Foreign High-Tech R&D in China

in Program

Commercial Globalization and the international distribution of high-tech R&D have aided China’s efforts to develop its commercial industry.  Increasingly, foreign investors are competing with local high-tech enterprises for market share in the computer and telecommunications sectors.mmercial research and development in high-tech industries has become an increasingly global undertaking.  Over the past two decades, the number of US and other overseas R&D centers has multiplied, although it is unclear exactly how far and how fast this trend is developing due to the still very limited data on this phenomenon.  What is clear is that these activities have spread from the industrialized economies to parts of the developing world.  The People’s Republic of China, in particular, has attracted scores of foreign-funded, high-tech R&D investment from around the globe, particularly in sectors related to information communications technology.  This report examines the emergence and evolution of foreign-invested R&D centers in China with a focus on the computer and telecommunications industries.  The study’s key findings include the following:

  • During nearly two decades of reforms and restructuring, PRC officials have sought to accelerate S&T modernization through the acquisition of foreign, especially Western, technologies and know-how.  To date, these efforts have yielded some impressive results, but China still has a long way to progress before achieving parity with the S&T capabilities of most industrialized economies or before reaching its goal of implementing a “national system of innovation.”
  • The PRC government encourages foreign R&D investment in China, particularly in information technology-related industries, by offering a range of preferential policies that include tax rebates, construction loans, access to modern facilities, and other incentives.  Officials also use the lure of China’s enormous potential market as leverage to encourage technology transfer and R&D investment from abroad.  As a result, most of the world’s leading computer and telecom companies have R&D investments in China.
  • In the computer and telecommunications sector, foreign investors have established over 200 R&D centers, programs, or labs in China between 1990 and 2002. The number of newly established centers accelerated in the late 1990s but appears to have declined in the past two years.  Chinese press reports estimate the overall number of foreign R&D centers in China to be anywhere between 120 and 400.
  • Chinese high-tech enterprises are focusing their efforts on developing new high-tech standards for application in the China market and globally.  These efforts have been aided by R&D investments and related systems and standards integration work that took place during the mid- to late-1990s and likely conveyed to Chinese partners—and potential future competitors—a good deal of technological know-how that local enterprises probably would not have had access to otherwise or been able to develop independently. 
  • On balance, although foreign R&D centers are contributing to China’s impressive recent high-tech growth and increasing competitiveness in ICT industries, they are contributing as much or more—under newly consolidated, wholly foreign-owned R&D enterprises—to foreign companies’ high-tech development and production capabilities and, thus, to the US economy.
  • Efforts are needed to develop a means of collecting data on global R&D activities in order to provide policymakers and business executives with a clearer, more comprehensive, and timely picture of R&D investments abroad.  Statistical analysis currently underway in the United States should be coordinated with data collection efforts in other countries, and new statistical methods implemented as soon as possible.
  • Information exchanges on high-tech R&D activities should be added to the agenda of meetings held under the US-China S&T Cooperation Agreement.  Current Chinese interest in analyzing and quantifying the growing global R&D trend, along with ongoing cooperation by the US and Chinese National Science Foundations on standardizing collection of statistical data, makes this an opportune time to initiate a bilateral effort to track international R&D investments in China.
  • Reforms are needed to the US export control process to account for this new form of international high-tech trade.  In the near-term, the US “deemed export” rule should be amended to cover advanced foreign R&D investments and technology transfers outside the United States.  Over the longer-term, the US export control system should be reformed to provide a means of monitoring global R&D and other newly emerging international business dynamics.  To achieve this objective, senior executive branch officials must make reforming the export control process a top priority and consult with both Congress and industry to develop a workable system.
  • Although the United States benefits form a continued net inflow of R&D investment from around the world, US government funding for basic research and education should be increased in order to maintain the US lead in critical high-tech industries and innovation.  This is crucial to ensuring the United States remains economically, technologically, and militarily competitive.  Additionally, as foreign nationals working in US labs, universities, and high-tech companies become able to find similar work in their own economies due to globalization, the US government must invest more in grade school and secondary education, particularly in basic sciences, mathematics, and engineering, or risk falling behind.
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