Low R&D Spending May Be China’s Achilles’ Heel
Most companies don’t invest nearly enough in cutting-edge technology to compete with the rest of the world.
In its bid for technological supremacy, China has one small problem: Its research and development spending, at a little more than 2% of gross domestic product, is dwarfed by that of Israel, Japan, and even the U.S. A global behemoth like Huawei Technologies Co. can still wow the world with its tens of thousands of active patents, but most Chinese companies don’t invest nearly enough in cutting-edge technology to compete.
That’s because excessive R&D spending can hamper Chinese businesses’ ability to go public. Unlike in the U.S., China’s stock exchanges require companies to be profitable for at least three years before making an initial public offering. R&D spending shows up on income statements as an operating expense and thus keeps young companies in the red for longer.