China’s investment in research and development (R&D) reached a significant milestone last year, with spending hitting 2.8 percent of gross domestic product (GDP), surpassing the average for Organisation for Economic Cooperation and Development (OECD) member countries. This marked an expenditure exceeding 3.92 trillion yuan (approximately HK$4.6 trillion), reflecting Beijing’s ongoing commitment to advancing its science and technology capabilities.

Measured by purchasing power parity, China’s total R&D spending now matches that of the United States, closing the gap from about 72 percent of the U.S. level a decade ago to near parity today. The country also boasts the largest research workforce globally, with nearly 8 million individuals engaged in scientific and engineering fields, according to Beijing’s five-year plan.

Despite these achievements in scale, challenges remain. Key among them is the relatively low proportion of R&D funding allocated to basic research, which accounts for roughly 7 percent of China’s total R&D budget. This compares with 17 percent in the United States and 15 percent in the European Union. Basic research, which focuses on frontier scientific inquiry rather than immediate practical applications, is considered essential for innovation leadership. China’s historical focus on applied research and technology catch-up explains the smaller share for basic research, but analysts argue that without increasing investment in this area, China risks remaining a follower in technological advancements.

Chinese authorities appear aware of this issue. The government’s work report for the current year identifies boosting funding for basic research as a priority, and the share of spending on such research has just crossed the 7 percent mark for the first time, signaling potential future progress.

The second major challenge is the lower involvement of the private sector in basic and long-term research. While major U.S. technology companies often commit substantial resources to exploratory research with uncertain short-term returns, most Chinese businesses tend to focus their R&D on projects with immediate commercial prospects. Huawei stands out as a notable exception; it dedicated over 21 percent of its revenue to R&D last year, totaling 192.3 billion yuan. This commitment has enabled breakthroughs such as the Tau scaling law, a new methodology to improve chip performance beyond traditional transistor scaling.

However, other leading Chinese technology firms have yet to match Huawei’s level of investment in frontier research. The limited participation of the private sector in basic science remains a significant hurdle for China, given that private enterprises are generally more innovative and efficient in research compared to public institutions.

Addressing this gap involves more than corporate strategy. Experts emphasize the need for governmental policies that create an environment conducive to long-term research investments. Improvements in intellectual property protections have been noted, particularly with Hong Kong’s established legal framework supporting innovation. Additionally, the availability of patient capital—investment that tolerates longer timelines for returns—is seen as a key advantage China holds over U.S. firms, which often prioritize quarterly earnings.

While China has demonstrated its capacity to invest in science at a superpower scale, experts caution that the next critical step is to direct funds strategically and encourage its most dynamic companies to pursue long-term, high-risk research ventures. Success in this effort is viewed as essential for translating China’s current spending levels into genuine leadership in technological discovery.