How China became an innovation powerhouse

Xi Jinping, China’s supreme leader, is fixated on beating the West in new technologies. Chinese companies already dominate areas including electric vehicles (evs) and lithium batteries, and are fast taking the lead in emerging fields such as humanoid robots. The country’s growing technological prowess is thanks in part to the Communist Party’s conveyor belt of innovation, which takes ideas developed in state-run labs and universities and turns them into commercial products. The process, often referred to as an “innovation chain” in policy documents, has led to rapid advances in a number of fields, ‘The Economist’ stresses.

China’s innovation chains often start with grants for researchers, who find a placement in state-backed labs. These in turn are fertile ground for government officials, who identify good ideas and help research teams set up companies, often within local development zones. A recent beneficiary of that process is Theseus, a Chongqing-based company that makes computer-vision sensors. In 2019 it was little more than a group of scientists from the state-backed Institute of Optics and Precision Mechanics in the city of Xi’an, who would meet in a teahouse to discuss commercialising their work. A district government in Chongqing, hoping to develop a supply chain around their technology, provided funding and helped the scientists launch their company in an industrial zone in 2020. By 2024 Theseus had become a leading player in its field. It has hired nationally renowned scientists, and in May this year announced it had developed a new display screen using amoled technology, which makes graphics smoother, in partnership with state-owned China Mobile, the country’s largest telecom.

State-backed research institutes, including labs and universities, are increasingly commercialising their innovations in other ways, too. Some have established marketplaces where companies can bid directly on their patents. The Heilongjiang Academy of Agricultural Sciences in Harbin, another city, recently auctioned off the patent behind a genetically modified soyabean it had developed. In such cases an institute will often deploy technicians to the company buying the technology to help them make use of it. One gauge of the deepening ties between China’s private sector and its research institutes is the revenue the latter collect when they sell their ideas to companies, co-develop technology or provide consulting services. Between 2019 and 2023, the latest year available, that figure nearly doubled, to 205bn yuan ($29bn).

Hefei offers perhaps the best example of the drawing together of China’s scientific and business communities under state direction. The city’s government invests in private companies, builds supply chains around them and acts as an interface between labs, universities and the private sector. Fusion Energy Tech is but one of its many successes; plasma-fusion cancer treatments developed in the city are now entering trials, and quantum-secure mobile services developed there are already on the market. Hefei’s government has focused in particular on working through technological bottlenecks that market dynamics alone may have little incentive to resolve. One example is in the quantum industry, where certain low-temperature dilution devices that were available only from a few foreign suppliers are now being built locally, even if some experts remain sceptical of their performance.

China’s central government hopes to take the best such systems of collaboration and replicate them across the country. In March the National Development and Reform Commission, run since 2023 by Zheng Shanjie, formerly the highest-ranking party official in Anhui province, where Hefei is located, was granted control over a 1trn-yuan fund for investing in technology. The Ministry of Industry and Internet Technology (miit) has begun overseeing the commercialisation of ideas within industrial zones, notes Hutong Research, a Beijing-based consultancy. In April Li Lecheng, who is credited with transforming two inland cities into hubs for green energy, was appointed the head of miit, suggesting that the party hopes to see many more such transitions.

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