China’s manufacturing enterprises are set for a dramatic increase in research and development expenditure, according to a recent global manufacturing survey by KPMG.

The report “Global Manufacturing Outlook: Performance in the Crosshairs” surveyed 460 senior executives - including 30 from mainland China - in 6 industries, including aviation, defense, automotive, conglomerates, consumer products, engineering and industrial products, and metals.

83% of Chinese respondents said they had spent 1% or less of total revenues on research and innovation in past two years, but the situation will change, because they plan to double or triple expenditure in the coming 24 months. 76% respondents had made the same choice in the previous research.

Chinese respondents focus efforts on more innovation - either enhancing existing product lines or making breakthroughs. 10% of Chinese respondents expect 10-15% of their revenues to come from technical innovations or product innovation in the next two years.

“With increasing competition from low-cost countries, China’s manufacturers must continue to apply themselves to moving up the value chain and increasing the added value of products, in order to keep revenues growing in both domestic and global markets, “ said KPMG China Partner Alex Shum. 

53% of Chinese respondents agreed that the lack of R&D funding is the major threat to an enterprise’s ability to innovate; other challenges include how to make sure innovative plans works with business strategies, and a lack of knowledge of potential new markets.

The report says that due to current difficulties in sourcing new funding, many manufacturers are instead focusing on stretching their R&D investment as far as possible and finding alternative opportunities.

Respondents from China share similar concerns with their global counterparts. Half of them believe that tax increases are a key challenge, followed by market competition and price volatility (both at 40%), while efficiency in R&D or product development process ranks third (37 %).

In China, 87% of respondents agreed that partnership is important for innovation, but the outcome shows that the county lags behind the average global level in terms of introducing new technology and adopting collaborative models.

Alex Shum said that investment in R&D has inevitable risks, and these risks may hinder funding towards research and innovation when a company wants to sustain its profits. Building partnerships with clients and suppliers could be a cost-effective solution to the problem. However, all parties must establish trust for deeper partnerships to work.