Innovation: China to overtake EU, US in science & technology spending in 2019 says OECD
By Michael Hennigan, Finfacts founder and editor
Nov 13, 2014 - 1:32 AM

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Innovation: Tight R&D budgets in the EU, Japan and US are reducing the weight of advanced economies in science and technology research, patent applications and scientific publications and leaving China on track to be the world’s top R&D spender by around 2019, according to a new OECD report published Wednesday.

The Paris-based think-tank for 34 mainly advanced country governments says in its OECD Science, Technology and Industry Outlook 2014 that with R&D spending by most OECD governments and businesses yet to recover from the economic crisis, the OECD’s share in global R&D spending has slipped from 90% to 70% in a decade.

Annual growth in R&D spending across OECD countries was 1.6% over 2008-12, half the rate of 2001-08 as public R&D budgets stagnated or shrank in many countries and business investment was subdued. China’s R&D spending meanwhile doubled from 2008 to 2012.

Gross domestic expenditure on R&D (GERD) in 2012 was US$257bn in China, $397bn in the United States, $282bn for the EU28 and $134bn in Japan.

The report warns that with public finances still tight in many countries, the ability of governments to compensate for lower business R&D with public funding, as they did during the worst of the economic downturn, has become more limited. Other key findings include:

  • 2012 R&D spending surpassed $1.1tn in OECD countries and stood at $330bn in the BRIICS (Brazil, Russia, India, Indonesia, China and South Africa).
  • Korea became the world’s most R&D intensive country in 2012, spending 4.36% of GDP on R&D, overtaking Israel (3.93%) and versus an OECD average of 2.40%.
  • The BRIICS produced around 12% of the top-quality scientific publications in 2013, almost twice its share of a decade ago and compared to 28% in the United States.
  • China and Korea are now the main destinations of scientific authors from the United States and experienced a net “brain gain” over 1996-2011.
  • European countries are diverging in R&D as some move closer to their R&D/GDP targets (Denmark, Germany) and others (Portugal, Spain) fall further behind.
  • In most countries, 10% to 20% of business R&D is funded with public money, using various investment instruments and government targets.

The Paris based Organisation for Economic Co-operation and Development is a think-tank for 34 mainly developed countries. OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission takes part in the work of the OECD.

The report draws on a policy survey conducted every two years in more than 45 OECD and emerging economies. You can read the report, the Highlights and Country Notes included under the table of content.

This week the Financial Times reported on Xiaomi, the Chinese smartphone maker, which is aiming to achieve the brand cachet of Apple, but for people at the low- to middle range of the income pyramid: phones and accessories for the next billion consumers. It is a few hundred million away from that, but the gap is closing fast.

Founded just four years ago, Xiaomi, which means “little rice” in Chinese, has already surpassed most of the established companies in its industry. It has 7,000 employees and is in the process of raising $1.5bn in a new round of financing that values it at $40bn-$50bn – roughly three times the value of its closest domestic competitor, Lenovo. Yet despite the rapid success, Xiaomi still has a “start-up mentality”, Lin Bin, co-founder, says during a 90-minute interview at Xiaomi’s Beijing HQ.

Larry Elliot of The Guardian made a point on Wednesday that Finfacts has been making for years on the delusion about a world where the West would have knowledge workers and Asia would continue to focus on low wage manufacturing.

The assumption was that China might grab a good chunk of the world’s low-cost manufacturing while the clever stuff would be done in Europe, Japan and North America. We would get our cheap toys and mass-produced TVs from Guangdong, but advanced manufacturing, anything that required a bit of brain power, would stay at home."

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