The Information Technology & Innovation Foundation (ITIF)'s Hamilton Center on Industrial Strategy has published a study by Dr. Robert D. Atkinson, titled “China is rapidly becoming a leading innovator in advanced industries”.
“There may be no more important question for the West’s competitive position in advanced industries than whether China is becoming a rival innovator. While the evidence suggests it hasn’t yet taken the overall lead, it has pulled ahead in certain areas, and in many others Chinese firms will likely equal or surpass Western firms within a decade or so,” according to the study.
The study's key takeaways are the following:
• China has reached a new stage in its economic development, with much greater innovation capabilities in its universities and domestic companies – and on many innovation indicators, China now leads the United States.
• China leads or is on par with global leaders in commercial nuclear power and electric vehicles 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 increasing number of Chinese companies formidable global competitors.
• This rapid innovation progress stems from the Chinese Communist Party’s determined effort to dominate global markets in a host of advanced industries.
• While the Chinese innovation system is not perfect, it is much stronger than previously understood – and there are many aspects of it the United States should emulate.
• To enable those policies, America should embrace a “national power capitalism” suited to the current existential competition for power. Government must identify key sectors that 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 “competitiveness DARPA,” and an industrial development bank; triple the research and experimentation tax credit; and institute a seven-year, 25% credit for capital equipment.
The study reaches the following conclusion:
Unless U.S. techno-economic policy changes to embrace “national power capitalism,” it is less likely that the United States will be able to maintain competitive position in a broad array of advanced industries against not only China but also other nations that play more by the rules but are still competing for global market share.
There are four main challenges to making this intellectual transition. First, the world has never been confronted with a model such as China’s: a massive country dead set on practicing power trade to win in advanced industries. Too many American policymakers, experts, and pundits simply refuse to believe what is right before their eyes.
Second, the lion’s share of policy experts focused on China come from a national security or foreign policy background, not a techno-economic one. As such, the narrative and agenda are colored by these concerns. Case in point, the dominant argument for limiting Chinese imports is almost always about security, not preserving U.S. techno-economic capabilities.
Third, the strong commitment still by many to free-market capitalism, coupled with the emerging commitment to worker and climate capitalism, is likely to drown out voices and forces advocating for national power capitalism. Vastly more pundits, experts, and policymakers see climate change and reducing inequality – not China – as the existential challenges of the day. Moreover, even those who recognize a China threat, default to “doubling down” on support capitalism and the American system. We need to understand that this system has failed to address the China challenge. It is time to accept the reality that we need to construct a new national innovation system.
Finally, America has never been able to be on a “war” footing unless war came to America first (e.g., the American Revolutionary War, the War of 1812, the Civil War, WWI and WWII, and the Cold War with the Soviet Union fought in a series of proxy hot wars (e.g., South Korea, and Vietnam). But each time war came, America responded with overwhelming productive force. But this time is different. At least in the last century, America never faced an adversary that could outproduce it. Now it does. Unfortunately, the odds are that America will not be able to get on techno-economic war footing absent a Chinese invasion of Taiwan.
This is problematic because the results of this study suggest that China has for the most part not caught up to the world’s innovation leaders, but that it is making extremely rapid strides and, absent some kind of external or internal shocks, is likely to be at or very close to the global innovation frontier in most advanced industries in the next 10 to 20 years. There are several implications for this, and the outcome depends in large part on Western nations’ responses.
Dr. Atkinson presents three possible scenarios: China as innovation leader; strategic parity; and Japanification.
The Information Technology and Innovation Foundation (ITIF) is an independent nonprofit, nonpartisan research and educational institute that has been recognized repeatedly as the world’s leading think tank for science and technology policy. Its mission is to formulate, evaluate, and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress. For more information, visit itif.org/about. The full report in PDF format can be downloaded here
