China R&D, Taking Off, Entering the Stratosphere, Sort of Like Sputnik

By February 2, 2011Innovation, Trade

John Berthelsen of the Asia Sentinel writes a thorough, and thoroughly alarming, piece about China’s investments in research and development compared to the U.S. R&D, and Chinese educational achievements versus American.

From “China’s Heavyweight R&D Spending“:

Hong Kong. Although previously China has publicly indicated its ambition to invest heavily in research and development, the amount to actually be devoted to the sector is staggering, and is expected to be distributed mostly by fiscal or government subsidy – actual cash payments.

Sean Darby, Asia strategist for Nomura international (HK) Ltd., estimated the amount of spending over the next five years in a report this week at 5 trillion yuan (US$758.4 billion), an even bigger amount than the mammoth – and successful – 4 trillion yuan stimulus package announced by the central government in 2008 as an attempt to minimize the impact of the global financial crisis.

Berthelsen’s analysis draws on a report on R&D by Research-Works, the leading independent equities research firm based in China, which has a summary and data points available here. He also cites Frank Vargo, the National Association of Manufacturers’ vice president for international economic affairs, who at a Shopfloor post detailed China’s violations of intellectual property rights and its government procurement mandates, “indigenous innovation.” (China’s ‘Innovation’ Policies Come at Expense of U.S. Manufacturers.)

Of China’s transgressions there’s no doubt. Still, as Research-Work’s managing director, Hugh Peyman writes:

China is no longer stuck in the Research and Copying, phase, as every other emerging leader went through, including the United States. Now China has real R&D and the products and processes that flow from it, something that has not yet registered with the popular mind, despite the mounting evidence.

This is the point at which we mention — for the first time this year at Shopfloor — that the R&D tax credit expires on Dec. 31, 2011.

Join the discussion One Comment

  • Hugh Campbell says:

    China’s Innovative Way of Skinning the United States!

    Mark Twain is credited with an early use of the cliché “more than one way to skin a cat” in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports to China. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
    In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

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