In 1995 physicist En-Ge Wang made a fateful career decision. He had a Ph.D. from Beijing University and five years of experience as a postdoctoral fellow and researcher at one of France's national laboratories and at the University of Houston. The next rung on any researcher's career ladder is to take command of one's own laboratory. But governmental spending on the physical sciences in the United States had been stagnant for years, making it "a tough time, especially for physicists, because there weren't many academic openings," he recalls. He hesitated to return to China, because funding for research had always been scarce and career advancement depended on seniority, which created a stifling environment for ambitious young scientists. Nevertheless, he sensed that changes were in the wind, so he accepted a position at the Institute of Physics of the Chinese Academy of Sciences.

Fortunately for him, he was just in time to take advantage of governmental reforms that gave increasing responsibilities and funding to promising scientists. He set up a laboratory, assembled a team and concentrated on research. Ten years later, he is the director of the institute and his nearly 200 publications put him among the world's leaders in surface science, the study of interactions at the interfaces of different materials-a discipline that has fundamental implications for future semiconductors and nanotechnology. "The research environment is changing more quickly than I ever expected," he says. "For a physicist, this is an exciting time to be in China."

Wang is emblematic of the gradual but momentous shift under way in the global research landscape. Fewer Americans are earning doctoral degrees in science and engineering, 25,509 in 2001 (the last year for which comparative figures are available), versus 27,243 in 1996. And American governmental spending on R&D in the physical sciences, math and engineering has slipped from 0.25 percent of the gross domestic product (GDP) in 1970 to 0.16 percent in 2003, according to the Alliance for Science & Technology Research in America (ASTRA). Meanwhile, China is steaming in the opposite direction. China nearly doubled its output of science and engineering Ph.D.s between 1996 and 2001, to 8,153. And in the six years between 1997 and 2002, national and local governmental spending on research in China doubled, to approximately $9.9 billion. On top of that, multinational corporations have been racing to set up research centers in the country and China's own industrial titans are now plunging into R&D, realizing they have to have their own technology to compete in global markets.

Combined private and public spending on R&D in China as a percentage of GDP has grown from 0.6 percent in 1996 to 1.29 percent in 2002. This is still far below the roughly 2.7 percent of GDP spent in the U.S. But it still positions China as the world's third-largest investor in R&D, after the U.S. and Japan, when measured in purchasing-power parity dollars, according to the U.S. National Science Foundation. To meet the growing demand for a scientific workforce, universities are expanding slots for those studying science and engineering. And the Ministry of Education last year announced that it was almost quadrupling the number of universities it would give the financial support needed to rise to world-class scientific status, to 38, up from the previously designated 10.

The result is an increasingly dynamic research workforce that is churning out scientific papers and patents at an ever increasing clip. China has its own patent system, of course, but Chinese inventors are also gaining patents in the U.S. Between 1996 and 2001, the number of U.S. patent applications by China-based entities more than tripled, to 1,252, although that is still a small fraction of the 177,511 patents applied for by U.S.-based inventors. Not coincidentally, high-tech exports are also surging. And there is no question about continuing governmental support. "Science and technology are the decisive factors in the competition of comprehensive national strength," Chinese Premier Wen Jiabao said in a speech in Beijing in April 2005. Noting that it was "impossible to buy core technology," he said, "the national strategy is independent innovation."

Foreign and Chinese observers are unanimous in concluding that China is on its way to becoming a major research power. The questions are just how powerful and how soon. Ernest Preeg, senior fellow in trade and productivity for the Manufacturers Alliance/MAPI, warns in his just released book, The Emerging Chinese Advanced Technology Superstate (jointly published by the Manufacturers Alliance/MAPI and the Hudson Institute in June 2005) that "China is right up there with the U.S. in nanotechnology and coming on strong in biotech and in genetically modified agriculture." Robert Haak, an analyst at the Asian Technology Information Program, a U.S. nonprofit organization that tracks technology developments in the region, agrees that China's scientific capabilities are on the rise. "But I don't see radical innovations coming from China in the next 10 or 20 years," he says. Regardless of how quickly China rises, these and other observers warn that the U.S. needs to recognize that it can't take scientific leadership for granted.

China's scientific rise may seem sudden, but it's not. "China is now poised for a technological takeoff because of a whole set of policies and reforms that have been put into place over the last 20 years," says Denis Fred Simon, a specialist in Chinese science and technology policy at the Levin Graduate Institute of the State University of New York, in New York City. China had built its scientific infrastructure on a socialist model in which scientists had lifetime employment, regardless of research output.

But starting in 1985, the country set out to create a more competitive, merit-driven system that would respond to market needs. The country turned the applied research labs affiliated with the various ministries into enterprises that have to turn discoveries into marketable products or find corporate sponsors for their research. Basic research has been concentrated in the top universities and the Chinese Academy of Sciences, a network of 85 institutes spread around the country. Research funding and promotions are heavily dependent on a researcher's output of scientific papers and patents. "One thing China has gotten right is the incentives for researchers," says Lan Xue, associate dean of the School of Public Policy and Management at Tsinghua University.

A large part of China's growing success rests on a burgeoning and well-trained scientific workforce. The country produced 337,000 science and engineering graduates with bachelor's degrees in 2001, a figure that approaches the 398,000 produced in the U.S. Given that reliable statistics are several years old, it's possible that China is already producing more science and engineering bachelor's graduates than the U.S. In a slightly off-the-wall exaggeration, ATIP's Haak jokes that in several years, people with science and engineering degrees in China will outnumber the entire U.S. population.

"For a physicist, this is an exciting time to be in China."
—En-Ge Wang, director of the Institute of Physics of the Chinese Academy of Sciences

And quality is rising along with quantity. A decade ago, China's best and brightest went abroad to get their master's and Ph.D. degrees as a matter of course. Many top students still do head for the U.S. once they get their bachelor's degrees, but now there is an alternative: China's elite universities provide quality advanced training at home. Often these students are supervised by Chinese scientists who hold positions at top universities in America and Europe but spend part of each year in China, providing a window into the most advanced work in the world. Tsinghua University, for example, has such arrangements with professors from Duke, Princeton and Stanford Universities, among others. Last year, Wang's Institute of Physics awarded Ph.D.s to four students. All wanted to go overseas for their first postgraduate jobs. And in the stiff competition for postdoctoral fellowships at top institutions, they undoubtedly faced new Ph.D.s from the world's best universities. But two of them ended up at Harvard University and one each at Stanford University and Japan's National Institute for Materials Science. "These are all top institutes and top universities; these are very smart scientists," Wang says matter-of-factly.

The size and quality of this scientific workforce have been key factors in attracting multinational R&D centers to China. There are now more than 600 R&D laboratories affiliated with non-Chinese multinationals in China, according to China's National Research Center for Science and Technology for Development. Motorola, Siemens, IBM, Intel, General Electric and Nokia all have major R&D operations in China. Most of this R&D is really development, tailoring products to the needs of the local market. But a few centers have a broader mandate. Microsoft Research Asia is one of four research centers the software giant has working on basic topics with no need to produce any immediate commercial results. "And companies such as GE and Intel, for example, report only positive results from their experiences at the facilities they've set up in China," says SUNY's Simon.

The latest pillar strengthening China's research infrastructure is the country's own private sector. Huawei, TCL, Haier and other Chinese companies are ramping up research efforts and even opening R&D centers in other countries. Again, like most corporate research worldwide, it is primarily applied research, focused on producing marketable products. Huawei, the growing telecommunications and networking company, spends at least 10 percent of sales-which last year topped $5.6 billion-on R&D. It has a research staff of more than 10,000 in China, and the company admits that low-cost R&D is a key part of its strategy. Yet the company has found that it has to globalize its R&D "to meet the demands of customers in the international market," says Johnson Hu, Huawei's vice president of marketing. Huawei now has R&D centers in India, Sweden, the U.S. and Russia.

"China is now poised for a technological takeoff, because of a coming together of a whole set of policies and reforms."
—Denis Fred Simon, provost, The State University of New York

Erik Baark, who studies China's research efforts from the Hong Kong University of Science and Technology, says the country is also rapidly forging links between the public and private sectors, smoothing the transfer of technologies from the lab to the marketplace. One reason is that many of China's emerging enterprises were spun off from governmental research institutes and universities. This trend follows the American example of companies such as Sun Microsystems, which traces its roots to workstation research at Stanford University and operating system research at the University of California at Berkeley, and Cisco Systems, which grew out of networking research at Stanford.

The most prominent example is Lenovo, the PC maker that bought IBM's personal computing division; it was formed by a group of researchers from the Chinese Academy of Sciences, which provided startup funding. Baark says that these companies are typically headed by scientists and engineers who still have strong ties to the academic research community. Now that these companies are ramping up their own R&D efforts, "the capacity for enterprises to absorb basic-research results from universities and national labs is rising."

China's government is intent on making the country a scientific power across the board, supporting everything from astronomy to zoology. But analysts point to several economically important fields in which China's muscle is beginning to show. One is nanotechnology and materials science. And Wang's Institute of Physics is a prime example, consistently publishing breakthrough results in areas such as the superconducting properties of thin films; the characteristics of nanotubes; and fabrication of quantum dots, semiconductor constructions that confine electrons and will be a fundamental building block for future quantum computers. In addition, according to an ATIP report, China's supercomputing efforts now rank third in the world, behind those of the U.S. and Japan. China is also targeting biotechnology, and Preeg of the Manufacturers Alliance notes that particularly in stem cell work, China's scientists aren't constrained by the ethical controversies hindering efforts in the U.S.

Despite the impressive strengths, however, analysts inside and outside China point to a lot of hurdles the country has to clear to achieve scientific superpower status. For one thing, although R&D spending is growing, it is still a fraction of the spending in the U.S. and Japan, even in the physical sciences. Investment in facilities is growing exponentially, but it is starting from a primitive base, and ATIP's Haak notes that cutting-edge research in nanotechnology requires leading-edge equipment that so far is found in only a few elite Chinese labs. Many analysts also point to a shortage of senior-level researchers who can lead major projects. Wang recalls visiting a dozen or so of the top university physics departments in the U.S. this past spring and being impressed with the depth of the teams and the efficient management of research activities. "In my mind, we have a long way to go," he says.

But U.S. analysts and businesspeople are still warning against complacency. China's growing scientific clout was the subject of a two-day hearing at Stanford University in April 2005 by the U.S.-China Economic and Security Review Commission, which is charged with advising the U.S. Congress on the national security implications of the bilateral relationship. Much of the discussion focused on China's need to properly protect intellectual property and revalue the yuan. But in his presentation to the commission, James Morgan, chairman of the board of Applied Materials, sounded a theme repeated by many of those who spoke at the meeting. "For the most part, the U.S. policy response should be focused less on China and more on challenges at home to our overall competitiveness," he said.

His list of prescriptions included improving math and science education at all levels, strengthening incentives for corporations to invest in research and increasing federal support for the physical sciences. Simon, who also made a presentation to the commission, says that "rather than spending our energies bashing China," the U.S. should be actively encouraging more bilateral academic collaborations that would enhance the basic-research potential of both countries. "The dilemma for the U.S. is that we're not responding positively to the opportunities that are being created," he says.

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