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May 28, 2017

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R&D key to Asia's long-term global trade success: HSBC

TAIPEI, Taiwan -- Stronger-than-expected recovery in leading industrialized nations has boosted global trade confidence but longer-term growth will depend on the level of Asia's investment in research & development (R&D) to move up the value chain, according to HSBC.

Simon Constantinides, HSBC's regional head of trade and receivables finance for the Asia-Pacific, said that emerging markets, led by China, are rapidly increasing their R&D investment to capture more of the value of their merchandise exports, enabling them to move up the value chain.

According to the latest figures, China spends the equivalent of 1.8 percent of its annual gross domestic product (GDP) on R&D, nearly double that of 20 years ago. In industrialized markets, meanwhile, R&D investment levels have largely stagnated over the past 20 years.

R&D spent as a percentage of GDP in Asia has almost caught up with that of Europe. Asian markets are still largely assemblers of high-tech goods, with little of the value of these products remaining in country.

These markets are capturing a growing share of global high-tech exports, but the bulk of these can be attributed to the effects of the increasing internationalization of supply chains, as reflected by high-tech imports increasing at a similar pace.

More than 80 percent of China's high-tech exports, for instance, are produced by foreign-owned or joint venture firms, according to HSBC.

Increased R&D investment will enable tech-focused countries to move up the value chain in the production of these goods, reducing reliance on foreign imports of components, and ultimately originating new technologies domestically, Constantinides said.

By 2030, global trade in high-tech goods is expected to increase more than threefold globally, Constantinides added.

HSBC's trade confidence index (TCI) edged up one point globally from six months ago to reach 113 in the second half of 2013. Any reading above 100 signals anticipated expansion in trade amongst businesses.

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