Chinese Corporate R&D Could Surpass US by 2034 in Key Advanced Sectors, ITIF Report Warns

WASHINGTON—China is quickly catching up to the United States in corporate research and development (R&D) in advanced sectors, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy. The report finds that Chinese firms could surpass U.S. firms’ investments in R&D by 2034, excluding software and computer services. If the United States is to remain a global leader in advanced sectors, Congress and U.S. state governments need to boost R&D tax incentives.

“Washington needs to do a better job of incentivizing the private sector to continue investing in R&D,” said Trelysa Long, a policy analyst at ITIF and co-author of the report. “This should include expanding programs that fund joint industry-universityresearch, boosting the Alternative Simplified R&D Credit rate from 14 percent to at least 28 percent, and restoring R&D expensing.”

The report uses the EU R&D 2,500 Scoreboard, which covers 90 percent of the world’s private sector R&D spending, to compare the United States and China. Chinese advanced industries went from 80 percent below the global average to 30 percent below. At that rate, leaving out software, China is on track to catch up to the United States by 2034. The report found that in 2013, U.S. advanced-technology firms’ size-adjusted R&D spending exceeded that of China in nine advanced sectors. But by 2021, Chinese firms’ spending was higher in two of nine sectors (electronics and electrical equipment and industrial engineering) and tied in a third (general industrials).

When looking at wage-adjusted R&D spending as a share of GDP, China stands above the global average in six of nine advanced industries—software and computer services, technology hardware and equipment, general industrials, industrial engineering, automobile and parts, and electronic and electrical equipment. Meanwhile, for sized-adjusted R&D spending, U.S. firms’ spending declined or stagnated in seven sectors—electronic and electrical equipment, general industrials, industrial engineering, technology and hardware equipment, alternative energy, and automobiles and parts—while Chinese spending rose.

Chinese firms have also invested significantly more in trade sectors that are not advanced, spending $34 billion in R&D, while U.S. firms only invested $19 billion. While U.S. firms have spent 240 percent more than Chinese firms’ spending of $154 billion, when adjusting for China’s lower R&D salaries, U.S. firms only spent 80 percent more than China—$529 billion compared to China’s $295 billion—for advanced sectors.

Unless Congress and U.S. state governments respond quickly, China is on track to surpass the United States. To avoid lagging, Congress should double the Alternative Simplified Credit rate to 28 percent and restore full expensing of R&D expenditures with states following with similar steps, promoting global competitiveness in key advanced sectors.

“Chinese firms will only become more competitive as they increase their R&D investments and develop new products and processes, potentially taking market share from U.S. firms,” said Rob Atkinson, president of ITIF and co-author of the report. “This will hurt the United States’ economy, national security, and global competitiveness.”

Read the report.