This working paper provides input to the OECD Review of Innovation Policy for China (OECD, 2008), which was released in September 2008. Science and technology (S&T) have been pinpointed by the Chinese State Council as a key driving force for sustainable economic growth and the transformation of China into an innovation-oriented nation on the basis of the development of a national innovation system with strong indigenous innovation capacity. One of the targets set in the National Guidelines for the Medium- and Long-term Plan for Science and Technology Development (2006-20) is to raise the ratio of R&D to GDP to 2% by 2010 and to 2.5% or more by 2020. This is an extremely ambitious target, as it implies the need for R&D expenditure to increase by at least 10-15% annually.