has leaped ahead of Japan in the R&D spending league table,
according to the Organisation for Economic Cooperation and Development.
But BusinessWeek suspects the achievement owes more to a statistical sleigh of hand than any great leap forward by Chinese researchers.

The OECD forecasts
that China will spend just over $136bn on R&D in 2006 compared to
Japan's forecast $130bn. The US is predicted to remain the world's
leading investor in R&D in 2006, spending just over $330bn,
followed by the EU with $230bn.

China's spending on R&D as a percentage of GDP, known as R&D
intensity, has more than doubled from 0.6% in 1995 to just over 1.2% in
2004. Over the same period, the number of researchers in China
increased by 77% to 926,000, putting it second only to the US, which
has 1.3m researchers.

The Financial Times said
the OECD report was the latest indication of the dramatic rise in
research spending in China, which is “beginning to cause concerns among
western governments.”

The OECD notes that the bulk of China's R&D spending goes on
product development, rather than basic research, so the raw figures
perhaps overstate China's R&D strengths.

However, some multinationals are beginning to move genuine research
to China because of the high numbers of skilled scientists they can now
recruit in the PRC. “There are some signs that they are starting to do
fundamental or breakthrough work in China,” says Dirk Pilat, head of
the OECD's science and technology policy division.

Recent months have seen a flurry announcements about new R&D facilities in China from the likes of Motorola, GE, Siemens, Nortel and Honeywell, as well as pharma giants Novartis and AstraZeneca — click the links for the relevant EngagingChina stories.

Europe's policymakers have also woken up to China's research strengths. On the occasion of the inauguration of the China-EU Science and Technology Year, the EU's science and research commissioner Janez Potocnik said:

China is quickly becoming a major global player in science and
technology. We face many of the same challenges for the future, and
research can play a part in facing them.”

But before everyone gets too carried away with the idea that China
has, almost overnight, become an scientific superpower, a note of

It turns out that China's rapid rise in the R&D league turns out to be something of an illusion.

Bruce Einhorn, BW's excellent Asia technology correspondent, has
spilled the beans and discovered that the OECD inflated China's figures
by a factor of four to take account of the “real purchasing power” of
the yuan.

While economists may argue such distortion is admissible, the OECD
seems to be the only one using such a generous measure. When Xinhua,
China's official news agency, reported
the country's R&D spending for 2005 it converted the
yuan-denominated figure — 237bn yuan — to US dollars using the
standard market rate and got $29bn.

So China, by its own admission, is still a long way behind Japan in
the R&D stakes. Nevertheless, spending in 2005 was up 20% on the
previous year, so perhaps it will not be too long before Japan really
does have to worry.

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