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It seems clear that China’s economy is moving from being a technological follower, primarily using technology invented elsewhere, and moving toward generating a greater share of its own technology. But other than pointing to anecdotes or stories of specific companies, how might we measure the extent of this shift? François de Soyres, Ana Maria Santacreu, and Ethan Hunt from the St. Louis Fed offer some quantitative evidence based on international royalty payments–that is, the payments made to a company in another country for using the patents owned by that company (“China’s Role in Global Innovation Is Changing,” August 14, 2025).
This figure shows royalty payments received from other countries. The US leads the way, with Germany and Japan in second and third place. China is much lower.
That said, there are a couple of additional points worth noting. You can see that China has shown a substantial jump in international royalty income since about 2016, increasing by a multiple of about seven from 2016 to 2021. China’s royalty income has now surpassed South Korea (although of course, South Korea’s GDP is only about one-tenth as large as that of China). Thus, the story of China making a transition to being an innovator, rather than a copier of innovations of others, is true–but the extent of the transition is limited. To put it another way, total international royalty payments received by US firms are about 0.6% of US GDP; in contrast, total international royalty payments received by China are about 0.07% of China’s GDP.
I’d also add that discussions of international trade often focus on imports and exports of goods, or of goods and services combined, but often leave out financial flows like royalty payments–which is clearly one of the ways that US firms benefit from their research and development efforts.
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