Since the 1980s, China has had the fastest-growing economy. The country's pragmatic system of innovation balances government steering and market-oriented entrepreneurs is a key driver of this extraordinary growth.

Changes that may have profound implications for the global economic and political order are happening right now.

The Chinese government wants better research and development, smart manufacturing, and a more sophisticated digital economy. Tensions between China and the west are straining international cooperation in some industries.

China's innovation system could be in danger of being removed from the rest of the world due to the shocks of the Covid pandemic and China's rapid and large-scale lockdowns.

Balancing government and market

China's current innovation machine began developing during the economic reforms of the late 1970s, which lessened the role of state ownership and central planning. The market could try new ideas through trial and error.

The government may send signals to investors and entrepreneurs via its own investments or policy settings. Private businesses pursue opportunities in their own interests.

Businesses may be losing freedom. The government cracked down on the private tutoring sector last year because they were seen to be in line with the government's goals.

Building quality alongside quantity

China does well on many measures of innovation performance, such as R&D expenditure, number of scientific and technological publications, number ofSTEM graduates and patents.

Most of the indices measure quantity rather than quality. China has:

Adding quality andquantity will be crucial to China's innovation ambitions.

China will need to shift focus to develop unknown and emerging technologies if it wants to catch up with other countries. It will require reform of the research culture to tolerate failure.

Developing smart manufacturing

Chinese firms can translate complex designs into mass production with high precision. Chinese manufacturing is appealing to high-tech companies.

The next step is to align smart manufacturing with the core industries listed in the Made in China plan.

By 2020, China had built eleven lighthouse factories, the most of any country in the world.

Building an advanced digital economy

China's giant tech companies are using machine learning and big data to innovate in other fields, including pharmaceutical research and self-driving cars.

In China, the regulations forbiotech are not very strict. This has attracted researchers and investors.

Even for rare diseases, China has a large number of patients. Companies are making advances in precision medicine by using large patient databases.

China's big tech firms have seen the government step in to maintain fair market competition. Digital firms are required to share user data and consolidate critical platform goods across their ecosystems.

International collaboration is key

Global collaboration in R&D is very valuable as we have seen in the recent triumph of COVID-19 vaccines.

There are signs that collaboration between China and the West may be under threat.

The industry of making chips and circuits which drive modern electronics is currently global, but is at risk of fragmenting.

Making chips requires huge amounts of knowledge and capital investment, and while China is the world's largest consumer of it relies heavily on imports. US sanctions mean that many global companies can't sell in China.

China wants to be able to make all the chips it needs.

If China succeeds in this, they will likely use different technical standards than the ones currently used.

Different standards

Diverging technical standards will make it more difficult for Chinese and Western technologies to work together. This may result in bad results for consumers.

Chinese and Western digital innovation will be fractured bycoupling standards. This will lead to further separation in finance, trade, and data.

At a time of heightened international tensions both China and the West need to be clear on the value of international collaboration in innovation.

The article was written by Marina Yue Zhang, Associate Professor of Innovation and Entrepreneurship, Swinburne University of Technology, and David Gann, Pro-Vice-Chancellor, Development, and External Affairs, and Professor of Innovation and Entrepreneurship, University of Oxford. The original article is worth a read.