Is China About To Surpass the U.S. As the Global Leader In Innovation?

The dominating role that the U.S. has had with respect to patent applications hasUS China been challenged in recent years. Is China becoming the new global leader in innovation?…

The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com – A Site For Sore Eyes & Inquisitive Minds – to provide a fast & easy read.

Two measures of innovative activity of a country are:

  • Its research and development (R&D) intensity (that is, the fraction of total output invested in R&D), which reflects the effort of innovation
  • Its number of patent applications, which reflects the output of innovation

Larger R&D investment is associated with faster technological progress, higher productivity and faster output growth.

One of the outcomes of the R&D process is an increase in the number of patent applications. A patent gives the owner a monopoly right to use this new invention for a limited period, generally 20 years. Indeed, there tends to be a positive correlation between the R&D intensity of a country and the number of patent applications in that country.

R&D Intensity: China vs. the U.S.

  • In 1996, China invested 0.56% of its GDP in R&D, while the U.S. invested 2.44% of its GDP.
  • In 2015, China invested 2.06% of its GDP, whereas the U.S. invested 2.79%. That is, the R&D intensity in China increased by 1.5 percentage points and in the U.S. by only 0.3 percentage points.

China vs United States research and development intensity

Patent Applications: China vs. the U.S.

Regarding patent applications,

  • the U.S. applied for 177,967 patents in 1996, which contrasts with the 11,974 patent applications in China that year.
  • However, in 2015, China exceeded the U.S. in the total number of patent applications by 90%, as seen below.

China vs United States patent applications

The dominating role that the U.S. has had with respect to patent applications has been challenged in recent years. Is China becoming the new global leader in innovation?…

Why Has China’s Innovation Increased?

There may be several reasons why China is innovating so much more than before.

  • For instance, technological developments in China together with a growing market may favor investment in innovation.
  • Moreover, the government has been very active at implementing policies to incentivize innovation in China.
    • In 2006, the Chinese government announced the National Indigenous Innovation Campaign, which includes a goal to transform China into the world’s technology powerhouse by 2020…
    • In addition, the 12th and 13th “five-year” plans (2011-2020) detailed goals for R&D intensity and patent applications. The government offered subsidies targeted to increase the number of patent applications. This could explain why patent applications have grown way faster than R&D intensity.

A Deeper Look at China’s Innovation Path Needed

In conclusion,

  • in terms of R&D intensity, China is approaching the U.S. but still remains behind.
  • in terms of patent applications, however, China has overtaken the U.S. and appears to be the new global leader of innovation.

[The being said, however,]…one should control for the quality of the patents to determine whether China is indeed the new global leader in innovation based on the number of patents…If China wants to become the world’s technology powerhouse, more R&D investments targeted to a wider range of industries are needed.

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