China and Asian R&D

During the 2008-2009 financial crisis, China’s massive demand for goods and materials supported global economic growth, especially in areas like Brazil, Germany and Australia, which avoided recessions because of Chinese trade. That type of response for the COVID-19 pandemic is not likely this year. China’s economy was affected more in 2020 than in 2008, and it now is more self-sufficient and has less need to buy products from abroad. Moreover, its overall debt load is now larger and includes internal coronavirus stimulus funds. Its coronavirus stimulus funds, however, are more subdued than stimulus funds in 2008 and 2009. 

Those items do not mean that China’s economy is not resilient — it is resilient. China’s GDP contracted 6.8% in Q1 2020 (when its total debt to GDP jumped to 258%). The International Monetary Fund (IMF) expects China’s economy still to grow 1% in 2020. Correspondingly, the IMF expects the economies of the U.S., Germany and Japan to each contract more than 5% in 2020. 

China has become a strong participant and collaborator in the global effort to develop COVID-19 vaccines. One Chinese vaccine currently in Phase 2 trials is targeting elderly participants who are faced with high risks of disease or death after infection with the COVID-19 virus. 

China has pledged that when a COVID-19 vaccine is successfully developed and put to use in China, it will be shared with the world as a global public good to ensure vaccine accessibility and affordability, especially in developing countries. China has been an active member in the Coalition for Epidemic Preparedness Innovations (CEPI) which was launched in Davos in 2017 as global partnership between public, private, philanthropic and civil society organizations. 

China stated that its unemployment rate had risen from 5.3% in January to just 6% recently with approximately 26 million people out of work. This compared to the current U.S. unemployment rate of 11.1% and about 18 million unemployed. Economists have noted that millions of Chinese workers were not counted because of quirks in the way the date were gathered — and many still have not returned to work in early July. According to the economists, China’s actual unemployment rate is likely more than 10% with more than 80 million people out of work. 

Even in the midst of the coronavirus pandemic, China’s government continued to talk about its long-term plans for pouring investments into high tech ventures. China’s Ministry of Industry and Information Technology has stated that it will invest at least $1.4 trillion during the next five years in artificial intelligence, data centers, mobile communications and other projects. These efforts expand upon its previous Made in China 2025 program, but with a larger focus on cutting-edge technologies and broader in its ambitions. 

The Chinese government is pushing hardest right now on investments for building new 5G networks. Supercharged 5G mobile connections are expected a new world of next-generation connected devices, which businesses believe could revolutionize daily life and manufacturing. 

Japan was also affected by the pandemic-based recession and created large stimulus packages to support its economy. The total size of the stimulus packages was stated as exceeding $2 trillion, or equal to about 40% of Japan’s $5 trillion economy. 

Japan’s Toyota Motor Corp. believes the worst is over from the economic effects from the COVID-19 pandemic. It states that auto sales should recover by the end of 2020 in most of its global target markets. Toyota is hoarding cash and reducing overall spending (including R&D) to ensure that it can survive a prolonged downturn. The company also stated that it is tapping into Japanese banks for expanded credit. 

Japan’s Nissan Motor Co. said that it was slashing production capacity and trimming its model lineup due to the COVID-19-based recession and reduced global sales. It also is planning on a resumption of positive cash flows by the end of 2020. 

China’s auto sales, on the other hand, increased 10.4% in 2Q 2020 over 2Q 2019 buoyed by a dramatic June sales increase of 11.6% year over year. China’s overall auto sales were down 16.9% for the first six months of 2020. Toyota also said that its Chinese sales were up 23% year over year in June. 

With these latest positive Asian sales forecasts and the prospect of automotive electrification and self-driving implementations, it appears that R&D investments in this sector are secure for several years. 

This article is part of R&D World’s annual Global Funding Forecast (Executive Edition). This report has be published annually for more than six decades. To purchase the full, comprehensive report, which is 67 pages in length, please visit the 2020 Global Funding Forecast homepage.