China Center Chart of the Week: Increasing intangible investment not yielding commensurate increases in output

In this final of three China Center "Charts of the Week," Conference Board economist Janet Hao concludes her initial look at China's intangible investment patterns. 

This chart shows the relationship between output per person (or GDP per capita) and intangible investment, and demonstrates that while the US and Germany have generated increasing output per capita from their intangible investment, China has not.

As our previous charts of the week on intangible investment have highlighted, about half of China’s spending on intangible assets has been driven by policy – mostly software investment by State Owned Enterprises, government enterprises and centrally funded R&D programs – and by architectural and engineering design-related investments, part and parcel of the booming fixed asset investment in real estate and infrastructure development over the last 10+ years.

China’s trajectory from 1995 to 2009 highlights two noteworthy points. First, policy induced intangible investment may be causing a misallocation of resources (whereby the investment is not yielding commensurate returns in economic output). And secondly, Chinese companies are not yet exhibiting the technological innovation needed to capture value in global value chains through intangibles like branding, product development, and IP. 

China’s stated intention to become one of the world’s leading “innovative economies” will necessarily remain unfulfilled if the country is unable to turn its investment in intangible assets into either genuine technological leadership or some other form of competitive advantage.