Abstract
In this paper, we have examined China's effort in reforming the R&D funding system to push its technological advance further. Since the 1980s, the Chinese government has paid much attention to the importance of innovation. Especially, in "the mid-long term S&T plan" which began in 2006, indigenous innovation has been emphasized. In order to build the capability necessary for China to develop its indigenous innovation, the reform of the R&D funding system becomes an important aspect of China's innovation policy. The following three characteristics have been observed in China's R&D funding system reform: (1) The Chinese government is preparing more government funding available to the fields which are hard to rely on the market mechanism. (2) The funds supporting the basic research are managed rather flexibly, but the funds supporting more closely to the applied research or product development are managed under relatively strict control. (3) The government increases the amount of non-competitive block grants to the research institutes, if these institutions receive more competitive funds from outside sources. The balance between the government's strict control over R&D funding and the researchers' incentives to innovate is very important in designing the right system.
