OECD lauds China for mobilizing resources

China has made great progress in promoting scientific and technological innovation but must do more to succeed in building a modern, advanced economy, the Organization for Economic Cooperation and Development said in a report released yesterday.

Better protection of patents and other intellectual property, more cooperation between the government and the private sector and reforms to foster competitive markets are among the top needs the Paris-based OECD outlined in the report, issued in collaboration with China's Ministry of Science and Technology.

The stakes are high for China. Despite its sizzling economic growth, the country relies mainly on low-tech industries manned by mostly unskilled labor.

"China has relied heavily on technology imported from abroad, and the development of its technological capability has until recently lagged behind its economic growth," said the OECD, which groups 30 industrialized nations.

"Developing the country's innovation capacity is a prerequisite for escaping from a pattern of specialization characterized by intensive use of low-skilled labor and natural resources and a low level of technological capabilities," it said.

The report noted that in the past decade, China has made significant progress, "mobilizing resources for science and technology on an unprecedented scale and with exceptional speed, and is now a major R&D player."

High-tech products account for a fast-growing part of total exports, although most are still assembled from imported components.

China's spending on research and development has risen at an annual rate of 19 percent since 1995, reaching US$30 billion by 2005, the sixth highest in the world.

China has also moved to increase support for general education and technological expertise.

Although businesses account for two-thirds of all research and development, there is a severe lack of funding for financing new ventures, which tend to be among the most innovative in any economy.

"China's financial system does not meet the funding needs of private firms, notably SMEs (small and medium-size enterprises)," the report said. "The capital market is underdeveloped and SMEs find it difficult to secure loans since banks favor large companies, particularly state-owned enterprises," it said.

To further support progress in innovation, the report urges China to improve corporate management and financing, enact antitrust legislation and promote competition through better, more open regulations.