"In line with the goals of the 14th Five-Year Plan, ensuring R&D investment intensity does not diminish."
In March 2026, China's government work report added this explanation when laying out the innovation-driven targets for the 15th Five-Year Plan. The figure being explained: nationwide R&D spending to grow by an average of more than 7% annually. The same document, in reviewing the past five years, offered another figure — during the 14th Five-Year Plan period, nationwide R&D spending grew by an average of 10% annually.
Placed side by side, the two figures clarify the meaning of that explanation. The 7% target is not new — it is the old target carried over unchanged from the previous plan; the previous plan's actual performance exceeded that line by three percentage points.
Same Target, Two Performances
Annual average R&D spending growth target vs. actual performance
Source: 2026 Government Work Report. Click a label for context. Accent (dark red) marks an official target figure; blue marks the actual outcome that was measured against it.
The phrase "intensity does not diminish" is, on its face, a commitment. But leaving in place a target that has already been substantially exceeded effectively reserves room for a slowdownnote — it is written into the document itself that the 15th Five-Year Plan has not raised the bar on this particular measure of innovation investment.
The real question, then, is not whether 7% is high, but where the money will come from to meet even this lowered floor.
China's research-funding structure differs markedly from that of most large advanced economies. Government-related funding accounts for roughly 60% of overall inflows into science and technology spending, a far higher proportion than in other large advanced economies; of that, local governments bear roughly two-thirds of government technology spending. On the corporate side, commercial funding — primarily reinvested profits, followed by equity financing and loans — accounts for about 45% of R&D spending; the remaining roughly 55% comes from government tax breaks and subsidies. Even on the corporate side of R&D, the government's role remains substantial.
Where R&D Funding Comes From
Three different denominators, read side by side
Source: Rhodium Group, Spread Thin: China's Science and Technology Spending in an Economic Slowdown (data as of 2022). Each panel has its own denominator — the three shares are not parts of one whole and should not be added together.
In other words, the 7% floor rests on two pillars: local government fiscal headroom, and corporate profitability. The government work report does not explain how these two pillars will support the target — this is not an omission specific to this document, but the norm for all high-level policy documents. The difference this time is that both pillars are tilting in the opposite direction.
Start with the corporate side. The aggregate operating profit of China's large industrial enterprises fell from RMB 8.71 trillion in 2021 to RMB 7.40 trillion in 2025. Over the same period, the share of loss-making industrial enterprises rose to 23.8%, nearly double the level of a decade earlier, with persistent overcapacity a major contributing factor.
Industrial Enterprise Profit, 2021–2025
Aggregate operating profit of large industrial enterprises, RMB trillion (comparable basis)
Profit series: National Bureau of Statistics, comparable-basis annual data for large industrial enterprises. The 23.8% loss-making share — and the "nearly double a decade earlier" comparison — is cited via the MERICS report.
Reinvested profit is the primary source of commercial funding within corporate R&D spending. Falling profits mean this pool of funding is itself shrinking — while government tax incentives, though a larger share, likewise depend on local fiscal headroom (see below).
But that is only half the picture. The other pillar's problem is thornier, because even the scale of its instability cannot be agreed upon.
