China may soon become the world’s global R&D investment leader, according to a report released by international accounting and consultancy group KPMG in the second half of 2013.

According to the report - Innovated in China: New frontier for global R&D - “Increasingly sophisticated local tastes and technology standards in China, and the need for Chinese companies to compete in the global market are among the drivers for Chinese R&D.”

For much of the past 30 years, manufacturing investment has been the driving force behind foreign direct investment (FDI) in China. Chinese companies were typically viewed as not being true innovators; foreign companies, for the most part, kept their advanced designs and products and related work off-shore.

However, the focus of China’s government, domestic companies, and global corporations alike, is now clearly shifting toward research and development (R&D) – especially R&D in China. With strong support from the 12th Five-Year Plan, and underpinned by corporations’ need to innovate their way to success in a competitive market, R&D activity in China is entering a new era.

China is quickly rising up the global ranks in a number of intellectual property-heavy sectors, from healthcare and biotech to high-tech manufacturing, information technology, and alternative energy.

In 2011, China overtook Japan to take second place in the world rankings for total R&D spending. While this still places China far behind the US (whose 2013 forecast is USD 424 billion), based on current R&D growth trends, China is on track to overtake the US in about 10 years.

The Chinese government has made massive investments in technology and industrial parks to support and facilitate the move toward indigenous innovation; concurrently it has introduced policies to create an environment that will attract and sustain R&D investment in the future.

In addition to the tangible business advantages and incentives provided by the government, the ever-expanding Chinese market is attracting key R&D activities from multinational companies (MNCs) and foreign-invested enterprises (FIEs).

Nowadays multinationals are moving R&D closer to their target markets, not only to get nearer to customers, but also to better adapt their products toward local market preferences.