Innovation in China - The Institute For Fiscal Studies

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1 Introduction
Over the last decade emerging economies have seen impressive growth in innovative
activities. None has been more impressive than China.
China’s economic growth – which led it to overtake Japan in 2010 to become the world’s
second largest economy – and rapidly expanding role in world production has commanded
widespread attention. 1 More recently, the focus has shifted to China's technological
performance, with a range of statistics showing that innovative activities in China are
growing at an astounding rate.
There have been large increases in the number of Research and Development (R&D) centres
in China (UNCTAD (2005)) and business expenditure on Research and Development (R&D) as
a proportion of GDP has increased at an annual rate of almost 19% since 1995, see Figure 1,
leading China to became the sixth largest in terms of worldwide R&D (OECD (2008b)). This
increase has been partly driven by Western multinationals, which account for around 25-
30% of private R&D expenditure in China, (OECD (2008b, p58)).
Figure 1: Business expenditure on R&D as a percentage of GDP
3
2.5
2
1.5
1
0.5
0
China France Germany Japan
UK United States OECD Total
Source: MST Indictors, OECD 2009.
At the same time there has been a rapid increase in educational attainment (Li, Fraumeni,
Liu and Wang (2009)). In particular, there has been a proliferation of Chinese graduates
(Freeman, (2009), many of whom study subjects relevant for high tech research: in 2007
2