Challenges of China's Rise to Become a Global Innovation Leader in the 21st Century

A brief look at the parallels, precedence, and paradoxes

Between 2012 and 2018, a few colleagues and I studied next-generation innovation ecosystems globally. We observed a number of patterns and anti-patterns.¹ Our data and work involved closely studying about 4,500 incubators and accelerators, about 3,000 from the U.S. and the rest from China, Singapore, India, Japan, Chile, Scandinavia among other countries. We saw successes, failures, and mediocre attempts at innovation. Mapping anti-patterns helped us understand why several very successful serial entrepreneurs built great enterprises the first time but then failed in their next ventures.

PATTERNS AND ANTI-PATTERNS

Before the COVID pandemic, I had visited China several times, saw the emerging technology incubation landscape, participated in pitches given by entrepreneurs, observed corporate operations, delivered lectures, and interacted with numerous business, industry, and policy leaders. This gave us further insight into the process of innovation in China.

Rapid digitalization across the world has only further accelerated the pace of innovation, and China is no exception. The number of Chinese innovation hubs has almost doubled in less than three years, despite the COVID pandemic. The global total stands at more than 8,000 and is growing by leaps and bounds.

Innovation is a key element in China’s quest to become the next leading superpower. If China succeeds, the country will pull off something unique: a second rise of a formerly great civilization.

One has to wonder: Why? All the great civilizations of their times — Mesopotamia, Assyria, Egypt, China (until now), Greece, Rome, Persia, Great Britain, the people of the Indus Valley, the Incas, the Vikings, and others — failed to again become a dominant superpower. To be sure, a few impressive renaissances have happened, but no civilization has returned to its former glory. 

The youngest new civilization to emerge on top is the United States. The U.S. has its own unique identity, culture, persona, structure, nation, and way of life. If history is any judge, the U.S., too, will gradually plateau and decline over a period of time.

During America’s rise, especially in the last century, a few other nations — Germany, Russia, and Japan to be specific — have tried to gain supremacy, too, all to no avail, wreaking destruction along the way instead.

EXCEPTIONS CAN MAKE NEW RULES

Against this historical background, China deserves special consideration. Can Chinese innovation, such as it is, push the nation to cultural dominance again? Over the past few decades especially, the Chinese have been rapidly rising and seem to be well on their way to reaching the summit. Remember, China was indeed one of the leading great civilizations at one time. (Scholars point to the Tang Dynasty (618-907 CE) as the era when China was the world’s leading civilization.)

It makes no analytical sense to conclude that China cannot re-emerge as the world’s leading superpower simply because there is no historical precedent for a second rise. Rather, it is vital to understand fundamental enablers for new economic prosperity, new capital formation, and new advances across the society.

By the same token, the U.S could continue to lead the world if it can figure out ways to sustain the trajectory that made the country the world’s superpower. I offer no predictions, but can suggest some telltale characteristics of great civilizations and outstanding innovative ecosystems:

1. All great civilizations were preceded by and accompanied with the rise of world-class leading universities. Intellectual power came first. 

2. Great civilizations demonstrated an expansive capacity to solve problems in their own original creative ways. They did not use incrementally improvised models, or models that provide slight improvement over existing ones.

3. Great civilizations developed massive pathways and platforms to meld creativity into better solutions. These were flexible and open ecosystems, not rigid and bound physical infrastructure. To be clear, in my view, a good ecosystem is an integrated living and breathing community in which people work, live, and innovate--not one that simply provides decent bricks-and-mortar facilities but does not embed significant elements that foster creativity and innovation.

PARALLELS AND PARADOX 

During my visits to China, friends and colleagues were struck by the parallel between the Japanese experience and the route China currently is taking. This caused these Chinese friends to rethink their country’s current policy direction. I’ll elaborate about the parallel.

Existing China growth models include elements of vertical inspiration from manufacturing and economic models of Singapore and Japan. But historical experience suggests it is virtually impossible to map one’s cultural uniqueness onto others’ models. 

This is why Japan never achieved lasting superpower status in the 20th century. Japan could not exhibit the essential characteristics of great civilizations.

Recalling recent history, one can walk through Japan’s rise from the days of the return of the Meiji in 1876:

• The country embarked on an ambitious mission to rise to the top as a world power. Japanese leaders were inspired by the enviable economic growth in Western Europe and the U.S. spurred by the industrial revolution, just like China today is inspired by earlier U.S. industrialization. 
• Japanese scholars attended Oxford, Cambridge, and many other western universities. Japanese policy makers studied western governance models. Engineers came to study science, technology and did R&D.
• They set up modern manufacturing plants. They improved quality, reliability, and productivity of many western products, but solutions were never their own original creations. It was a great improvisation built on another civilization’s model.    

Japan was able to make better cars, better TVs, and better consumer goods, but when it came to bringing innovative solutions that were transformative to life or industry, the Japanese fell short. Most of the corporations were great Japanese companies. They were enterprises that made awesome products for the world but at the same time were rather limited global companies that happened to have Japanese ownership. 

Likewise, China today is improvising on a western framework. The Chinese are making better social media apps – like WeChat – search engines, supply chain platforms, improved artificial intelligence, and fuel-efficient cars, but there seems to be little that can stick as transformative and original to people’s way of life globally. That may be an inherent limit to how far China can go.

India faces similar problems. In less than one year, India has created more than 30 unicorns (a private start-up worth over $1 billion), but almost all of them are improvised versions of already proven and established western business and market models and do not solve their problems in any original way. Improvisation, yes; but transformative invention or innovation? Hardly. 

POTENTIAL OF UNTAPPED ‘DEEP TECH’ – A DIFFERENTIATOR

One of the areas that U.S currently still has a distinct advantage over all others is its rich backlog of disruptive and transformative, deep technology (or “deep tech”) across all industries. Deep tech typically stems from a large of body of R&D work carried out by world-class universities. China is close in few areas, much like Japan was close in the past, but having organizational capacity to foster creative potential to make global market-driven products is vital.

Furthermore, the U.S has a large number of original R&D centers, labs, and universities capable of changing the game in any industry. The land grant universities have the potential to mature into another level of innovative infrastructure. This phenomenon goes back to the necessity of having leading universities to maintain one’s lead in the future. However, commercializing “deep tech” in the U.S. is still an area where the existing efficiency of venture capital as well as incubation and accelerator ecosystems are grossly inadequate. Regardless, this is one key differentiator that the U.S. cannot permit to fizzle out if it is to sustain itself as an exception from decline. 

In summary, it appears that a key need for a superpower is to unleash its people’s full creativity in original ways. It seems China will have to do much more of this if it wants to be an exception to historical experience.