R&D development services and technology to China
Trends and opportunities
As China’s economy faces the realities of an ageing population, a shrinking workforce and diminishing returns from the traditional investment-led growth model, innovation is being hailed as the “soul of national advancement” (President Xi Jinping) and “the primary driving force for development” (Premier Li Keqiang).
Achieving innovation-led development is a guiding principle in China’s 13th Five-Year-Plan (2016-2020). In guidelines released in May, China has gone so far as to specify a range of targets including becoming an ‘innovative nation’ by 2020, an ‘international leader of innovation’ by 2030, and ‘a world powerhouse of science and technology’ by 2049.
Overall expenditure on research and development (R&D) has grown from just 0.9 per cent of Gross Domestic Product (GDP) in 2000, to 2.1 per cent in 2014. China is on track to reach its 2020 target of spending 2.5 per cent of GDP on R&D, though Beijing and Shanghai as well as Jiangsu Province in China’s east have already surpassed this target. The 13th Five-Year-Plan Guidelines set a national average target of 2.8 per cent by 2030.
Made in China 2025 and the Internet Plus initiatives aim to move China's manufacturing sector up the value chain by developing or adopting more innovative technology solutions and systems.
There are 146 high-tech parks administered by China’s national government, and thousands more established by provincial and municipal governments. Each offers a suite of favourable taxation policies and other support mechanisms.
China boasts some 2,300 makerspaces and 2,500 incubators and accelerators. This includes over 460 in Shanghai (of which 200+ are publicly funded), all seeking to attract and support China’s new wave of young entrepreneurs, hoping to be the next Alibaba, Baidu or Tencent. This pool of talent is huge: 3.9 million students graduated from Chinese universities in 2014, of which 40 per cent were in science and engineering disciplines.
The investment environment is also staggering in scale. According to Zero2IPO, 780 Chinese government-backed VC funds raised a total of A$305 billion in 2015, almost five times that raised by VC firms outside China in the same period.
China is an increasingly important market for startups and exporters of innovative technologies.
One Country, Many Markets
Austrade China is focusing on selected municipalities, provinces and cities to identify targeted opportunities for Australian R&D institutes and technology companies. These priority areas reflect locations with favourable policies, government funding and relatively high R&D spend as a proportion of GDP, as well as the capacity to be serviced via the Austrade network. These locations include:
- Shanghai is recognised as an international centre for technology, innovation, finance and entrepreneurship. Shanghai’s well-established innovation ecosystem includes extensive venture capital networks, a sophisticated financial services industry and an international legal and business advisory system. Expenditure on R&D in Shanghai topped US$13 billion in 2014, or some 3.6 per cent of GDP. The Shanghai Science and Technology’s current five-year-plan sets a target of four per cent by 2020. Shanghai is the regional headquarters for 525 multinational corporations (MNCs) and houses a quarter of the R&D centres set up by MNCs in China. This global setting continues to attract a strong community of Chinese and international technology companies and startups.
- Beijing has the largest concentration of publicly funded research institutes, and around one quarter of the country’s key national universities, educating a large pool of talent. It is also home to Zhongguancun, China’s first and largest high tech park, and includes research centres of global companies such as IBM and Microsoft, and home-grown tech giants Baidu and Xiaomi, now the world’s fifth largest manufacturer of smartphones. Beijing’s Contribution Rate of Science and Technology in 2015 was over 60 per cent, more than five per cent above of the national average level (Source: Xinhuanet.com). In 2015, expenditures on R&D amounted to RMB 136.75 billion with an increase of 7.8 per cent over the previous year.
- Jiangsu Province, in East China’s Yangtze River Delta, has ranked highly across several measures of ‘innovation’. Expenditure on R&D accounted for 2.55 per cent of GDP in 2015. The provincial government has long-term strategies to transform itself into a global industrial science and technology innovation centre by 2035. This includes transforming southern Jiangsu (including Nanjing, Wuxi, Changzhou and Suzhou) into an innovation demonstration hub by 2020 and accelerating international collaboration in agritech, biotech, ICT, advanced manufacturing and clean tech.
- Guangdong Province, in South China’s Pearl River Delta, ranks number two in ‘overall innovation capability’ and is only behind Jiangsu. Innovation is regarded as the number one driver for Guangdong’s economic growth, with an R&D investment target of 2.8 per cent of GDP by 2020. Home to the major hubs of Guangzhou and Shenzhen, Guangdong is renowned as a manufacturing powerhouse. Shenzhen, little more than a fishing village 30 years ago, is now home to some of China’s most successful tech companies including Huawei – which accounted for more international patent applications in 2015 than any other company worldwide - WeChat developer Tencent, auto maker BYD and genomics company BGI. According to government sources, 90 per cent of Shenzhen’s investment in R&D is corporate investment. Shenzhen is also a major source of talent, with more than 50,000 ‘sea turtles’ or overseas Chinese returnees, bringing their expertise and understanding of other markets back to China.
- West China is an emerging area of opportunity for R&D and tech companies. Chengdu, the capital of Sichuan province, is the economic centre of Western China. It is rapidly becoming recognised as a global innovation hotspot. Approved to be “National Small and Micro Enterprises Entrepreneurial Innovation Base Model City”, Chengdu was ranked in 2015 in China’s ‘Top 10 Entrepreneurial City” by Fortune Magazine. Chongqing, China’s fourth largest municipality after Beijing, Shanghai and Tianjin, is being positioned as a national modern manufacturing and functional financial service centre. Chongqing’s Start-up Venture Capital Funds Organisation is working with local government, universities and industrial parks to start 17 venture capital funds to support innovative businesses in 2016 (Source: Chongqing Technology and Finance Service Centre reported on July 29).
Austrade China’s Innovation Team are focused on identifying opportunities for Australia across a range of sectors in advanced manufacturing and new materials, biotech/medtech, and ICT and digital technologies.
Australian exporters or R&D institutions seeking commercial opportunities in environmental and water management, food security and agritech can refer to related industry profiles for more information on opportunities in China.
Advanced Manufacturing, New Materials
The Ministry of Industry and Information Technology (MIIT) oversaw the drafting of New Materials Industry Plan under China’s 13th Five-Year-Plan Guidelines to 2020. Once approved by the National Development and Reform Commission, this will prioritise sectors such as additive manufacturing (e.g. 3D printing), and new materials such as graphene and superconductor materials. Other areas of opportunity include:
- artificial intelligence
- quantum communications
- virtual reality.
Find out more about investment opportunities in Australia’s materials science and technology sector.
ICT and digital technologies
In 2015, the market intelligence firm IDC estimated that the total market value of China’s ICT sector reached US$460 billion (increase of 11 per cent per annum). Emerging trends such as big data and analytics have a range of applications in agribusiness, transportation, healthcare and water management. Other opportunities include:
- cloud computing
- monitoring and sensing
- intelligent transport
Find out more about investment opportunities in Australian digital technologies.
Biotechnology and Medical Technology
In 2020, China’s population is expected to reach 1.4 billion, 248 million of whom will be aged 60 years and over (Source: Trends and predictions on China’s ageing population, China National Committee of Ageing). As the population ages, and the rise of conditions such as diabetes and asthma have an increasingly significant impact on the domestic health system (China is now home to a third of the world’s diabetic population), managing these challenges may present opportunities for Australian biotech and medtech companies and researchers.
- medical devices, including diagnostics
- e-health (smart health) technologies.
Find out more about investment opportunities in Australia’s medical sciences and biotech sectors.
Pathways to the Chinese market for Australian technology and innovative services are not the same as traditional product distribution pathways. Typically, the process is much more complex and includes any or all of the following: selection and appraisal of technology, collaborative research, identification of appropriate transaction or business models (technology transfer, licencing, joint venture, wholly foreign-owned enterprise or other), non-disclosure or confidentiality agreements, as well as an understanding of risks, intellectual property protection frameworks, regulations, financing and investment options. Given these complexities, there is a clear role for Austrade to support technology exports and research commercialisation with China.
Australian Government Grants and Programs:
Global Connections Fund aims to provide initial funding support specifically to promote Australian Researchers and Small to Medium Enterprises (SMEs) collaboration. The program promotes Researcher-SME collaborations and consists of Priming Grants and Bridging Grants to increase linkages and collaborations with key global economies, including China, and encourage end use development and commercialisation outcomes.
Global Innovation Linkages offers funding of up to $A1 million per project over a maximum of four years to assist Australian businesses and researchers to collaborate with global partners from priority economies, including China, on strategically focused, leading-edge research and development projects. It will advance Australia’s international collaboration and encourage Australians to leverage entrepreneurial expertise overseas.
Collaborative projects and participants who wish to apply must include, at a minimum: one Australian industry entity, one Australian research organisation, and one global partner from a priority economy. The project must be in one of the following priority areas that align with the Australian Government’s Industry Growth Centres Initiative:
Landing Pads are being established in global innovation hubs including Berlin, San Francisco, Shanghai, Tel Aviv and Singapore, to provide a platform for market-ready startups to explore global opportunities. Participants in the Shanghai Landing Pad will undertake a 90-day residency at partner space Xnode, to help them accelerate the design and development of their product or service business model and explore in-market business development, investment, mentorship and strategic partnership opportunities. Austrade’s China Startup export profile contains additional information useful for companies interested in learning more about the Landing Pads and China’s innovation eco-system.
Links and industry contacts
Government, business and trade
Global Connections Fund
Global Innovation Linkages
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