In its first review of China’s innovation system, the OECD report said, China still has a long way to go to build a modern, high-performance national innovation system. R&D spending has increased at an annual rate of 19 percent since 1995 to reached $30 billion (at current exchange rates) in 2005, the sixth worldwide.
China has made very impressive investments in R&D, human resources and R&D infrastructure to date, at the same time, China has still a long way to go to build a full-fledged and mature national innovation system. But much of this focused on the high-technology sector, updating equipment and facilities, and experimental research for new products rather than on basic research, the foundation of long-term innovation. More investment is needed in sectors such as services, energy, environmental technology and basic research.
Looking ahead, China could also face a shortage of skilled workers in science and technology, despite currently having more researchers than any other country except the United States. In recent years, undergraduate degrees in science have even fallen in absolute terms. China should improve the quality of science education to attract more students, with more emphasis on managerial expertise and entrepreneurship.
Despite a series of reforms since the mid-1980s, the innovative capabilities of the Chinese business sector remain weak. Further reform of China’s financial system which is still dominated by state-owned banks would help business innovation. Fostering more open and efficient capital markets would also enable entrepreneurs to take greater risks and invest in sectors, such as biotechnology, which require long-term investments. To encourage domestic firms to innovate and benefit more from closer ties with R&D centres of foreign companies, the government should enforce intellectual property rights (IPRs) more effectively and strengthen competition.
Universities play a key role in China’s innovation system. They run more than one in ten Chinese science and technology (S&T) firms, account for one in five patents granted each year and provide venture capital to promising start-ups. Further reform of these public research organisations would help increase the quality and efficiency of researchers: this is important because current demand for talented managers or highly qualified researchers exceeds supply.