When confronted by claims that its swelling trade surplus reflects unfair treatment of overseas goods, China has long had a ready comeback: that foreign-invested firms account for at least half of its exports.
Chinese officials argue that foreigners use China simply as their final point of assembly in Asia, making use of its cheap labour and land while keeping most of their profits and the manufacturing of high-tech inputs offshore.
This argument, however, is starting to look increasingly frayed, with a sea change in recent years in the attitude of many multinationals, who now view China and its huge emerging market as a future hub for science and technology.
The trend was confirmed in a lengthy paper released this week at a conference in Beijing by the Paris-based Organisation for Economic Co-operation and Development in conjunction with Chinese researchers.
“The time when foreign investors invested in China only to take advantage of cheap manufacturing platforms is over,” the report says.
The OECD said “its best guess” was that foreign research and development now accounts for about 25-30 per cent of all business R&D in China. In this respect, the foreign share of R&D in China is similar to that in many European countries.
Multinationals’ R&D is focused on information technology because of China’s strength in mobile communications and the manufacture of computers. But it is also spreading into other sectors, including biotech, drugs and autos.
Companies that have established research bases in China, or have announced plans to, include Novartis, General Electric, Microsoft, Intel and Motorola.
With China’s emphasis on innovation, the centres have long made for good public relations and government relations for the multinationals. As with Chinese companies, much of the work by foreign companies was initially focused more on “D” than “R”, with little basic research.
The OECD’s findings back this up, with the multinationals surveyed by the researchers saying many centres had initially been used to modify existing products for the Chinese market ahead of exploring new ideas for the rest of the world.
But the survey also found that this is starting to change, with an increasing number of multinationals beginning to see China as a base for genuine research.
Although the OECD said reliable information on this trend was difficult to find, “anecdotal evidence, firms’ surveys and experts’ judgments suggest it is gaining momentum and is likely to amplify”.
