US China

Innovation Fact of the Week: China Projected to Pass U.S. R&D Investment by 2025

(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Investing in R&D allows countries to generate productivity-enhancing innovations that raise living standards. Depending on whether one measures purchasing power or total output, China’s economy has either already grown bigger than the U.S. economy, or soon will. But in terms of investment in R&D, the figures are clear: China still lags far behind. In 2015, the United States invested $497 billion in R&D (2.8 percent of its GDP) while China invested $373 billion (2 percent of its GDP). China is catching up quickly, though. Based on projections by the Industrial Research Institute (IRI), China’s annual R&D investment growth of between 6 percent and 7 percent outpaces the U.S. R&D growth rate of 3 percent to 4 percent. If these trends hold, China’s total R&D investments will exceed those of the U.S. by 2025.

Still, R&D investments are only as good as the returns they produce, and China appears to have a ways to go in making its R&D investments more productive. In

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Large Firm R&D

Large Firms Actually Are Good At Innovation, Too

It’s become standard fare to believe that small firms innovate and large firms copy. Studies that support this view argue that small firms benefit from a number of factors, such as employees’ close proximity to one another, which fosters easier problem-solving; less red tape, which allows faster decision-making; and higher responsiveness to customer input.

But new research suggests it is not that simple. Business professors Anne Marie Knott and Carl Vieregger, in their recent paper “Reconciling the Firm Size and Innovation Puzzle,” explain how previous studies got the data wrong. Historically, innovation scholars have relied on product or patent counts as a proxy to measure innovation output. But doing so overemphasizes product innovation and underestimates process or incremental innovation—innovation activities that large firms engage in more but rarely involve a patent filing. But the recent development of the National Science Foundation’s Business Research and Development and Innovation Survey (BRDIS) allowed Knott and Vieregger to better analyze incremental and process innovation. Survey enhancements included questions on firm R&D strategy and the outcomes of specific R&D decisions. Product innovation refers to an entirely new product; incremental innovation refers to small

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ICT Investment

Innovation Fact of the Week: U.S. IT Companies Contribute Outsized Share of U.S. and Global R&D Investment

(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Companies invest in research and development activities to remain at the forefront of technology, stay ahead of their competitors, and create new waves of innovations—and by these measures, the U.S. information technology sector is intensely focused on maintaining its global leadership position. A report from the European Commission’s Joint Research Centre underscores the point. It found that in 2014, the world’s 2,500 largest companies together invested $810 billion in R&D. One-third of those companies were based in the U.S., yet they accounted for approximately 40 percent of the global R&D figure. Why the outsized share? A big reason was that 286 of those U.S. companies were in the R&D-intensive information technology sector.

Not surprisingly, those 286 large IT companies also accounted for an outsized share of total business R&D in the United States—46 percent. This was a far higher percentage than the equivalent share of contributions that the largest IT companies made in other countries and regions. For example, the Chinese IT companies

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Innovation Fact of the Week: U.S. Share of World’s 500 Fastest Supercomputers Down 25% in 5 Years

(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

High-performance computing represents the leading edge of what is possible when it comes to data crunching. Industry, governments, and academics use supercomputers to solve hugely complex problems, perform advanced data-modeling and analytics, and manage large digital-service infrastructures. This produces advances in everything from weather forecasting to airplane design to energy efficiency. In essence, a supercomputer combines tens of thousands of individual processors performing akin to a symphony orchestra—many diverse units, with their own specific function, working in unison to produce an outcome not possible with just one computer working alone.

Although the United States operated 263 of the world’s 500 most powerful supercomputers in 2011, that number dropped to 199 in 2015—a 25 percent decrease. China has operated the world’s most powerful supercomputer since 2013, and is slowly catching up to the United States overall; it was running 109 of the 500 most powerful supercomputers in 2015. The gradual erosion of the United States’ global leadership position is a potential concern because

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How Do We Know NNMI is Working? Because China is Copying It

China’s new manufacturing policy road map, unveiled in 2015 and called Made in China 2025, includes numerous policy initiatives designed to create an advantage for China in 10 key advanced-technology industries. Several parts of the program imitate the German Industrie 4.0 model, aggressively integrating Internet of Things technology into manufacturing and targeting specific advanced industries in which they hope to succeed. In addition, Made in China 2025 contains provisions for creating 40 Manufacturing Innovation Centers by 2025.

The proposed centers look a lot like a similar program in the United States. America’s National Network for Manufacturing Innovation (NNMI) program seeks to create 45 institutes spread across the country serving both as regional hubs and nodes of a network of institutes designed to support innovation, investment, and cooperation in manufacturing in advanced industries. Created with government funds and industry matches, the NNMI program coordinates workforce initiatives and research efforts, helps vertical supply chains adopt technology standards, and strengthens networks of collaboration and innovation.

Though both systems have roots in the German Fraunhofer innovation network, the Chinese Manufacturing Innovation Centers certainly seem like a direct response to the U.S. manufacturing innovation

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