The Chinese Way of Innovation
For decades, many Americans derided China as a nation of copycats incapable of creativity, let alone breakthrough innovation. Authoritarianism and central planning were thought to be naturally inimical to fresh ideas. Rapid technological advancement, many in the United States believed, required the kind of fearless, “disruptive” thinking that was most at home in a freewheeling, democratic society.
Over the past several years, however, the narrative has shifted, and any complacency over U.S. technological superiority has evaporated. Business columns explaining China’s seeming inability to innovate have given way to op-eds warning that it is poised to surpass the United States in strategic technologies such as artificial intelligence and 5G. Policymakers in Washington who had long been content to leave technology up to Silicon Valley are now racing to find ways to bolster U.S. technological capabilities and counter Chinese progress. But making effective technology policy requires a clear understanding of how both countries got here, and what that means going forward.
Traditional explanations for China’s rise have focused heavily on the stealing of intellectual property. Although that has played a role, allowing Chinese manufacturers to crank out imitations of specific products, it is overly simplistic to imagine that intellectual property theft alone explains China’s rapid progress. In fact, that misconception deludes American policymakers into believing that all that is required to preserve the United States’ technological edge is to cut off China’s access to emerging technologies. The roots of China’s technological takeoff are more complex, and formulating an effective U.S. policy response requires a solid grasp of emerging technologies and a degree of projective empathy—understanding how an ambitious Chinese bureaucrat is likely to view innovation and the range of tools available for encouraging it.
STATE INTERVENTION
Any individual Chinese innovation is the product of creative thinking by hard-working technologists. At the micro level, these innovative processes look much the same in China as they do everywhere else. But explaining China’s technological rise at a macro level requires understanding the steps the Chinese government took to encourage the development of one of the world’s most dynamic innovation ecosystems.
From a Chinese perspective, innovation is not a delicate or mysterious endeavor that can be accomplished only by special people, and it is certainly not something that must be shielded from government meddling. Instead, innovation is viewed as a social and economic process, one that can be guided and accelerated with the right mix of physical resources and bureaucratic resolve. Although China’s approach contradicts Silicon Valley’s deeply ingrained assumptions about the necessity of free markets and free speech, it has yielded more technological advances and commercial success than most American experts believed possible. In China, that process has involved three crucial steps.
The first step in that process, one that took place from 2000 to 2010, was for China to create a large, semiprotected market. Fostering a nascent innovation ecosystem required markets to be lucrative enough to fuel fierce competition, but it also required some degree of protection so that the established juggernauts of Silicon Valley did not come in and steamroll local startups before they could get off the ground. China achieved this balance by combining decades of breakneck economic growth with the creation of the Great Firewall, which blocks access to leading foreign online platforms such as Facebook and Google. The prospect of winning China’s massive domestic market attracted huge capital investments from abroad and fostered fierce competition, but the Firewall also gave the local startups a fighting chance against their foreign competitors.
Crucially, the Great Firewall was never rock solid. For most of the past two decades, the Firewall always remained somewhat porous, insulating the Chinese market from foreign competition but never fully isolating it from new ideas. Google, Facebook, and Twitter competed in China for years before being blocked. Less politically sensitive consumer platforms such as Airbnb, Uber, Amazon, and LinkedIn were never fully blocked; instead, they were beaten out by scrappy local startups. The Great Firewall’s porous nature allowed Chinese entrepreneurs, engineers, and scientists to stay up to date with leading technology trends and products without letting those products dominate the Chinese market. At the same time, the sheer size of China’s market kept foreign tech companies on their best behavior when interacting with the Chinese government, in the hopes that it would one day give them access to a billion new customers.
U.S.-CHINESE COLLABORATION
Those relationships were integral to the second, and most controversial, step in the process. For decades, China has maintained scientific and commercial ties to leading Western companies, universities, and labs—especially U.S. ones. These have ranged from professors at American universities collaborating with Chinese peers on public AI research to Chinese venture capitalists investing in Silicon Valley startups. Critics tend to view these ties as a vector for intellectual property theft, a foot in the door that has allowed Chinese spies to steal the “crown jewels of U.S. innovation,” as a 2018 Pentagon report put it. Industrial and scientific espionage have been a major problem, but the largest impact of these transpacific ties came not from stealing, but instead from learning. Exposure to world-class innovative processes gave China the intellectual fodder—the ideas, best practices, and operating models—that it needed to ignite its nascent tech ecosystem.
Beginning around 2008, Chinese engineers who had worked at Google began returning to China to found their own startups, bringing some of Silicon Valley’s culture with them. Researchers at Chinese universities began collaborating more with their peers abroad, which exposed them to fresh approaches. Chinese tech companies studied their competitors in the United States and Europe, ingesting the latest tech trends and adapting them to the Chinese context. Most of these interactions were bottom-up, driven by technologists in both countries who wanted to work with and learn from one another. But the Chinese government also played an important role in chaperoning these relationships. It pushed for greater academic collaboration, and it dangled the carrot of market access before U.S. technology companies, encouraging them to open research centers in China.
Once the market conditions and international connections were in place, China took the third step, unleashing a wave of resources: investment capital, physical infrastructure, trained engineers, and bureaucratic energy. From an American vantage point, this investment appeared wasteful and even counterproductive, since it violated the sacred precept that governments should never pick winners. On the ground in China, however, it proved to be an effective method for accelerating the diffusion and commercialization of technology.
The Chinese government’s 2017 artificial intelligence initiative, for example, set an ambitious goal: making China the world’s preeminent AI hub by 2030. But its biggest impact was a wave of experimentation and activity across the Chinese bureaucracy and private sector. Mayors built sparkling new AI startup accelerators in their cities. Agricultural officials created pilot programs for smart fertilizer drones. Public hospitals partnered with universities to create medical AI research institutes. And police departments across the country spent lots and lots of money purchasing surveillance technology.
Considered individually, many of these projects appeared laughably wasteful. Startup incubators in backwater towns often sat empty for years. But these scattered government efforts helped fuel an AI boom in the private sector, stimulating even greater venture investment and startup formation. In 2018, China accounted for nearly half of all global funding for AI startups, surpassing the United States. These funds allowed Chinese companies and scientists to experiment with new products, features, and approaches, and turbocharged AI adoption across the economy.
By building and protecting its markets while learning from global innovation ecosystems, China ultimately accelerated its own development of key technologies. That success wasn’t all the result of some perfectly executed master plan. Instead, it was the product of ideological paranoia, smart planning, a lot of hard work, and a bit of good luck. China originally built the Great Firewall to protect its highly censored information environment and only later stumbled into the innovation benefits. Although China’s intentions were mixed and sometimes self-contradictory, its end results exceeded almost anyone’s expectations.
AMERICAN OVERREACTION
Over the past four years, Washington has focused on cutting off China’s connections to the American technological ecosystem. Some of these initiatives have had real strategic value, such as the targeted controls that have prevented China from manufacturing cutting-edge semiconductors. But many of these efforts have been strategic blunders that undercut U.S. innovation and fed China’s rise. Misguided prosecutions of Chinese-born scientists at American universities have sent a chill through the foreign-born scientific community and have driven some of its best and brightest minds to return to China out of fear. More fundamentally, the era in which the United States could stop China’s rise simply by cutting it off has largely passed. If the United States had cut technological ties with China in 2005, it might have slowed global innovation and hampered the United States’ own capabilities, but it probably would have hurt China more. At that point, China did not have a self-sustaining domestic technological ecosystem and bootstrapping one by itself would have taken far more time.
China today already has most of the raw ingredients for technological success, and the haphazard cutting of bilateral ties would likely be counterproductive. Instead, the United States should take targeted action to maintain Chinese dependence on foreign technology while continuing to attract and engage with Chinese innovators. For maintaining that dependence, the best point of leverage is semiconductors, specifically the highly specialized manufacturing equipment that is produced only by a handful of U.S. allies. For attracting Chinese talent, America’s universities act as a powerful magnet for high-end researchers, but reforms to the U.S. immigration system are urgently needed to keep those people in the country after graduation.
Can the United States learn anything from China when it comes to accelerating its own tech ecosystem? The two countries have such drastically different systems of government that simply copying the Chinese model is impossible. The Trump administration’s attempt to block the Chinese apps WeChat and TikTok were blocked by the courts. And mayors across the United States will not suddenly start creating pilot programs for autonomous drones on the federal government’s orders. But there is a deeper lesson to be learned. If the United States hopes to maintain its edge over China, the U.S. government must be willing to experiment with new ways of incentivizing technology development, even if some efforts result in wasted funds or fail entirely. If every failed project becomes a partisan bludgeon, then innovation policy will grind to a halt.
The congressional proposal to create a “technology directorate” in the National Science Foundation—a new division empowered to connect academia, government, and industry to accelerate deployment of commercial technology—offers a promising start for this kind of experimentation. The resources and scope of the technology directorate have been the subject of intense debate in Congress and will be decided as the House and Senate attempt to reconcile their competing bills in the months ahead. The proposed directorate is a far cry from China’s “flood the zone” approach to catalyzing technology development. But its emergence suggests that the U.S. government is beginning to recognize that it can no longer afford to simply fund basic research and leave the rest up to the markets.
No single bill or innovative policy will be enough to ensure the United States maintains its edge in technology. If China’s trajectory teaches American leaders anything, it is that stimulating technological innovation can be a messy, muddled, and often contradictory process. Given the stakes of this competition, the United States cannot let that messiness cause paralysis.