“[I}nnovation output indicators show the greatest amount of progress for Chinese innovation relative to the United States… As of 2020, Chinese entities were receiving nearly five times the number of international patent families as U.S. entities.”
On January 23, the Information Technology & Innovation Foundation (ITIF) published a report entitled Wake Up, America: China is Overtaking the United States in Innovation Output, which applies innovation and industrial performance metrics for comparing relative innovation outputs from foreign technological rivals China and the United States. The report, produced by ITIF’s Hamilton Center on Industrial Strategy, is the latest indicator that China is close to surpassing the United States in terms of innovation output per capita and calls upon U.S. policymakers to develop a national economic and technology policy to restore U.S. dominance in innovation.
Despite the country’s longstanding and well-earned reputation as a major source of piracy and IP infringement, China has made great strides in encouraging patent application filing activity in recent years by relaxing patentability standards for software inventions and increasing damages awarded for patent infringement. Annual patent reports by the World Intellectual Property Organization (WIPO) and the European Patent Office (EPO) have noted stark rises in the number of worldwide patent applications being filed by Chinese entities. While the quality of those patent filings has been questioned, China has made technological advancement a key part of national strategies such as the Made in China 2025 initiative.
Chinese Innovation Inputs on the Rise, Including R&D Expenditures and College Graduates
According to the ITIF’s recent report, China’s efforts in advancing domestic innovation is not only helping the country outpace the United States in total innovation output, but is also helping China achieve equal footing with the U.S. in innovation output by population. Between 2010 and 2020, ITIF reports that China’s innovation and advanced-industry capabilities, which includes R&D expenditures and patent outputs, increased from 78% of absolute U.S. output up to 139% of absolute U.S. output. When taking into account the larger size of China’s economy and population, China’s innovation capabilities increased from 58% of U.S. capabilities in 2010 up to 75% of U.S. capabilities in 2020, ITIF reports.
In recent years, China has made significant progress in each of the innovation indicators measured by the ITIF study, including innovation inputs, innovation outputs and innovation outcomes. Among innovation inputs, ITIF notes that China has made great strides in the number of domestic companies making the world’s greatest investments into research and development. In 2010, only 19 Chinese companies were listed in the EU Industrial R&D Investment Scorecard rankings of the top 1,400 R&D investment companies worldwide, but that number increased to 278 Chinese companies ranked in the scorecard’s top 1,400 listing in 2020. By contrast, the number of U.S. firms ranked in the top 1,400 declined from 487 in 2010 down to 449 in 2020.
While the number of graduates per capita still lags behind the United States, China is seeing a larger number of college graduates than the United States in terms of total numbers, another innovation input metric tracked by the ITIF report. In 2018, Chinese universities conferred nearly twice the number of total undergraduate degrees than did colleges in the United States, and more than double the number of science and engineering undergraduate degrees (1.81 million Chinese degrees vs. 0.81 million U.S. degrees). Also, although venture capital investment in China dropped sharply from 2018 to 2019, China’s VC investments reached nearly 90% of similar investments in the United States in 2016. ITIF reports that China remains the world’s second-largest VC market as of 2020.
Chinese Scientific Articles, International Patent Families Outpacing U.S. Counterparts
According to ITIF, the innovation output indicators show the greatest amount of progress for Chinese innovation relative to the United States. While they are cited at a lower rate than U.S. publications, Chinese science and engineering articles totaled 742,000 publications in 2020, which was 123.7% of the total number of science and engineering articles published by U.S. sources that year. Adjusting for population shows that the United States was on much better footing in scientific article output, but China still reached more than 80% of the amount of chemistry articles published by U.S. sources on a per capita basis in 2019 and 2020. In mathematics and statistics, Chinese articles were 68% more likely to be cited than U.S. articles on the same subject during 2018, according to information cited by ITIF from the National Science Foundation (NSF).
ITIF’s report also explores international patent families held by Chinese entities in an effort to exclude patent filing totals involving domestic-only applications, which include a high number of patent applications subsidized by the Chinese government. While ITIF acknowledges that this methodology doesn’t eliminate every patent originating from China that may raise quality concerns, the report cites additional NSF data showing that Chinese entities were already receiving 9.4% more international patent families than U.S. entities by 2010. As of 2020, Chinese entities were receiving nearly five times the number of international patent families as U.S. entities. Cross-border IP licensing receipts accessed through the World Bank show that Chinese licensing revenues on those international patent families lag behind the United States, but significant strides have been made from 2016, when Chinese licensing value was about 2% of U.S. licensing value, to 2020, when Chinese licensing was closing in on 12% of U.S. licensing value.
Low Efficiency Gains Can’t Hide Fact That China is Achieving Innovation Parity with U.S.
Assessing China’s innovation outcomes, ITIF’s report finds that China’s high R&D industries have nearly reached the same degree of specialization as similar sectors in the United States. When looking at value added to Chinese gross domestic product (GDP) by advanced industries, ITIF found that only the pharmaceuticals manufacturing and professional, scientific and technical activities sectors became more specialized relative to their U.S. counterparts. However, China also increased the lead it already had over the United States in computer, electronic and optical products manufacturing as well as electrical equipment manufacturing.
In supercomputers, China has gained a significant edge over the United States, owning 214 of the world’s top 500 high-performance computing systems as of 2020, nearly double the 113 supercomputers in the U.S. as of that year. Industrial robotics has also seen dramatic increases in China over the past decade. In 2020, Chinese entities employed industrial robots at almost the same rate per manufacturing employee as U.S. entities, a significant improvement from 2010 when China used industrial robots per employee at about one-tenth the rate of U.S. companies.
Despite advances in a number of innovation indicators, ITIF reports that China must still grapple with several issues if it is to continue its growth as a major global innovation economy. With less than half of the nation’s population younger than 40, and with a 0.1% population growth rate as of 2021, the available labor pool in China is expected to have to serve an increasingly elderly population. While Chinese labor productivity has been buoyed by a high rate of capital stock invested per unit of labor, ITIF’s report cites several sources showing that China has seen incredibly low efficiency gains in its economy over the past decade. However, ITIF concludes that China’s innovation upgrades in the past 10 years should upend the comfortable narrative within the United States that its major foreign economic rival cannot possibly achieve innovation parity in its current form of government.
Image Source: Deposit Photos