In the short-term, yes, China companies should spend as much as possible on increased R&D spending.
But in the long-run, it does look like there is a practical limit to productive R&D spending.
Many hi-tech countries (US, Germany, Korea, Taiwan, Israel, Switzerland, Austria, Finland etc) max out at $1400-$1600 per person
But China is roughly at $400 (PPP) per person.
That works out as 2.18% of GDP, which is an exceptionally high amount of R&D spending for a middle-income country.
Everyone else at that level is already wealthy and developed, and we can already see China is on the path to joining them, given some time.
And eventually, a wealthy developed China could be spending 3.1% of GDP on R&D spending like its East Asian Confucian peer group.
That likely means more R&D spending in China than the rest of the world combined.
But bear in mind that this scenario is at least 2 decades away...
China’s funding for science and research to reach 2.5 per cent of GDP in 2019
- Country will hit its target a year ahead of schedule, but scientists say they still don’t get enough funds for basic research
- China has been closing the gap on spending in recent decades as it pursues ambition of becoming a global tech superpower
A jump in R&D spending from 2.18% to 2.5% this year is really significant.
We can already see that Chinese companies have had their sputnik moment, and see their long-term survival tied up with technology independence from the US.
But if we're looking at Basic and Applied Research, I think it's instructive to look at what happens elsewhere.
This is just a rough draft
In Germany, we can see:
Max Planck Society (Basic Research)
Personnel: 22000
Budget: $2.16B PPP - from 1.8B Euro
Per Person: $98K PPP
Fraunhofer Society (Applied Research)
Personnel: 25000
Budget: $2.76B PPP - from 2.3B Euro
Per Person: $125K PPP
And if we use the average German salary of $55K PPP, we can see that for Basic and Applied Research, roughly half of all costs are related to personnel.
The nearest Chinese equivalent is the Chinese Academy of Sciences, which does both Basic and Applied Research.
It has 60000 personnel which is roughly the same size as the Max Planck and Fraunhofer combined.
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In the USA, we've got the NSF which dispenses $7.8B in thousands of grants to universities.
There are also a number of other government funding institutions like the NIH, etc
Along with private research universities which also have substantial budgets.
It looks like the National Natural Science Foundation of China (with a budget of $5.8B) is the equivalent of the NSF in the USA.
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Given that wage costs in China for R&D personnel are a lot lower, China does have a competitive advantage here.
China does have a much larger population and larger technical graduate base than Germany and the USA.
Plus when you look at the numbers involved, it looks cheap compared to the hundreds of billions that China spends on infrastructure every year.
Imagine if the government were to reduce the railway construction budget by 10%.
That would release 80 Billion RMB, which is equivalent to $22B in PPP terms.
If that were to be applied to basic and applied research, we're looking at double or triple what is being spent today.
That would be broadly comparable to the total US government spending (approx $40B)
This is just the short term view,
But in the distant future, it is possible for China to sustain R&D spending greater than the rest of the world combined.
That simply comes from 1.4 billion people with high income levels.
