lab_technician.jpgChina 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 caution.

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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