China seeks to create new engines of growth through innovation

China’s leaders have long stressed the importance of moving closer to the technological frontier. The earlier process of catching up with leading technology countries was largely based on copying or technology transfer, but China increasingly asserts its own innovation capabilities. Innovation and technological progress have been major themes in the speeches of China’s leaders in recent years as the country seeks to decrease dependence on the West. The political commitment to technological advancement is backed by substantial resources. China’s National Bureau of Statistics reports that the country spent nearly 3.1 trillion yuan (435 billion euros) on research & development in 2022, about three times the amount spent in 2012. Over 6 million people worked in R&D in 2022, double the number of 2012. The firms receive ample government support and they are leading China’s R&D efforts, but they ultimately focus on product development. Less than 10 % of China’s R&D spending and workforce are in basic research. In OECD country comparisons, China is second after the United States in terms of R&D spending. It surpassed the third-place EU already in 2014.

Even if it is unlikely that China’s R&D spending is used as efficiently as in the West, the huge input is delivering results. The World Intellectual Property Organization (WIPO) annually publishes its Global Innovation Index (GII) for over 100 countries. The rankings take into account broadly the assessed country’s innovation environment, which includes its institutions, access to financing, capabilities and results. China ranked 34th on the GII index in 2012, but rapidly made it into close-to-top-ten rankings just before the Covid-19 pandemic. The latest ranking puts China at 12th place, just ahead of Japan, making it the sole emerging economy in the top 30 countries. Finland ranked 6th, Switzerland 1st, Sweden 2nd, the United States 3rd, India 40th, Russia 51st and Ukraine 55th.

If patent-filing competition was defined only in terms of volume, China would be the clear winner. China boasts by far the largest number of domestic patent filings in the world. The number of patent filings in 2022 exceeded 1.5 million, with over 95 % of applicants domestic entities. The next largest number of patent filings was in the United States (420,000). China has also accounted in recent years for the most applications under the international Patent Cooperation Treaty (PCT). The number of filings, of course, does not tell the full story. Chinese patent applications are also the more likely to get rejected than Western filings. China’s government offers are variety of supports for patent activity, and sometimes patents are filed solely for the purpose of getting state grants. Studies indicate that the quality of Chinese patents is generally poorer than patents filed in advanced economies.

China files the most international PCT patent applications of any country

Sources: WIPO and BOFIT.

Both technological advances and rising labour costs are driving the push to automate. China has by far the world’s largest installed base of industrial robots. Half of all the new industrial robots installed last year were in China, which last year installed a record 290,000 robots. East Asia plays a huge role in global adoption of industrial robots. China, South Korea and Japan together accounted for nearly 70 % of all new industrial robot installations last year. Robots are especially common in the electrical and electronics industries, as well as in the automobile industry.