Look out, OECD. Here comes more trouble, writes Asia Sentinel’s John Berthelsen

Although previously China has publicly indicated its ambition to invest heavily in research and development, the amount to actually be devoted to the sector is staggering, and is expected to be distributed by fiscal or government subsidy – actual cash payment.

Sean Darby, Asia strategist for Nomura international (HK) Ltd., estimated the amount of spending over the next five years in a report this week at 5 trillion yuan (US$758.4 billion), an even bigger amount than the mammoth – and successful – 4 trillion yuan stimulus package announced by the central government in 2008 as an attempt to minimize the impact of the global financial crisis.

Hugh Peyman, the managing director of Research-Works, the leading independent equities research firm based in China, told Asia Sentinel that “It will be larger than people think. We are 60 percent of the way through a 25-year program to get R&D up to 2 percent of GDP, yet 75 percent of the spending lies ahead in the last decade to 2020.”

US President Barack Obama spoke of a so-called “Sputnik moment” during his 2011 State of the Union address, alluding to the scientific achievement by the Russians in 1957 to put the first satellite into space and telling the Congress that “after investing in better research and education, we didn’t just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.”

Nonetheless, it is questionable whether the Sputnik moment will generate the investment Obama wants. The United States is constrained by a massive budget deficit and a newly-minted Republican majority in the House of Representatives that is deeply averse to government spending. Obama said he would send a budget to Congress that includes biomedical research, information technology, and especially clean energy technology. Although that statement was met with applause, any idea that the Republicans will put forward the funding is farfetched.

By contrast corporate USA, sitting on fattened balance sheets, has the funds to continue innovation and there is no denying the powerhouses like Silicon Valley. But at the same time, educational quality in the US continues to slip. Educators were shocked in December when students in Shanghai trounced the OECD averages in reading, mathematics and science. American students scored below the OECD average of 496 overall, with Finland, South Korea, Belgium, Estonia, Iceland, France, and the Slovak Republic, among others outperforming them. US students scored higher than those in just five OECD countries: Greece, Israel, Turkey, Chile, and Mexico. These children, particularly in mathematics and science, are the natural resources on which innovation is built.

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