High-growth market fuels best R&D climate in China

An exhibitor flies a drone during a demonstration at the 35th HKTDC Hong Kong Electronics Fair (Autumn Edition) in Hong Kong, China, Oct 13, 2015. [Photo/IC]

China has become the most popular destination for research and development activities by overseas companies thanks to the presence of a high-growth market and key manufacturing sites, a new survey said.

The survey, conducted by Strategy&, a unit of global consultancy major PricewaterhouseCoopers LLP, said that total R&D investment in China has risen to $39.4 billion till date, a 3,285 percent growth from the $1.2 billion a decade ago.

The 2015 Global Innovation 1,000 Study, released on Monday, was the 11th consecutive report published by the firm.

The report said the total R&D spending of the top 1,000 global companies increased 5.1 percent to $680 billion this year till date.

There are 123 Chinese companies now on the global top 1,000 list, nine more than last year. In 2005, there were only 8 Chinese companies in the top 1,000. The total R&D spending by Chinese companies' surged 31.6 percent year-on-year this year, accounting for 5.8 percent of the total.

From 2007 to this year, the total R&D spending by overseas companies and institutions in China rose by 79 percent, mainly as a result of United States companies' investment.

China's strong growth in imported R&D also helped the country overtake Germany and Japan to become the second-largest destination for in-country R&D, at $55 billion.

About 71 percent of the survey respondents said proximity to a high-growth market is the major reason for moving R&D functions to Asia, especially to China. Proximity to key manufacturing sites and to key suppliers, as well as lower development costs, are also reasons for moving to China.

The quality of the R&D results reached in China, however, has also been increasing over the past few years, according to Steven Veldhoen, a partner with Strategy&.

The complexity of the patent applications made by multinational companies in China has risen considerably. Many are beginning to start the concept or the preliminary stages of their R&D work in China, he said.

The largest Chinese R&D spender is PetroChina Co, with total investment reaching $2.1 billion. Alibaba Group Holding Ltd, which went public in September 2014, has entered the Global Innovation 1,000 list for the first time with a total research and development spending of $1.7 billion, ranking 84th worldwide.

Veldhoen said that Shenzhen-based Huawei Technologies Co Ltd would have figured in the global top 20 for the first time if it were a listed company.

Based on public information announced on its official website, Huawei would have been ranked 16th on the global top 1,000 list, just behind auto major Ford Motor Co but ahead of tech giant Apple Inc.

"Chinese companies learn quickly and are ultra-flexible, especially privately owned companies. The power of Chinese innovators will increase further, especially in industries such as high-tech, digital and e-commerce, in which Chinese consumers are also at the cutting-edge," said Veldhoen.

The results were also in line with the latest findings of Market News International, a wholly owned subsidiary of Deutsche Borse Group.

Those showed that Chinese companies' confidence index rose 4.3 percentage points to 55.6 percent in October from September, a record high since March 2011.

Analysts at MNI said that companies with stronger technology support which started their transformation earlier are becoming the new driving power of China's economic growth.