Fact of the Week: Private Chinese Firms Innovate More Efficiently Than State-Owned Firms, Yet China Showers Much More Generous R&D Subsidies on State-Owned Firms

According to data compiled by economist Shang-Jin Wei and researchers Zhuan Xie and Xiaobo Zhang, private Chinese firms create 0.5 patents per million yuan spent on R&D, while the equivalent figure for state-owned firms is 0.2. This is despite the fact that state-owned firms receive up to four times more R&D subsidies relative to sales.

State-owned Chinese firms’ comparative futility in converting R&D investments into patents should signal to the Chinese government that it is unwise to keep favoring them. The subsidies are limiting the country’s ability to innovate.