Chinese Corporates Intensify R&D to Boost Competitiveness and Self-Sufficiency
Chinese corporates are intensifying R&D to boost competitiveness and technological self-sufficiency, amid a slowing economy and rising competition both domestically and internationally, says Fitch Ratings. Increasingly supportive policies, such as a pre-tax super deduction, have also encouraged corporate R&D.
Corporate R&D spending has been rising by double digits since 2016, after regulators launched a massive pre-tax super deduction programme to drive industrial upgrades. Corporates, especially those in hi-tech manufacturing, aim to boost competitiveness and reduce reliance on imported technology.
We expect Chinese corporates’ R&D spending/GDP ratio to continue to rise from 1.9% in 2021 and 1.6% in 2015, despite China’s slowing economy. The is likely to be buoyed by the country’s more supportive R&D policies amid western countries’ increasingly cautious attitude towards technology exports, together with corporates’ rising R&D awareness.
Fitch’s study of 4,900 A-share listed companies shows rising median R&D intensity, as measured by the R&D spending/revenue ratio, during 2018-1H22. Median R&D spending growth of listed state-owned enterprises and large companies outpaced revenue growth by an increasing margin. This was likely because state-owned enterprises bear policy mandates to seek technical breakthroughs, while privately owned and medium-sized listed companies are engaging in more technology-driven sectors.
The IT services sector has the highest R&D intensity among all sectors, followed by high-tech manufacturing, which contributes around one-third of listed manufacturers’ R&D spending. Strong demand for renewable-energy equipment and electric vehicles due to the ongoing global energy transition boosted R&D spending in the non-ferrous metal sub-sector.
However, traditional sectors largely reported slowing R&D spending in 1H22 from 2021 levels, amid slowing economic growth.
Source: Fitch Ratings