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China Needs a Better Innovation Ecosystem

China’s leaders have so far struggled to build the innovation ecosystem the country needs, including a liquid and transparent public and private funding mechanism. In the context of the great-power competition with the United States, this amounts to a massive disadvantage.

HONG KONG – The United States has long dominated much of the knowledge economy, not least owing to an innovation environment that has proved highly attractive to foreign talent. But China has been watching carefully, adapting crucial lessons from the US to the local context. And its efforts are bearing fruit.

America’s lead is significant. In 2000-19, the US had far more Fortune Global 500 companies than any other country. In 2000, the US boasted 179, compared to 107 for Japan and just ten for China. Though China surpassed the US in 2020, the US companies have retained an absolute advantage in market capitalization, profitability, and technological innovation.

American tech giants – such as Microsoft, Apple, and Nvidia – are especially dominant, having expanded faster internationally and outsourced their operations more broadly than their counterparts from China, the European Union, Japan, and India. Crucially, they have also attracted more of the world’s talent.