The Chinese government is spending over $200 billion annually on R&D, or about 2% of GDP. But, in many ways, the funding is applied ineffectively. For example, while government incentives have prompted patent filings, when controlling for quality, patent numbers fall short of many other countries’. According to the World Bank, state-owned enterprises have shown a lack of productivity and integration of their innovation efforts. The McKinsey Global Institute, however, reported greater innovation in industries requiring high efficiency, such as manufacturing. But firms in industries dependent on the most recent science and technology generally have shown less innovation, despite the presence of high-quality scientists. These scientists, market size and increasing intellectual property protection are likely factors in large R&D investments that multinationals are now making in the country. According to Strategy&, 28% of foreign companies in China are performing “cutting edge R&D.”

Source: The Economist