China’s 14th Five-Year Plan Aims To Increase R&D Spending, Tax Credit To Spur Basic Research

In the next five years, China plans to substantially increase its investment in basic research. On March 5, the "Fourteenth Five-Year Plan for National Economic and Social Development and the Outline of 2035 Long-Term Goals (Draft)" prepared by the State Council proposed that during the "14th Five-Year Plan" period, from 2021 to In 2025, China will take scientific and technological self-reliance and self-reliance as a strategic objective for national development.

The draft establishes three major targets for this purpose. During the "14th Five-Year Plan" period, the R&D expenditure of the whole society will increase by more than 7% annually, and the number of high-value invention patents per 10,000 people will increase from 6.3 in 2020 to 12 per 10,000 people in 2025. The added value of the core industries of the digital economy as a proportion of GDP will rise from 7.8% in 2020 to 10% in 2025.

“Basic research is the source of scientific and technological innovation. It is necessary to improve the stable support mechanism and substantially increase investment. Basic research expenditures at the central level increasing by 10.6%, implement the policy of expanding the autonomy of the use of funds, improve the project review and talent evaluation mechanisms, and effectively reduce the problem of scientific research personnel to enable them to sink their hearts to scientific exploration and achieve major breakthroughs in key core areas," said Premier Li Keqiang on the morning of March 5 during the introduction of the government work report 2021.

Li Keqiang said that in 2021, China will continue to implement the 75% deduction policy for corporate R&D expenses, increase the percentage of additional deductions for manufacturing enterprises to 100%, and use tax incentives to encourage enterprises to increase R&D investment.

Previously, many entrepreneurs and scholars have suggested that China should increase investment in basic research. After Huawei was sanctioned by the US government in 2019, Huawei founder Ren Zhengfei repeatedly proposed that China should attach importance to basic education and basic research.

"Our country’s economic aggregate is so large, but if the roots of such a large tree are not strong, the tree will be unstable. What if there is a typhoon? The economic development model focusing on quick, rapid and short-term returns is unsustainable,"" Ren Zhengfei said during a visit to Peking University, Tsinghua University, Chinese Academy of Sciences, Natural Science Foundation of China in September 2020.

According to the draft, China plans to promote technological innovation and basic research from four aspects in the next five years.

First, at the national level, China will formulate and implement a ten-year action plan for basic research, increase financial investment in basic research, implement tax incentives for enterprises to invest in basic research, and encourage the society to invest in multiple channels through donations and fund establishments, so that the proportion of basic research expenditures in total research and development expenditures can increase to more than 8%. This number was 6% in 2020, and was at around 5% for years previously.

In terms of investment, China plans to establish a number of national laboratories in the fields of quantum information, photonics and micro-nano electronics, network communications, artificial intelligence, biomedicine, modern energy systems, and reorganize the state key laboratories to form a reasonable structure.

Starting from the country’s urgent and long-term needs, China will concentrate its superior resources to tackle key issues in the prevention and control of emerging infectious diseases and biosafety risks, medicine and medical equipment, key components and parts and basic materials, and oil and gas exploration and development.

Second, at the enterprise level, China will implement more inclusive policies such as the extra deduction of R&D expenses and tax incentives for high-tech enterprises, and use government procurement to support innovative products and services.

China will improve the evaluation system that encourages R&D by state-owned enterprises, and establish a R&D reserve system with independent accounting, avoidance of value-added and value-preserving evaluation, and error-tolerant R&D to ensure that the annual growth rate of industrial R&D expenditure of central enterprises significantly exceeds the national average.

For large domestic enterprises, China will support industry-leading enterprises to jointly build a national industrial innovation center and undertake major national science and technology projects in cooperation with institutions of higher learning, scientific research institutes, and upstream and downstream enterprises in the industry; create a new type of common technology platform to solve cross-industry and cross-sectoral technical issues.

In terms of corporate services, China will promote the further opening of national scientific research platforms, scientific and technological reports, and scientific research data to enterprises; encourage qualified scientific and technological achievements supported by financial funds to be licensed to small and medium-sized enterprises; encourage financial institutions to develop intellectual property pledge financing, such as technology insurance; unblock the domestic financing channels of technology companies, enhance the "hard technology" characteristics of the Sci-tech Innovation Board, and enhance the function of the ChiNext Board to serve growth-oriented innovative and entrepreneurial enterprises.

Third, at the talent level, China will strengthen the training of top-notch students in basic disciplines, build bases for basic disciplines such as mathematics, physics and chemistry, and cutting-edge science centers, and explore the establishment of a skilled immigration system.

At the same time, China will unbind scientific research personnel in all aspects, explore to grant scientific research personnel the ownership or long-term use right of their scientific and technological achievements, and increase the proportion of scientific research personnel’s revenue sharing.

Fourth, at the level of institutional improvement, China will reform the establishment and organization and management of major scientific and technological projects, give more autonomy to scientific research units and scientific researchers, implement the responsibility system of technical chiefs.

China will also strengthen judicial protection and administrative enforcement of intellectual property rights, improve the punitive compensation system for intellectual property infringements, and increase compensation for damages.

While increasing domestic investment, China hopes to continue participating in international cooperation, focusing on issues such as climate change and human health, strengthening joint research and development with scientific researchers from all over the world, actively designing and leading international major scientific programs and major scientific projects, and supporting International scientific and technological organizations and foreign scientists holding posts in Chinese scientific and technological academic organizations.

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