China is rapidly closing the gap with the United States in corporate research and development in advanced sectors, according to a report by the Information Technology and Innovation Foundation (ITIF). The report warned Chinese firms could surpass U.S. firms' investments in R&D by 2034, excluding software and computer services, and suggested Congress and U.S. state governments enhance R&D tax incentives to maintain leadership in advanced industries.
“Washington needs to do a better job of incentivizing the private sector to continue investing in R&D,” Trelysa Long, policy analyst for ITIF, said in the report. “This should include expanding programs that fund joint industry-university research, boosting the Alternative Simplified R&D Credit rate from 14% to at least 28%, and restoring R&D expensing.”
The report compared the U.S. and China using the EU R&D 2,500 Scoreboard, which accounts for 90% of global private sector R&D spending. Chinese advanced industries dropped from being 80% below average globally to being 30% below average. China is on course to catch up to the U.S. by 2034 at that rate, software excepted.
The study discovered that in 2013, size-adjusted R&D expenditures in nine advanced sectors were higher in the U.S. than in China, the report noted. But by 2021, Chinese companies' investment had increased in two of the nine sectors — industrial engineering and electronics and electrical equipment — and was tied in a third with general industrials.
In six of the world's nine most advanced industries — software and computer services, general industrials, technology hardware and equipment, industrial engineering, automobiles and parts and electronic and electrical equipment — China outperforms the average in terms of wage-adjusted R&D spending as a percentage of GDP, the report said. In contrast, Chinese enterprises increased their spending on R&D, while spending by U.S. companies decreased or remained unchanged in seven industries — general industrials, industrial engineering, technology and hardware equipment, alternative energy and autos and components.
Chinese businesses have also made a large increase in their R&D expenditures in less-developed trade sectors, spending $34 billion as opposed to $19 billion by American businesses, according to the release. When accounting for China's lower R&D salaries, U.S. corporations only outspent China by 80% ($529 billion versus $295 billion), while spending 240% more than Chinese firms ($154 billion versus $529 billion).
ITIF is a top think tank for science and technology policy, the report noted.
