China Is Rapidly Becoming a Leading Innovator in Advanced Industries

ROBERT D. ATKINSONSEPTEMBER 2024 China Is Rapidly Becoming a LeadingInnovator in Advanced Industries ROBERT D. ATKINSON | SEPTEMBER 2024 There may be no more important question for the West’s competitive position in advancedindustries than whether China is becoming a rival innovator. While the evidence suggests ithasn’t yet taken the overall lead, it has pulled ahead in certain areas, and in many othersChinese firms will likely equal or surpass Western firms within a decade or so. KEY TAKEAWAYS China has reached a new stage in its economic development, with much greaterinnovation capabilities in its universities and domestic companies—and on manyinnovation indicators, China now leads the United States. China leads or is on par with global leaders in commercial nuclear power and electricvehicles and batteries. It lags behind for now in other key sectors, including robotics,biopharmaceuticals, chemicals, and AI. But it is making rapid progress. The combination of low costs and growing innovation capability make an increasingnumber of Chinese companies formidable global competitors. This rapid innovation progress stems from the Chinese Communist Party’s determinedeffort to dominate global markets in a host of advanced industries. While the Chinese innovation system is not perfect, it is much stronger than previouslyunderstood—and there are many aspects of it the United States should emulate. To enable those policies, America should embrace a “national power capitalism” suitedto the current existential competition for power. Government must identify key sectorsthat are critical for national power and invest adequately to win the techno-economic war. To do so, America should create five industrial research institutes, a “competitivenessDARPA,” and an industrial development bank; triple the research and experimentationtax credit; and institute a seven-year, 25 percent credit for capital equipment. itif.org CONTENTS Key Takeaways................................................................................................................... 1Introduction....................................................................................................................... 4Why This Matters ............................................................................................................... 5The Nature of Innovation Industries and Competitive Positioning .......................................... 10What Is Innovation? .......................................................................................................... 13The Asian Tiger Path ........................................................................................................ 14Can China innovate? ......................................................................................................... 17China Cannot Innovate .................................................................................................. 17China Can Innovate ....................................................................................................... 20Innovation Analysis........................................................................................................... 22Empirical Data.............................................................................................................. 25Select Cases................................................................................................................. 40Firm Analysis................................................................................................................ 42Industry Analyses.......................................................................................................... 42Robotics ................................................................................................................... 43Chemicals................................................................................................................. 47Nuclear Power........................................................................................................... 51Semiconductors......................................................................................................... 53Electric Vehicle and Battery Industries......................................................................... 56Artificial Intelligence.................................................................................................. 58Displays.................................................................................................................... 60Quantum Computing.................................................................................................. 61Biopharmaceuticals ................................................................................................... 62The Contrasting Western and Chinese Economic Models ...................................................... 64China’s Dream: Techno-Economic Leadership ..........