Author: Top Innovation Block Research Institute
In early March 2026, Scott Kennedy, a senior fellow on the Center for Strategic and International Studies (CSIS), launched a main 147-page report entitled “The Power of Innovation: The Strategic Value of China’s High-Tech Drive”.
Scott Kennedy, whose official Chinese title is Gan Side, is a famend American political scientist and a main knowledgeable on China. The Center for Strategic and International Studies (CSIS), the place he works, holds a essential place: among the many a whole bunch of think tanks scattered all through Washington, D.C., CSIS is widely known as being on the very top of the pyramid, usually “guiding the U.S. government on how to intervene in the world.”
Scott Kennedy’s type is pragmatic and rational, and he has a superb understanding of how China operates. Think tank students like him usually play the position of “unofficial diplomatic envoys” (observe two diplomacy).
It is price mentioning that in September 2022 (when China’s epidemic management measures had been nonetheless strict), Scott Kennedy grew to become the primary Western think tank scholar to personally go to mainland China for a number of weeks of on-site analysis and face-to-face exchanges with Chinese political and enterprise circles because the outbreak of the epidemic, which demonstrates his community of contacts and communication affect in each China and the United States.
This vital report explores the next questions:
How precisely does China’s technological innovation translate into geopolitical energy? Why are some industries advancing at breakneck pace whereas others battle? With the “decoupling theory” more and more failing, the place is the worldwide technological competitors headed?
1. The underlying logic of the Great Leap Forward in science and technology
Over the previous decade, China’s science and technology coverage has undergone a paradigm shift from “market for technology” to “introduction, digestion and absorption,” and now to “independent innovation” and “security first.” In explicit, because the United States launched the Entity List sanctions towards Huawei and different corporations in 2019, the surge in exterior strain has turn out to be a catalyst for China’s technological self-reliance.
Kennedy included a set of information in his report:
In 2023, China’s R&D spending, measured by buying energy parity, reached $1 trillion, equal to the world’s second-largest financial system throwing greater than 2.6% of its GDP into this money-burning machine. In the years of essentially the most aggressive subsidies, numerous business funds and coverage incentives mixed exceeded $250 billion yearly—sufficient to purchase your entire General Electric firm and make change.
This “powerful and efficient” nationwide system has yielded apparent outcomes:
First, there’s the rise of innovation clusters:
In the 2025 Global Innovation Index (GII), China will rise to tenth place, with 24 of the world’s top 100 innovation clusters (of which the Pearl River Delta ranks first globally).
The patent figures additionally look fairly good: 13.3 patents per 10,000 folks.
But when you take a stroll by means of the Yiwu small commodities market, you will discover that some “innovations” are nothing greater than altering the colour of a screwdriver deal with. Kennedy’s group clearly seen this as nicely, subtly mentioning in a footnote: “There are significant differences in patent quality.”
But numbers do not let you know the entire story.
However, the astute level of Western think tanks is that they weren’t completely intimidated by these staggering figures. The report factors out that vital structural weaknesses nonetheless exist in China’s technology ecosystem:
For instance, whole issue productiveness (TFP)—a metric that measures the true contribution of technological progress—has virtually stagnated in China. In different phrases, regardless of investing a lot cash, output effectivity has not improved accordingly, and large-scale subsidies usually result in inefficient useful resource allocation and extreme overcapacity.
A deeper drawback lies within the expertise construction hole. China has 4 million STEM graduates yearly (a large engineering dividend), however there are nonetheless gaps in frontier breakthroughs and rural training/fundamental expertise growth.
And then there’s that age-old however ever-present matter: mental property.
China’s innovation ecosystem is just too good at “large-scale diffusion” and “engineering iteration”—give me a pattern, and I can replicate it in one-tenth of the time and one-hundredth of the price, and do it even higher.
But when you could create a utterly new paradigm from scratch, requiring “extremely free space for trial and error” and “the world’s top interdisciplinary talent network,” the inertia of the system turns into a shackle.
However, the scenario is certainly enhancing.
2. The Four-Quadrant Rule
The report included a four-quadrant diagram.
This is what we think is the neatest a part of the report.
Too many individuals view Chinese technology as a complete—both it’ll rise to prominence or it’ll collapse—however that is not the fact.
The report proposes an “industry differentiation framework” that divides the success or failure of Chinese technology into four quadrants, relying on the “completeness of the domestic ecosystem” and the “coupling with the global market”.
Quadrant 1:
disruptive success
Disruptive Success
In 2024, BYD invested $21.9 billion in R&D and employed 110,000 engineers, which is greater than the entire variety of engineers in your entire Detroit auto business.
But cash and persons are not the entire story. What actually permits corporations like BYD to dominate the worldwide market is the “meat grinder” nature of the Chinese electrical automobile market.
Kennedy’s group discovered throughout their analysis in Shenzhen that a new mannequin takes a median of solely 18 months from idea to mass manufacturing, whereas in Germany, the determine is 36 to 48 months. In 2024, there have been greater than 100 electrical automobile manufacturers competing within the Chinese market, with value wars so intense that every automobile solely earned a few hundred yuan.
The story of CATL is analogous.
They maintain 38% of the worldwide battery market share. The authorities did not set any “quotas” for them to do that. Instead, pushed by the market, they constructed their factories subsequent to lithium mines and arrange their R&D facilities subsequent to automotive producers, forming an virtually obsessive vertical integration.
When you’ll be able to flip a battery from uncooked materials into a completed product in 24 hours, whereas your rivals want two weeks, the sport modifications.
“Those that survived are evolved species, not designed ones.”
Quadrant II
Adaptation success
Conforming Success
If electrical automobiles symbolize a “leapfrog development,” then biomedicine takes a utterly completely different path—
“Embrace globalization deeply.”
In 2023, China accounted for 39% of world scientific trials. This is especially as a result of China’s hospital system can recruit a ample variety of sufferers inside three months, whereas within the United States, this course of can take as much as a 12 months. In the pharmaceutical business, time is cash, and it determines the size of the patent time period.
The story of Hengrui Medicine may be very consultant.
Instead of making an attempt to invent a utterly new anti-cancer mechanism—that might require a breakthrough in fundamental analysis—they selected to herald top expertise from abroad, immediately benchmark towards FDA requirements, and embed themselves in a world innovation community.
In 2024, China noticed the emergence of roughly 1,250 new medication, most of which weren’t “first-in-class” medication, however fairly “me-too” or “me-better” medication. However, that is completely commercially viable.
Quadrant 3
Disruptive failure/impediment
Disruptive Failure
This is essentially the most heartbreaking half. The National Integrated Circuit Industry Investment Fund invested a whole bunch of billions of yuan, and SMIC and Yangtze Memory Technologies Co., Ltd. obtained assets they may by no means have dreamed of.
But the fact in 2026 is:
While China does maintain a vital share of manufacturing capability in mature processes (legacy chips, i.e., 28 nanometers and above), TSMC and Samsung nonetheless lead by a vast margin in superior processes under 7 nanometers.
Currently, every EUV (Extreme Ultraviolet) lithography machine that may obtain 3nm technology prices roughly $200 million.
Currently, solely ASML is concerned.
The drawback is that semiconductors should not an business that may be solved just by throwing cash at it. An EUV lithography machine has 100,000 elements, sourced from greater than 5,000 suppliers worldwide.
ASML was in a position to construct this machine not as a result of the Dutch had been notably intelligent, however as a result of they built-in German optical technology, American laser sources, and particular Japanese supplies.
This is a particularly advanced system that requires a high quality division of labor amongst a whole bunch of “hidden champions” worldwide.
Quadrant 4
Adaptive failure/inefficiency
Conforming Failure
The case on this quadrant is C919:
In an business dominated by the Boeing and Airbus duopoly for half a century, good airplanes can’t be constructed by protectionism and nationalism alone.
In 2024, COMAC delivered solely 16 C919 plane.
In comparability, Boeing delivered 348 plane in the identical interval, whereas Airbus delivered 735.
Furthermore, amongst these 16 C919s, the engines got here from General Electric (CFM International), the flight management system from Honeywell, and the avionics from Rockwell Collins—the import dependence on core elements was as excessive as 90%.
The picture above exhibits info on some elements and techniques suppliers for the Boeing 787 Dreamliner. Source: Boeing, Reuters (Chart not drawn to scale).
In actuality, coverage subsidies can solely get issues began. What actually types a aggressive benefit is both the intense engineering effectivity gained by means of fierce competitors within the purple ocean (akin to EVs) or an open angle that proactively connects to the world’s most superior innovation networks (akin to prescription drugs).
Working in isolation is a main taboo in technological innovation.
3. Innovation equals energy; technological potential is reworked into geopolitical leverage.
Technology is rarely impartial—this feels like a truism, however Kennedy spent a full 30 pages arguing for it.
In his view, the profound strategic worth of China’s high-tech-driven growth lies in its capacity to considerably reshape the worldwide energy construction. This spillover of energy is especially mirrored in two core dimensions:
The laborious energy of military-civilian integration (MCF) and the tender energy of worldwide requirements.
1. Military-civilian integration
Military-Civil Fusion
Between 2010 and 2024, China invested roughly US$105.8 billion within the subject of military-civilian integration.
Where did this cash go?
iFlytek’s voice recognition technology is used for army intelligence evaluation; the BeiDou Navigation Satellite System has reworked from civilian use into the cornerstone of precision steering; and DJI’s drones—the little devices offered on Amazon for wedding ceremony images—have turn out to be customary gear for reconnaissance and strikes on the trendy battlefield.
The contribution of business technology to China’s army energy is actual.
However, this suggestions is “supplemental” fairly than “transformative.” Inherent belief obstacles inside the system and the division of pursuits between departments restrict the seamless transformation of disruptive applied sciences from the civilian sector into the military-industrial advanced.
Therefore, China has gained an uneven tactical benefit in areas akin to AI and drones, however has not but basically overturned the United States’ army technology hegemony.
Why?
Because of the belief obstacles inside the system—I will not go into particulars about that.
2. Standard-setting authority
Standards Power
Without a robust monopoly affect
“Third-rate companies make products, first-rate companies set standards.”
This saying, which is extensively circulated in Chinese enterprise circles, has one other which means within the context of technology diplomacy: whoever controls the code and protocols controls the principles of the sport.
By 2025, China had participated in 780 ISO (International Organization for Standardization) technical committees and led 19 working teams in 3GPP (3GPP, the telecommunications requirements group). Huawei’s IP share within the 5G subject remained round 20%.
At the identical time, China can use its large home market (85% home customary conversion fee) to help worldwide requirements (such because the adoption of HarmonyOS on 36 million units and the development of NearLink technology).
But there’s a delicate steadiness to be struck:
International requirements organizations adhere to a “consensus-driven” strategy.
You need to push for a customary? Sure, however you must persuade different member international locations. Past classes are clear—WAPI (China’s wi-fi LAN customary) and TD-SCDMA (3G customary) each grew to become costly however in the end ineffective resulting from incompatibility with the worldwide ecosystem.
“China has strengthened its ‘veto power’ and ‘agenda-setting power’ in global technology governance,” Kennedy wrote, “but it does not yet have the ability to unilaterally set the rules of the game.”
The subtext of this assertion is:
China can stop some issues from occurring.
But we will not let issues occur the way in which we would like.
4. The chapter of the speculation of full decoupling
Looking forward to 2026, you will discover an fascinating phenomenon:
International top think tanks and policymakers have cut up into a number of distinct camps, and the winds of change are present process profound shifts.
1. The Anxiety and Backfire of Hawks/Restrictors
Represented by some members of Congress and early ITIF (Information Technology and Innovation Foundation) reviews, they view the US-China technology relationship as a zero-sum sport, and their logic is straightforward:
If China turns into robust, the United States will turn out to be weak, so it have to be contained.
However, a rising variety of retrospective reviews from organizations akin to RAND Corporation and Carnegie Endowment for Peace level out that overly broad export controls and the proliferation of “small courtyards and high walls” have had the other impact.
The provide disruption not solely broken the income of American corporations (which might have been used for next-generation R&D), however extra fatally, it dashed the hopes of Chinese corporations, forcing China to construct up its home various provide chain at an astonishing pace (the return of the Huawei Mate sequence is proof of this).
2. The Awakening of Pragmatists: Interdependence in Management
This is the core message of the CSIS report and a new consensus amongst mainstream think tanks such because the Brookings Institution: a “complete decoupling” could be extraordinarily pricey and impractical.
What would occur if the worldwide provide chain had been forcibly disrupted?
Severe inflation within the West—as a result of low cost Chinese-made items are unavailable;
The world inexperienced vitality transition is slowing down as a result of China produces 80% of the world’s photo voltaic panels and 60% of its wind energy gear.
Furthermore, the West has misplaced its window into understanding China’s technological evolution—if you cease doing enterprise together with your rivals, you now not know the way far they’ve progressed.
3. The Third Voice of the Global South
The Atlantic Council report astutely factors out that, within the eyes of many creating international locations in Asia, Africa, and Latin America, China’s 5G networks, inexpensive electrical automobiles, and AI infrastructure symbolize “affordable development opportunities” fairly than “national security threats.”
If the West solely peddles “security anxiety” with out providing competitively priced alternate options, its narrative of the Global South will utterly collapse.
5. The resolution to breaking the impasse: exact concentrating on
If “complete decoupling” is poison and “unconditional embrace” is a fantasy, then the place is the way in which out?
CSIS, taking the US perspective, gives the next reply:
“Calibrated Coupling”.
Domestically: Strengthen the native innovation ecosystem (from an financial perspective).
The United States’ actual energy lies not in what number of Chinese corporations it could suppress, however in its unparalleled “beacon effect”—its capacity to draw the world’s brightest minds, its deep enterprise capital community, and its robust fundamental scientific analysis.
They imagine that US authorities subsidies must be exactly focused at a only a few strategic nodes akin to semiconductors, fairly than initiating widespread commerce protectionism.
Externally: Establish “surgical” guardrails (realist perspective).
Instead of a blanket ban, strict restrictions must be imposed solely on key bottleneck applied sciences (Chokepoints) with direct army purposes, whereas regular industrial and tutorial exchanges must be restored and maintained in areas akin to client electronics, mature course of chips, and fundamental open-source AI fashions.
In the sector of requirements, Western governments shouldn’t withdraw from worldwide requirements organizations out of concern of China’s affect. Instead, they need to take part extra actively and form guidelines which might be conducive to an open system by means of alliances and consensus.
In transnational cooperation, akin to in local weather change, AI security ethics, and world public well being (medical scientific observe), deep interdependence and cooperation cannot solely convey large financial advantages, but in addition function a key “shock absorber” to forestall nice energy competitors from sliding into scorching struggle.
6. Let technology return to human well-being
This CSIS report, together with the flurry of pronouncements from main think tanks in 2026, sends a particularly clear sign:
China’s high-tech-driven technique is multifaceted.
It has gained momentum to reshape the worldwide industrial panorama in sure fields—electrical automobiles, batteries, 5G, and biomedicine; nevertheless, it nonetheless faces long-term, structural challenges within the elementary and underlying ecosystem—superior semiconductors, aero engines, and cutting-edge fundamental analysis.
The future world technology panorama shall be a particularly advanced interaction of competitors and cooperation.
Who can entice world expertise with essentially the most open thoughts?
Who could make technology accessible to creating international locations in essentially the most inclusive method?
Who can keep restraint and rationality in competitors, and uphold pragmatism and openness?
Whoever does it’ll actually win the subsequent decade.