R&D in China: Research and embezzlement

R&D in China: Research and embezzlement
Mar 20th 2014, 7:58 by Y.O. | BEIJING
Among China’s high-profile corruption cases, an investigation of provincial science administrators would not seem the most consequential. But one case in Guangdong province hints at the scale of corruption and waste that plague China’s state-led science and technology system. Compared to China’s rigid education system corruption is an under-appreciated—but perhaps as important—obstacle to innovation.On March 14th Guangdong’s anti-corruption commission announced that the provincial science department’s deputy party secretary, Zhang Ming, was being investigated for “serious disciplinary violations”. His was the latest name added to a case that includes more than 50 officials suspected of taking bribes from companies and researchers in exchange for government research and development (R&D) subsidies and grants worth millions of dollars. According to news reports (in Chinese) of the investigation, the local officials and their middlemen in Foshan, a city in Guangdong, pocketed 30% of the subsidies they handled.
As graft targets go, China’s R&D spending offers rich pickings. Such spending rose from $10.8 billion to $168 billion between 2000 and 2012. In 2012 the country devoted 1.98% of its GDP to R&D, edging out the European Union (at 1.97%) for the first time, according toestimates by the OECD.
Some experts believe the bureaucrat-managed system for allocating research grants is smothering innovation. In 2010 two prominent Chinese scientists, Rao Yi of Peking University and Shi Yigong of Tsinghua University, wrote in an editorial in Science that “to obtain major grants in China, it is an open secret that doing good research is not as important as schmoozing with powerful bureaucrats and their favourite experts.” Consequently, “a significant proportion of researchers” spend so much time on building these connections that they can hardly be found in their own labs.
The largest government grants, such as those from the national R&D programmes managed by the Ministry of Science and Technology, often remain as opaque as the rest of the bureaucracy. This situation may change soon, as the central government seems dissatisfied with the return on its ever-increasing R&D investment. On March 12th the State Council released guidelines on transparency in the allocation of research funding. Such information should be “scrutinized by the public”, says the document (in Chinese). Given the Communist Party’s determination to root out corruption, says Cao Cong at the University of Nottingham, research grants will gradually become more transparent.
As part of an ongoing anti-corruption campaign, the party’s Central Commission for Discipline Inspection announced (in Chinese) on March 15th that it plans a new round of inspections, including, intriguingly, sending a “special inspection” team to the science ministry. Last year the inspectors discovered (in Chinese) several corruption leads that led to the downfall of some senior officials. It won’t be surprising if they find corrupt conduct inside the ministry, Mr Cao suggests.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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