering opportunities with U.S., European, and other Asian enterprises that increase Chinese innovation prospects. In particular, China's latest five-year plan targets emerging technologies as the focus of its partnering opportunities for foreign enterprises, earmarking a 159 percent increase in R&D for eight emerging technologies sectors, or $18 billion.

"[Chinese] government research funding is being planned by the central government in a few emerging technology domains, namely Biotechnology, Advanced Agriculture, New Materials, New Energy, Environmental Technology, Smart Grid, Electric Vehicles, and Traditional Chinese Medicine," said Li.

In its report entitled Profiting from Predictable Policy: Interpreting China's 12th Five Year Plan for Emerging Technology, Lux Research details the new opportunities afforded China's new emphasis on partnering.

The official five-year plan details that 48 percent of its $18 billion boost will go to environmental technologies, 32 percent for new energy projects, and 12 percent for smart grid development. However, Lux Research has identified 34 subcategories that present unprecedented business opportunities for foreign partnerships.