It appears clear that China’s economic system is transferring from being a technological follower, primarily utilizing expertise invented elsewhere, and transferring towards producing a better share of its personal expertise. However apart from pointing to anecdotes or tales of particular firms, how may we measure the extent of this shift? François de Soyres, Ana Maria Santacreu, and Ethan Hunt from the St. Louis Fed supply some quantitative proof primarily based on worldwide royalty funds–that’s, the funds made to an organization abroad for utilizing the patents owned by that firm (“China’s Role in Global Innovation Is Changing,” August 14, 2025).
This determine exhibits royalty funds acquired from different international locations. The US leads the way in which, with Germany and Japan in second and third place. China is far decrease.
That stated, there are a few extra factors value noting. Yyou can see that China has proven a considerable soar in worldwide royalty revenue since about 2016, rising by a a number of of about seven from 2016-2021. China’s royalty revenue has now surpassed South Korea (though after all, South Korea’s GDP is simply about one-tenth as massive as that of China). Thus, the story of China making a transition to being an innovator, reasonably than a copier of improvements of others, is true–however the extent of the transition is restricted. To place it one other means, complete worldwide royalty funds acquired by US corporations are about 0.6% of US GDP; in distinction, complete worldwide royalty funds acquired by China are about 0.07% of China’s GDP.
I’d additionally add that discussions of worldwide commerce typically deal with imports and exports of products, or of products and companies mixed, however typically pass over monetary flows like royalty funds–which is clearly one of many ways in which US corporations profit from their analysis and improvement efforts.
