For a developing country like China to raise its scientific prowess, it is important to invest a larger share of its wealth on research and development (R&D) and to allocate these funds in a cost-effective way.

The National Guideline on Medium- and Long-term Programme for Science and Technology Development (2006-20) issued by the State Council has offered a clear-cut conclusion on the matter: The country will spare no efforts on boosting its R&D investment.

China is expected to increase such spending from 1.3 per cent of the gross domestic product (GDP) currently to 2 per cent by 2010 and 2.5 per cent by 2020. In other words, the country's total annual spending on R&D will soar from about 200 billion yuan (US$25 billion) now to 900 billion yuan (US$113 billion) in 15 years.

By doing so, the country aims to render scientific and technological progress into the leading growth engine for the national economy while significantly reducing its reliance on imported key foreign technology.

It is obvious why China is so eager to build itself into an innovation-oriented country, a new strategy the Chinese government set at the Fourth National Conference on Science and Technology last month.

Though growing manufacturing capacity has made China a "world workshop" in recent years, domestic policy-makers and entrepreneurs keenly realize the urgency to sharpen the country's technological competitive edge.

On one hand, increasingly fierce competition and climbing protectionism in the international arena have made it difficult and dangerous for China to rely heavily on its comparative advantage of low labour-cost in global trade.

On the other hand, emerging constraints of resources and environment have entailed an immediate shift from investment-led extensive growth to a more efficient and energy- and resources-saving development pattern.

Going high-tech is a logical choice for the country to pursue balanced and sustainable growth.

Admittedly, any amount of input can hardly be enough for a country's R&D activities given the ever-advancing scientific and technological frontiers.

But the new guideline is an encouraging sign that the Chinese authorities are resolved to throw all their weight behind scientific and technological progress.

However, to achieve those goals, the country needs to revitalize its financial markets first.

As the Chinese economy steadily turns more market-oriented, increased spending on R&D does not guarantee desired achievements unless those funds are channelled in a way that best meet market demand.

A vibrant capital market has proved crucial to optimizing allocation of funds across the economy. It will not only help finance enterprises that can make the most productive application of technological breakthroughs, but also attract more social investment for R&D activities with their success.

By pledging to provide a mechanism to foster venture capital investment for start-ups and encourages small- and medium-sized technology companies to go public overseas, the new guideline has faced a number of underlying problems that hinder domestic enterprises' R&D efforts.

Such measures all point to a needed solution to these enterprises' lack of funds for R&D.

But in the long-run, a sound capital market is indispensable for the country to promptly finance market-oriented technological innovation by various enterprises.

And to build such a functioning financial market, the country still has a lot to do.