Despite R&D spending, China lags in innovation

China has seen the world's biggest growth in terms of research and development spending over the past year. But it still has a long way to go before its companies lead the world in innovation, a study has found.

Yearly R&D expenditure by the world's 1,000 largest public companies rose 5.8 percent year-on-year, hitting a record high of $638 billion in 2013, said the global management consulting firm Booz & Co on Monday.

But Chinese companies, which were included in Booz's annual Global Innovation 1000 study, saw their R&D spending soar 35.8 percent year-on-year in the same period, the highest growth out of all the regions in the world.

The study, which Booz has conducted for the past nine years, found that Chinese companies' share of global R&D spending rose from 0.4 percent in 2008 to 3.2 percent of the total in 2013 - a sevenfold rise.

Despite the staggering growth in R&D spending, the 35.8 percent rise was actually the second-lowest increase in the past five years, said Steven Veldhoen, a global partner at Booz.

"It is likely a reflection of China's slowing economic expansion. It (the slowing growth) is also natural when one country's total amount of R&D spending reaches a certain size," Veldhoen said, adding that he believes R&D spending in China will continue its significant growth.

The total number of Chinese companies included in the Global Innovation 1000 list rose from 50 last year to 75 this year. China National Petroleum Corp spent $2.291 billion on R&D, which ranked it 64th on the list.

ZTE Corp, the world's fifth-largest telecom equipment and smartphone manufacturer, ranked 100th with $1.399 billion in R&D spending.

Despite the surging R&D spending by Chinese companies, Booz found no correlation between how much they spent on R&D and how well they performed over the long term. "When it comes to innovation, how you spend is much more important than how much you spend," Veldhoen said.

According to the study, the top 10 R&D spenders in 2013 were not the 10 most innovative companies, which were voted through peer review by about 400 senior executives from various industries.

For example, Apple Inc was voted the most innovative company in 2013 with R&D spending of $3.4 billion. No Chinese company was on Booz's 10 most innovative companies list in 2013.

"A lot of big companies in China, such as CNPC, spent less than 2 percent or even less than 1 percent of their sales on R&D, which is far under the proportion of their American counterparts," said Bill Peng, principal of Booz, adding that there's still a huge gap between Chinese and Western companies in terms of innovation.

But the gap is closing quickly, as many foreign multinationals have set up their R&D facilities in China.

"Foreign multinational companies are keen on housing R&D facilities in China to tap the huge market and enjoy benefits like cost-efficiency," said Dan Steinbock, research director of international business at the India, China and America Institute, a US think tank.