China R&D Spending On Rise, Fueled By Foreign InvestmentChina R&D Spending On Rise, Fueled By Foreign Investment

SHANGHAI, China — Recent figures show that China's spending on research and development jumped 22 percent in 2006, fueled by foreign companies investment in local R&D.

China spent $37.5 billion on science and technology research last year, the highest amount ever, according to the Ministry of Science and Technology (MoST). That figure doesn't match with a December estimate by the Organization for Economic Co-operation and Development (OECD) that said China spent over $136 billion, surpassing Japan to become the second biggest spender on R&D behind the US.

A MoST official said the OECD figure may include R&D investment in all industries, including the military. China has put a high priority on modernizing its army, and recently showed its high-tech prowess by using a ballistic missile to destroy a low-orbit weather satellite. The incident sent jitters throughout Asia, and reverberated all the way to Washington, DC, where concerns were expressed about a space-based arms race.

China's government-based R&D funds spent $9 billion in 2006, up 19.2 percent. China's spending on R&D as a percentage of GDP has more than doubled from 0.6 percent in 1995 to more than 1.4 percent last year. The figure is expected to rise to 2 percent by 2010, according to government estimates.

Foreign investment is a key driver of growth in the private sector. More than 700 multinationals have taken advantage of government subsidies to set up R&D centers in China, according to the Ministry of Commerce.

Yet despite the growth of R&D investment, there are concerns that China doesn't get good value for every yuan it spends. Scandals involving academic fraud have highlighted this issue and a recent report from MoST shows that state-owned companies are generally inefficient when it comes to leveraging R&D research. That, combined with ineffective government oversight, hinders China's innovation system.