Intangible assets are assets that cannot be physically touched or seen, and are key assets of today’s “knowledge economy”. Examples of intangible assets are software, design, market research, R&D, training and business processes in various aspects.

Intangible assets are especially important for China. Its remarkable rapid growth over the past three decades has enormously enlarged China’s manufacturing relative to that of the US, but in terms of labor productivity China appears to still be far away from American levels. By 2016, while the value added of China’s manufacturing sector had reached about 160 percent of the US, its output per worker was only 14 percent of the US level. Facing continuously rising costs, especially in labor, land and environmental degradation, the Chinese government now seeks to shift to higher quality growth through technological advancement and innovation, in order to upgrade the Chinese manufacturing sector. Ambitious plans and strategies have been announced by the Xi-Li administration ever since their first term began in 2012, such as “China Innovation 2020”, “China Manufacturing 2025”, “Global Innovation Leader 2030”, and others, as per the 13^th Five Year Plan, and various government declarations.

Becoming truly innovative in manufacturing will be a big challenge for Chinese manufacturing in the decades to come, and intangible investment is even more important than tangibles to that end. Advanced economies invest heavily in intangible assets. US businesses have invested more in intangible assets than in tangible assets since the 1990s, and the rate of investment was 10.4 percent of GDP in 2015. Other advanced economies also invested heavily in intangibles, including innovation leaders like Germany, France, the UK, and Japan. Thus, China’s performance in intangible investment may shed important light on China’s near-term potential. So far we know that based on a preliminary estimation by Hulten & Hao (2012), China invested 7.06 percent of GDP in intangibles in the market sector in 2006, indicating China might have indeed been catching up.

New work from the Conference Board turns the estimation of intangible investment from the aggregate to the industry level. It is necessary to estimate intangibles at the industry level because, as studies show in the case of UK manufacturing, ignoring intangible investment means missing three quarters of the total investment (Borgo et. al. 2011). Intangible estimates for the UK, Germany, Japan and Korea all show significant differences across industries (Borgo et. al. 2011, Hyunbae et. al. 2012, Crass et. al. 2014, Miyagawa et. al. 2013).

We have estimated Chinese intangible investment across 37 industries nationwide for two decades, from 1995 to 2014. Our preliminary estimates at this stage have shown that China invested 8.4 percent of GDP in intangibles in 2013, rising from 7.0 in 2006 (Hulten and Hao). Sectors differ greatly in their intensity of intangible investment. The industrial sector invested 15.4 percent of value added in intangibles in 2013, followed by the financial and real estate sector, 8.5 percent, and the sector of least investment in intangible assets is agricultural, with only 1.0 percent of value added. Intangible investment was equivalent to about one fifth of the tangible investment in the industrial sector in China, which was similar to the total economy of China, implying that Chinese industries are still heavily relying on machines, equipment and structures, and still have a long way to go before they can operate in ways similar to their counterparts in advanced economies.