US holds off China challenge in global R&D spending race

14 Mar 2024 | News

In 2018, US government advisers predicted it would soon be overtaken by China. But now, with the Chinese economy faltering, that no longer looks inevitable. Meanwhile, the EU lags both significantly

Yin Hejun, China's minister of science and technology. Photo: Wikimedia Commons

Closely watched science and technology indicators from Washington DC show the US is still the world’s biggest spender on research and development, confounding expectations that China would takeover the lead.

A faltering Chinese economy and plummeting birthrates have driven a conversation over whether the world has reached ‘peak China’, where Beijing’s economic and geopolitical ascendancy over the US no longer looks inevitable. Now, a similar debate is happening in the domain of R&D.

On 13 March the US’s National Science Board (NSB), which advises Congress and the president, released its biennial State of US Science & Engineering report, a gold-standard set of data on the shape of the world’s R&D effort.

It shows that the US still retains a healthy lead, spending $806 billion on R&D, both public and private, in 2021, the latest year the report calculates. China spent $668 billion.

While China has been catching the US over the last two decades, on the basis of these statistics, it no longer looks on a trajectory to overtake it.

 “We’ve all been waiting to see when those two curves cross, and they haven’t crossed,” said Arati Prabhakar, director of the White House Office of Science and Technology Policy at an event launching the report.

Back in 2018, it looked inevitable that China would soon take the top spot. In that year, the NSB issued a warning that on current trends, it expected China to surpass the US in R&D investment by the end of the year.

But in recent years the US has seen a “huge surge” in corporate spending on R&D, particularly by IT and pharmaceutical companies, Prabhakar said.

“It came from businesses,” she said. “What you see in these numbers is the intensification of our innovation economy.”

The statistics bear this out: from 2018 to 2021, business R&D spending ballooned by more than a third, to over $600 billion. Meanwhile, federally funded R&D stayed roughly flat as a proportion of the economy, Prabhakar noted.

Private sector R&D is now so important in the US than it funds almost as great a proportion of basic research (36%) as the federal government (40%).

EU lags behind

Prabhakar was withering about the EU’s spending performance. It is “quite notable” that China’s expenditure on R&D was 40% higher than the EU’s, the third biggest spender, she said.

“We’re not alone anymore,” she said of the US. “We have a very significant R&D competitor in China. But actually, there’s a big gap between there and where the rest of the world is.”

The US’s lead over China could of course have eroded after 2021. But since then, China’s economy has faced a series of mounting problems, while the US has experienced steady growth, and launched big public R&D investment programmes such as the CHIPS and Science act, estimated to be worth more than $200 billion.

However, promises to boost science budgets have been watered down by an obstructive Congress, and recently passed funding bills will cut back the budget for the National Science Foundation by around 8% this year.

A new budget proposed by the White House for 2025 would reverse these cuts, but research lobby groups say it would still not live up to promises made in the CHIPS and Science Act.

Beijing, meanwhile, recently announced plans to increase government spending on science and technology by 10% in 2024.

Spending not everything

Of course, raw expenditure is only one measure of performance. Other sections of the report are much more sobering reading for US policymakers. The NSB warned that China has now surpassed the US in “STEM talent production, research publications, patents, and knowledge-and technology-intensive manufacturing”.

On patents, the report found that China overtook the US in 2021. The EU was overtaken in 2019, but remains in the same league as the US, China and Japan, in terms of the number of patent applications.

When it comes to granting science and engineering doctorates, China moved ahead of the US in 2019, it found. By 2017, India had become comfortably the third biggest doctorate granting country, but pandemic-related disruption in 2020 cratered its numbers to below that of the UK.

In a separate report, the US’s National Science and Technology Council has said Washington needs to do more to promote research and innovation cooperation with other countries, as it competes with China over a new wave of technologies.

But the council’s biennial report to Congress found that of 16 goals to boost international links set in 2022, the US has only made progress on “about half”.

It calls on the US government to create “flexible and longer-term approaches to funding international collaborative science”, similar to what the EU can fund through its seven-year multiannual financial frameworks, which undergird long-term programmes like Horizon Europe.

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