CSIS - Center for Strategic and International Studies Inc.
09/17/2025 | Press release | Distributed by Public on 09/17/2025 10:47
Competing with China’s Public R&D Model: Lessons and Risks for U.S. Innovation Strategy
Competing with China's Public R&D Model: Lessons and Risks for U.S. Innovation Strategy
Photo: JADE GAO/AFP/GETTY IMAGES
Commentary by Charles Wessner and Shruti Sharma
Published September 17, 2025
For decades, the United States held unrivalled global leadership in science and technology, based on its world-class research universities, high levels of public and private investment, and a policy environment that rewards innovation. That leadership is now being challenged. New data from the Organisation for Economic Co-operation and Development (OECD) reveal that China has nearly closed the gap in research and development (R&D) spending, reshaping the balance of scientific power.
The United States now confronts the most serious challenge to its innovation leadership since World War II. While it remains the global leader in absolute R&D spending, China is rapidly narrowing the gap. Without decisive action, the erosion of U.S. leadership in research and technological development will carry lasting economic and strategic costs. Policymakers face a narrowing window to respond, but with targeted investments, talent strategies, and a renewed commitment to research and its application, the United States can still secure its leadership; however, it will nonetheless face a highly competitive environment.
Government Intramural R&D: Beijing's Big Bet
One of the clearest indicators of China's shifting technological posture is its surge in government intramural R&D. Intramural here refers to research carried out within government institutions and laboratories by their own staff, rather than through grants or contracts to external performers. In 2023, the People's Republic of China (PRC)'s government research expenditures were over one and a half times larger than those of the United States, underscoring Beijing's willingness to deploy state resources at scale to accelerate scientific and technological breakthroughs. Unlike the United States-where R&D is more heavily concentrated in universities and the private sector-China channels a significant portion of research funding directly through government labs and mission-driven institutes.
This centralized model sometimes gives Beijing strategic advantages. First, it allows resources to be concentrated in priority domains-energy, space, biotechnology, and frontier technologies such as quantum computing-without the fragmentation and financial constraints often associated with purely private-sector incentives. This is particularly relevant for emerging technologies such as quantum computing and communications, where markets are underdeveloped and investments are largely state-driven. Second, it signals to China's domestic innovation ecosystem where national priorities lie, catalyzing complementary activity across universities and industry. Third, the government's direct role in shaping R&D agendas enhances its ability to pursue dual-use applications where civilian and military technologies converge.
Image
Charles Wessner
Senior Adviser (Non-resident), Renewing American Innovation
Shruti Sharma
Research Intern, Renewing American Innovation
Programs & Projects
- Renewing American Innovation
- Economic Security and Technology
Remote Visualization
By contrast, in AI, the picture is more complex. While PRC government laboratories and funding programs have contributed to foundational work in areas like computer vision and speech recognition, the most significant advances in frontier AI have come from private-sector firms. In the United States, deep pools of venture capital, efficient capital markets, world-leading research universities, and access to top global talent have enabled companies such as OpenAI, Google DeepMind, and Anthropic to drive breakthroughs at scale. Yet China is moving rapidly as well. DeepSeek, a private firm, drove one of the country's most innovative AI breakthroughs. Selected firms receive preferential tax treatment, research grants, and government subsidies. This powerful combination of sustained state support and private incentives is driv growth in the AI sector, with new firms emerging rapidly.
While firms in both countries are making rapid progress in some technologies, there is nonetheless a structural asymmetry in U.S.-China competition. Washington relies on public funding of basic and applied research through its vibrant university system, although that system is now under stress through changes in longstanding practice and proposed funding levels. For the application and commercialisation of the results of the research, the private sector normally takes the lead, though for unproven technologies, this path can involve significant challenges. When new technologies, such as AI, are taken up by well-resourced firms, they can be moved to the market at speed. China's large companies play a similar role. Yet for earlier-stage strategic technologies, China's state-led approach enables rapid mobilization of funding and talent backed by long-term commitments of resources. Beijing's sustained investment in intramural research helps explain why, even as some PRC firms struggle under export controls and capital shortages, the state remains positioned to push for breakthroughs in areas it deems critical to long-term national power.
Other Sectoral Patterns: Business and Higher Education
The balance of R&D spending between the United States and China shows sharply diverging trajectories across sectors:
- Business enterprise R&D: U.S. firms remain the largest global spenders, but China is closing in fast. By 2023, PRC businesses were spending about 95 percent as much as U.S. firms. China's rapid growth comes from both strong state incentives and the rise of technology-driven private enterprises.
Remote Visualization
- Higher education R&D: With federal support, U.S. universities still invest more in research than China's universities, with PRC spending about 74 percent of the U.S. levels in 2023. However, for the first time, China has surpassed the United States in the number of top scientists. According to one study, from 2020 to 2024, the United States' tally of leading researchers fell from 36,599 to 31,781, while China's rose dramatically from 18,805 to 32,511. For the study, "high-level science and technology talent" was defined as researchers who had published influential work in leading international journals. The team analysed more than 40,000 highly cited papers published between 2020 and 2024 across 129 top journals in multiple disciplines, extracting and collating data on the authors.
Remote Visualization
The global benchmarks of research outputs also reflect this shift. The Nature Index 2025 shows China expanding its lead in high-quality publications, with a research "share" of 32,122 compared to 22,083 for the United States. Drawing on its larger population and its long-term commitment to education, China now employs more researchers than both the United States and the European Union combined and is on track to graduate nearly twice as many STEM PhDs annually by 2025. There is also a cost advantage. One study estimates that for every $100,000 spent on R&D, PRC firms can employ 2.3 researchers, more than double the U.S. figure.
Risks of Declining U.S. Leadership
The expansion of China's scientific workforce and R&D spending emphasizes a growing challenge to America's long-standing advantage in academic research and innovation. A declining U.S. share of global R&D also implies profound economic and security consequences. Economically, it risks ceding leadership in advanced industries such as semiconductors, biotechnology, clean energy, and next-generation telecommunications-sectors where global dominance translates into employment and sustained export strength. On the security front, China's accelerating R&D investments underpin its ambitions in key technologies, such as artificial intelligence and quantum computing, directly shaping future military balances and strategic stability.
These risks are magnified by emerging policy headwinds in the United States. Federal research agencies such as the National Institutes of Health and the National Science Foundation face unprecedented funding constraints, while immigration restrictions continue to discourage international talent from entering or remaining in the U.S. innovation ecosystem. On the other hand, Beijing has treated R&D as a core component of national power, steadily channelling state resources into long-term capacity building across universities and laboratories while providing sustained support to state-backed companies. Comparative growth rates in talent pipelines and research output increasingly reveal this asymmetry in commitment.
To sustain U.S. leadership, policymakers should first recognize both the scale and focus of PRC R&D investments. A more overtly competitive approach is needed, one that restores, reforms, and grows R&D funding as the basis for future private sector investment while encouraging private investments by expanding and modernizing tax credits in strategic sectors. Importantly, providing multiyear federal research grants would stabilize long-term research planning for firms and universities alike. Equally critical are steps to revitalize the talent base through expanded domestic STEM fellowships, skills-based reforms to visa policies, and active retention of U.S.-educated international talent. These steps are essential to offset China's numerical demographic advantage and rapidly rising domestic researcher pool. While China benefits from sheer scale in annual STEM degree production, its broader demographic outlook is far less favorable than that of the United States, which has a younger population profile and, until recently, sustained immigration flows. The challenge for the United States is therefore not absolute numbers but ensuring that its institutional and talent advantages are funded at levels that will enable the United States to successfully compete for global innovation leadership. Drifting away from the United States' long-term commitment to leadership in science and innovation will compromise not only technological competency but also the foundations of U.S. national security.
Charles Wessner is a senior adviser (non-resident) with Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Shruti Sharma is a research intern with Renewing American Innovation at CSIS.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2025 by the Center for Strategic and International Studies. All rights reserved.
Tags
Asia, China, and TechnologyRelated Content
Image
Public and Private R&D Are Complements-Not Substitutes
Newsletter by Chris Borges - August 20, 2025
Image
The United States Cannot Win the Twenty-First-Century Innovation Race with a Twentieth-Century Playbook
Commentary by Sujai Shivakumar and Julie Heng - July 30, 2025
Image
Innovation Lightbulb: Examining China's Strategic Regional Innovation and R&D Distribution
Newsletter by Yutong Deng - July 28, 2025
CSIS - Center for Strategic and International Studies Inc. published this content on September 17, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on September 17, 2025 at 16:47 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]