Foreign investors rev up building R&D centers in China

HEFEI -- Volkswagen inked an investment agreement with Hefei, capital of east China's Anhui province on Tuesday to build a research and development (R&D), innovation, and procurement center for fully connected electric cars in the Chinese city.

With an investment of around 1 billion euros (about $1.07 billion), the center, also registered as the group's new subsidiary, is expected to be put into operation in early 2024. Estimated to gather more than 2,000 R&D and purchasing specialists, the new company will help gradually shorten the automotive giant's development time of new products and technologies by around 30 percent.

"Headquartered in Hefei, the company with the project name of 100%TechCo will be the biggest Group facility of its kind anywhere in the world. It will combine vehicles and components R&D teams with purchasing while integrating cutting-edge technologies from local suppliers," said Ralf Brandstaetter, chairman and CEO of Volkswagen Group China, at the signing ceremony.

Volkswagen's latest expansion in R&D investment in China is indicative of foreign investors' efforts to further innovate amid China's robust economic and consumption recovery.

In March, global water technology provider Xylem put its R&D center in China into operation, while French multinational Schneider Electric launched its automation R&D center in east China's Wuxi City. In May, a new Volvo car design studio, among its total three design studios over the globe, opened in Shanghai. On the same day, refrigeration industry giant Danfoss opened a new refrigerants compressors laboratory, marking its largest capital increase in north China's Tianjin Municipality since the company settled in the city back in 1996.

"Many foreign-funded R&D centers have mushroomed in China, especially in the country's three major international technology innovation centers, namely Beijing, Shanghai and Guangdong-Hong Kong-Macao Greater Bay Area," said Wu Jiaxi, deputy head of results transformation and regional innovation division under the Ministry of Science and Technology, during a policy briefing held in January.

Such a growing presence of foreign R&D center clusters in China has played an important role in establishing China's open innovation ecosystem and the advancement of technology innovations and high-quality development, according to Wu.

The welcomed momentum has contributed to drawing more cutting-edge technologies and talents to China, upgrading the country's industrial technology level and scientific and technological innovation capability, as well as boosting the rapid growth of the global industrial and innovation chains, the official added.

From 2012 to 2021, the R&D investment pooled by major foreign-funded industrial enterprises in China soared by 91.5 percent from approximately 176.4 billion yuan to more than 337.7 billion yuan. Meanwhile, the number of valid invention patents grew from 68,000 to 241,000, Wu said.

China's strong appeal to foreign-funded R&D centers can be attributed to several key factors, including its huge and open market, comprehensive industrial ecosystem and friendly business environment.

In the first quarter of 2023, China's GDP grew 4.5 percent year on year, with many industries posting robust growth. Taking the new energy vehicle (NEV) industry as an example, the production and sales of China's NEVs reached approximately 2.3 million and 2.2 million units in the first four months of this year respectively, both up about 42.8 percent year on year, data from the China Association of Automobile Manufacturers (CAAM) showed.

Volvo Cars knows very well that China is full of talent, energy, enthusiasm and creativity and the new car design studio is another major investment in China following the three factories and one R&D center in the country, according to Jim Rowan, Volvo Cars' president and CEO.

Likewise, China has become Schneider Electric's second-largest market, its largest supply chain base as well as one of its four R&D bases in the world, and also an important source of the company's innovations, said Hu Xiao, senior vice president of Schneider Electric.

A raft of measures to encourage the establishment of foreign-funded R&D centers have also boosted the confidence of foreign investors. In January this year, the State Council issued a circular, requesting departments concerned and regional authorities to support setting up foreign-funded R&D centers in China.

According to the circular, the foreign-funded R&D centers will also gain support in establishing open innovation platforms, financing, and participation in national scientific and technological missions and programs.

With the tangible dividends brought by China's huge and open market, the country remains a strong magnet for foreign investment. Some experts said that the shift from building manufacturing factories to launching R&D centers and globally promoting innovative solutions formed in China has become a new trend for many foreign investors in China.