Author: Top Innovation Zone Blockchain Research Institute
In early March 2026, Scott Kennedy, senior researcher at the Center for Strategic and International Studies (CSIS), released a groundbreaking 147-page report—The Power of Innovation: The Strategic Value of China’s High-Tech Drive.
Scott Kennedy, whose official Chinese name is Gan Side, is a renowned American political scientist and top China expert. The CSIS where he works is highly influential: among hundreds of think tanks in Washington, D.C., CSIS is recognized as at the top of the pyramid, often guiding U.S. government interventions worldwide.
Kennedy’s style is pragmatic, rational, and deeply familiar with China’s operational methods. Think tank scholars like him often serve as unofficial diplomatic envoys (second-track diplomacy).
Notably, in September 2022—during China’s strict pandemic controls—Kennedy was the first Western think tank scholar since the outbreak to visit mainland China for several weeks of on-the-ground research and face-to-face exchanges with Chinese political and business circles, demonstrating his extensive network and influence on both sides.
This heavyweight report explores several questions:
How does China’s technological innovation translate into geopolitical power? Why do some industries surge ahead while others struggle? In today’s waning “decoupling” debates, where is the global tech competition headed?
1. The Underlying Logic of the Technological Leap
Over the past decade, China’s tech policies have shifted from “market-driven technology acquisition” to “introduction and absorption,” and now to “independent innovation” and “security first.” Especially since 2019, when the U.S. imposed entity list sanctions on Huawei and other companies, external pressure has instead accelerated China’s technological self-reliance.
Kennedy’s report cites a set of data:
In 2023, China’s R&D expenditure, measured by purchasing power parity, reached $1 trillion—making it the world’s second-largest economy, investing over 2.6% of GDP into R&D. During the most subsidized years, various industry funds and policy incentives combined exceeded $250 billion annually—enough to acquire all of General Electric and still have change.
This “powerful and aggressive” national system has yielded clear results:
First, the rise of innovation clusters:
In the 2025 Global Innovation Index (GII), China jumped to 10th place, with 24 global top-100 innovation clusters (the Pearl River Delta ranks first worldwide).
Patent numbers also look impressive: 13.3 per 10,000 people.
But a visit to Yiwu’s small commodity market reveals that some “innovations” are just changing screwdrivers’ handles’ colors. Kennedy’s team subtly notes in a footnote: “Significant differences exist in patent quality.”
Yet numbers don’t tell the whole story.
Western think tanks are sharp enough not to be entirely daunted by these grand figures. The report points out that China’s tech ecosystem still faces significant structural weaknesses:
For example, total factor productivity (TFP)—a key indicator of genuine technological contribution—is nearly stagnant in China. In other words, despite heavy investments, output efficiency has not improved proportionally. Large-scale subsidies often lead to inefficient resource allocation and severe overcapacity.
Deeper issues lie in talent structure. China graduates 4 million science and engineering students annually (a huge engineering dividend), but there remains a gap in frontier breakthroughs and rural education/baseline talent cultivation.
And the perennial topic: intellectual property.
China’s innovation ecosystem excels at “massive diffusion” and “engineering iteration”—give me a sample, and I can replicate it in a tenth of the time and a hundredth of the cost, often doing it better.
But when creating a completely new paradigm from scratch, requiring “extreme freedom for trial and error” and “top global interdisciplinary talent networks,” institutional inertia becomes a bottleneck.
However, the situation is definitely improving.
2. The Four-Quadrant Framework
The report features a four-quadrant diagram,
which we think is the most clever part of the report.
Many people view China’s tech as a monolith—either rising comprehensively or on the brink of collapse—but that’s not the real world.
The report proposes an “industry differentiation framework,” dividing China’s tech success or failure into four quadrants based on “domestic ecosystem completeness” and “global market coupling.”
Quadrant 1:
Disruptive Success
In 2024, BYD invested $21.9 billion in R&D, employing 110,000 engineers—more than the entire Detroit auto industry’s engineering workforce.
But money and people aren’t everything. What truly enables BYD to compete globally is China’s “carnivore” market for electric vehicles.
Kennedy’s team found in Shenzhen that a new model from concept to mass production takes only 18 months, compared to 36–48 months in Germany. In 2024, over 100 EV brands fought in China’s market, with price wars pushing margins down to just a few hundred dollars per vehicle.
Similarly, CATL holds 38% of the global battery market. The government didn’t set explicit targets; instead, they built factories next to lithium mines, placed R&D centers beside automakers, forming an almost obsessive vertical integration.
When you can turn a battery from raw material to finished product in 24 hours, while your competitors need two weeks, the game changes.
“Survivors are evolved species, not designed ones,”
Quadrant 2:
Adaptive Success
If EVs are “corner overtaking,” biopharmaceuticals follow a different path—
“Deep embrace of globalization.”
In 2023, China accounted for 39% of global clinical trials, mainly because Chinese hospitals can recruit enough patients within three months, whereas in the U.S., it might take a year. Time equals money and patent duration in pharma.
Hengrui Medicine is a typical example.
They didn’t try to invent a new anti-cancer mechanism—requiring breakthroughs in basic research—but instead brought in top overseas talent, aligned with FDA standards, and embedded themselves into the global innovation network.
In 2024, China launched about 1,250 new drugs, most of which are “me-too” or “me-better,” not “first-in-class,” but commercially successful.
Quadrant 3:
Disruptive Failure/Obstruction
This is the most lamentable part. The National Big Fund invested hundreds of billions, SMIC and Yangtze Memory Technologies received unprecedented resources.
But by 2026:
China has significant capacity in mature processes (legacy chips—28nm and above), but in sub-7nm advanced processes, TSMC and Samsung remain far ahead.
Currently, only ASML can produce the $200 million EUV (extreme ultraviolet) lithography machines needed for 3nm chips.
The problem: semiconductors are not a money pile; they are a highly complex system with 100,000 parts from over 5,000 suppliers worldwide.
ASML’s success isn’t just Dutch cleverness but integration of German optics, American lasers, and Japanese materials.
This requires a global network of hundreds of “hidden champions” in fine division of labor.
Quadrant 4:
Conforming Failure/Low Efficiency
The case here is the C919 aircraft:
In an industry monopolized by Boeing and Airbus for half a century, protectionism and nationalism alone can’t produce a good airplane.
In 2024, COMAC delivered only 16 C919s.
In contrast, Boeing delivered 348, and Airbus 735 in the same period.
Moreover, those 16 C919s rely heavily on imported core parts: General Electric engines, Honeywell flight control systems, Rockwell Collins avionics—up to 90% import dependence.
(Source: Boeing, Reuters; chart not to scale)
In fact, policy subsidies can only get you started; true competitive advantage comes from extreme engineering efficiency (like EVs) or open access to global innovation networks (like in pharmaceuticals).
Closed-door R&D is a major taboo in tech innovation.
3. Innovation as Power: Turning Technological Potential into Geopolitical Leverage
Technology is never neutral—this may sound obvious, but Kennedy devotes 30 pages to demonstrating it.
In his view, China’s deep strategic value in high-tech lies in its ability to reshape the international power landscape. This power spillover mainly manifests in two core dimensions:
Military-civil fusion (MCF) hard power and soft power through international standards.
1. Military-Civil Fusion
Military-Civil Fusion
From 2010 to 2024, China invested about $105.8 billion in MCF.
Where did this money go?
iFlytek’s voice recognition tech used for military intelligence analysis, BeiDou navigation system transforming from civilian to precise guidance, DJI drones—those small gadgets sold on Amazon for weddings—becoming standard reconnaissance and strike tools on modern battlefields.
Commercial tech’s feedback into China’s military is real.
But this feedback is “supplemental,” not “transformative.” Institutional trust barriers and departmental interests limit the seamless transfer of disruptive civilian tech into the military system.
Thus, China has gained asymmetric tactical advantages in AI and drones but has yet to fundamentally overturn U.S. military dominance.
Why?
Because of internal trust barriers—no need to elaborate here.
2. Standards Power
Standards Power
No monopoly, strong influence
“Third-rate companies make products; first-rate companies make standards.”
This popular saying in Chinese business circles has another layer in tech diplomacy: whoever controls the code and protocols controls the game.
By 2025, China participated in 780 ISO technical committees and led 19 working groups in 3GPP. Huawei’s 5G IP accounts for about 20%.
Meanwhile, China leverages its large domestic market (85% standard conversion rate) to influence international standards (e.g., HarmonyOS on 36 million devices, NearLink tech).
But there’s a delicate balance:
International standards organizations operate on “consensus-driven” principles.
Want to push a standard? You must persuade other member countries. Past lessons include WAPI (China’s Wi-Fi standard) and TD-SCDMA (3G standard), which became costly relics due to incompatibility with global ecosystems.
Kennedy notes, “China has strengthened its ‘veto power’ and ‘agenda-setting’ in global tech governance,” but “lacks the ability to unilaterally set the rules of the game.”
The implication:
China can block some initiatives,
but cannot yet make others happen according to its own will.
4. The Bankruptcy of the Full Decoupling Theory
By 2026, a fascinating phenomenon emerges:
Top international think tanks and policymakers have split into distinct camps, and the trend is shifting profoundly.
1. Hawkish/Restrictive Anxiety and Overreach
Represented by some Congress members and early reports from ITIF, they see U.S.-China tech relations as a zero-sum game: China gets stronger, America gets weaker, so the response is to shut everything down.
However, more analyses from RAND and Carnegie suggest that overly broad export controls and “small yard, high wall” approaches backfire—
Supply cuts hurt U.S. companies’ revenues (which could fund next-gen R&D), and more critically, they shatter Chinese illusions, forcing China to rapidly build domestic supply chains (Huawei’s Mate series’ comeback is proof).
2. Pragmatists’ Awakening: Managing Interdependence
This is the core of the CSIS report and aligns with mainstream think tanks like Brookings: “Full decoupling” is prohibitively costly and unrealistic.
What happens if global supply chains are forcibly severed?
Severe inflation in the West—due to inability to buy cheap Chinese-made goods;
Delayed global green energy transition—since China produces 80% of solar panels and 60% of wind turbines.
And, the West loses insight into China’s technological evolution—stop doing business with your rival, and you won’t know how far they’ve advanced.
3. The Third Voice of the Global South
A report by the Atlantic Council sharply points out that in many developing countries in Asia, Africa, and Latin America, China’s 5G networks, affordable EVs, and AI infrastructure represent “affordable development opportunities,” not “national security threats.”
If the West only promotes “security anxieties” without offering cost-competitive alternatives, its narrative in the Global South will be utterly discredited.
5. The Way Forward: Precise Coupling
If “full decoupling” is poison, and “unconditional embrace” is wishful thinking, where is the solution?
CSIS’s answer, from the U.S. perspective:
“Calibrated Coupling.”
Internally: strengthen the domestic innovation ecosystem (from an economic perspective).
The U.S.’s real strength isn’t just in suppressing Chinese companies but in its unmatched “lighthouse effect”—attracting the world’s brightest minds, a deep venture capital network, and robust basic scientific research.
They believe U.S. government subsidies should be precisely targeted at strategic nodes like semiconductors, rather than broad trade protectionism.
Externally: establish “surgical” barriers (from a realist perspective).
Abandon blanket bans, instead tightly restrict key chokepoint technologies with direct military applications, while restoring normal commercial and academic exchanges in consumer electronics, mature process chips, and open-source AI models.
In standard-setting, Western governments shouldn’t withdraw from international standards organizations out of fear of China’s influence. Instead, they should participate more actively, shaping rules through alliances and consensus that favor an open system.
In multilateral cooperation—on climate change, AI ethics, global health (clinical medicine)—deep interdependence and collaboration can bring huge economic benefits and serve as “shock absorbers” to prevent major power conflicts from escalating into hot war.
6. Returning Technology to Human Welfare
This CSIS report, along with the intensive voices from major think tanks in 2026, sends a clear signal:
China’s high-tech strategy is multifaceted.
It has generated disruptive potential in certain fields—electric vehicles, batteries, 5G, biotech—that can reshape global industry patterns; but in fundamental ecosystems—advanced semiconductors, aero engines, top-tier basic research—it still faces long-term, structural challenges.
The future global tech landscape will be a highly complex “compound competition and cooperation.”
Whoever can attract the world’s talent with the most open mindset,
whoever can create an inclusive ecosystem to benefit developing countries,
whoever can maintain restraint and rationality amid competition, and uphold pragmatism and openness,
will truly win the next decade.
