More R&D needed for China to enter its next stage of economic growth

By Hisham AbuBakr Metwally
0 Comment(s)Print E-mail, March 15, 2019
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A demonstration center is seen at Guizhou big data pilot zone in Guiyang, southwest China's Guizhou province, on May 25, 2017. [Photo/Xinhua]

The world has an optimistic view about China's economy. In 2017, the IMF predicted that China's gross domestic product (GDP) would exceed the U.S. GDP by 2030. This was based on the assumption of a surge in the growth of the Chinese economy, one that is based on high-quality growth.

Chinese Premier Li Keqiang announced in the government work report during the opening of the second session of the 13th National People's Congress (NPC) on March 5, that China will continue pursuing high-quality growth. This is the same path that the IMF report predicted, which means that China is proceeding in the right direction.

There is no doubt that China's reform and opening-up over the past 40 years has been based on many things, but the main engine of China's growth has all along been investment and domestic consumption.

However, for China to continue to grow in its next phase of economic development, its reliance on the production of cheap goods is no longer acceptable as it has become difficult to progress given higher wages and rising production costs. 

The main engine of growth for China's next stage of development would need to change to high-quality innovation. China has understood this fact and has targeted high-quality growth in all its economic plans.

In 2010, China developed its industrial policy to focus on 20 strategic emerging industries for 2020, which include next generation information technology, biotechnology, precision and high-end machinery, new energy, new materials, new energy vehicles, energy conservation and environment protection.

File photo taken on May 25, 2016 shows the quantum simulation laboratory at the Chinese Academy of Sciences, in Shanghai, east China. [Photo/Xinhua]

China's policies have been successful in several areas. For example, it has become a global digital leader in frontier industries, such as e-commerce and quantum information science.

However, there are still many challenges and risks that must be overcome before it reaches its desired targets, and one of these challenges relates to research and development (R&D).

There is no doubt that China has placed increasingly more importance on R&D efforts, but this support has not yet reached the required levels.

According to World Bank data, China spent only 0.56 percent of its GDP in 1996 on research and development. This ratio increased to 2.11 percent in 2016, but this was still lower than that of the U.S., which spent 2.44 percent in 1996 and 2.74 percent in 2016. That means there is still a huge gap between the U.S. and China's spending on R&D. The latter must increase its R&D spending so that it can make up for what it has missed over the years, otherwise the gap in progress between both countries will remain.

Wang Zhigang, China's minister of science and technology, said in his press conference during the NPC session on March 11, that China will focus on strengthening scientific research capacity to catch up with the U.S. and to be "a country of innovators."

According to the National Bureau of Statistics, China's total spending on R&D increased 11.6 percent year-on-year to US$293 billion in 2018. 

People try out an unmanned driving simulator at the first Smart China Expo in southwest China's Chongqing municipality, Aug. 23, 2018. [Photo/Xinhua]

In 2019, China will strengthen R&D and the application of big data and artificial intelligence technology, foster clusters of emerging industries like next-generation information technology, high-end equipment, biomedicine, new-energy automobiles and new materials, and expand the digital economy, according Premier Li's government work report.

China has great potential to become the world's strongest economy, especially with its unprecedented financial reserves accumulated in previous years due to the work ethic of its workforce and its government's prudent fiscal policies. These resources can be used to build a brighter future in the years to come.

China's growth has slowed and may continue at the same pace for some time, but it will not be a major impediment to the completion of development projects and the achievement of high-quality growth.

Hisham AbuBakr Metwally is the First Economist Researcher at the Egyptian Ministry of Foreign Trade and Industry.

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