On May 20-21, 2006, the Stanford Project on Regions of Innovation and Entrepreneurship (SPRIE) and the China Institute for Science and Technology Policy (CISTP) of Tsinghua University co-sponsored an international workshop in Beijing on "Greater China's Innovative Capacity: Progress and Challenges."

The workshop, held in collaboration with the Zhongguancun Science Park and the Industrial Technology Research Institute (ITRI), was hosted on the campus of Tsinghua University. Participation by more than 70 academics, industry leaders and government policy makers reflected many of the ongoing partnerships SPRIE holds with institutions, individuals and organizations around the world.

The nine workshop sessions and more than twenty paper presentations provided rich opportunities for engaging discussion and knowledge sharing. The output of this workshop will lead to the publishing of selected proceedings in the near future.

Theme and Topics

The workshop addressed how the innovative capacities in Greater China are evolving. What are the most significant areas of progress and challenge? Scholars and business leaders from the U.S., Europe and Asia were brought together to discuss new research and current practice of key aspects of Greater China's innovative capacity: inputs, processes, outputs, institution, government policies, business models and management strategies.

More specifically, the workshop focused on:

• information and communications technologies
• innovation across the value chain from R&D to business processes and models
• development within and linkages among key regions and players in mainland China, Taiwan, Singapore and Silicon Valley

A recent report from Duke University that critiques the supposed gap between the number of American science and engineering (S&E) graduates and those of merging economies -- especially China's -- has led to false reassurance that the U.S. lead in science and technology is not under threat from China. It would be a grave mistake to drop our concerns about China's competitive challenge.

First, the Duke report simply claimed that China's true number of science and engineering bachelor degrees was 351,000, rather than the widely reported 600,000. Coupling this with an upward adjustment for American graduates still left China producing 214,000 more such degrees than the United States.

Moreover, undergraduates are only part of the concern. China's production of those with doctorates has increased rapidly. By 2003, China's homegrown science and engineering doctorates numbered almost half of the U.S. total.

Chinese were also earning large numbers of doctorates abroad. In 2001, the number of Chinese S&E doctorates earned in Japan, the United Kingdom and the United States equaled 72 percent of the total of S&E doctorates earned by American citizens and permanent residents.

Since 1975, China has increased its global share of S&E doctorates from zero (courtesy of the Cultural Revolution) to 11 percent, not counting doctorates earned overseas. During the same three decades, the U.S. global share has fallen from half to roughly 22 percent.

More worrisome than the aggregate numbers is American universities' reliance on foreigners who earn doctorates. In engineering, foreigners account for over half of America's doctorates, and in computer science just under half.

If foreign-born holders of doctorates continued to stay in the United States, we wouldn't have to worry. Unfortunately, there are many signs that it is becoming much harder to retain them.

One need only look at the flow from Taiwan, one of the former main sources of American S&E doctoral degrees, to see what could happen. Up until 1994, Taiwanese earned more science and engineering doctorates in the United States than members of any other foreign nationality. By 2000, their numbers had plummeted because economic and educational opportunities at home were more appealing.

The Taiwanese didn't just stop coming to America. They also began to leave. As Taiwan's tech sector boomed in the 1990s, huge numbers of Taiwanese technologists (estimates range as high as 100,000) left America for home and took their technical skills with them.

Our two current biggest foreign sources of technologists, China and India, appear to be following Taiwan's path. China has begun to lure back large numbers of technologists. China's central and local governments offer free office space and other benefits to attract technologists home. These inducements are working. A 2005 survey of the Chinese American Semiconductor Professionals Association's members showed that the vast majority regard China as the most likely future work destination, and they rated Shanghai higher than even Silicon Valley on career potential. India's recruitment efforts have also started to bear fruit.

The challenge is not simply keeping up the numbers of technologists in America. China by many measures has improved its technological capabilities. On the Georgia Institute of Technology's Index of Technological Capability, China has more than doubled its index score over the past decade. China now ranks fourth behind the United States, Japan and Germany.

This rapid ascent is not surprising given China's increasing investments. China's research and development spending as a percentage of gross domestic product has tripled to 1.3 percent in the last decade, even while its GDP has ballooned. Few emerging economies spend even 1 percent of their GDP on research.

U.S. patents invented in China are also on the rise. Information-technology patents from corporations' Chinese technologists have risen from 134 in 1997-2001 to 482 during 2002-04. As a first step to meet this challenge, we should increase federal spending on basic and exploratory research. Our R&D spending has been flat at 2.6 percent of GDP for four decades, but the share of federal spending has declined from two-thirds to one-quarter.

Given that corporations now de-emphasize basic scientific research, the federal government should further support the basic research that could maintain our lead at the cutting edge of technology.

Increased federal funding would also address the issue of the falling share of investment in certain disciplines. With spending flat, the rising share commanded by biomedicine has meant a falling share spent on engineering and physics.

Federal support may also play a direct role in increasing interest in pursuing a science education. Since the 1950s, the number of undergraduate S&E majors in America has risen and fallen in line with federal research funding, as Professor Henry Rowen of Stanford University has pointed out.

Before meeting China's challenge, we first must recognize it. Complacency in reaction to "good'' news that China is producing fewer S&E graduates than commonly thought is not the answer.