Chapter 1

Introduction

Bert Hofman, Erik Baark and Jiwei Qian

The International Implications of Innovation in China

The US-China trade war has called attention to China’s transition to a “new normal” economy driven by innovation and productivity growth. The global implications of this transition will be large, as China’s economy has become the second largest in the world and is deeply integrated into world trade and global value chains. China’s rapid economic growth during the last four decades has lifted large segments of the Chinese population into middle-income international levels, with the average Chinese citizen’s purchasing power now about a quarter of that of the average American. This achievement was grounded in the mobilisation of labour, capital and foreign direct investment that provided technological upgrading and generated export-led growth. The recent slowdown of economic growth is related to the decline in productivity growth experienced as the previous strategy of cheap labour and high rates of savings and investment ran its course, and this has prompted observers to predict that China may risk entering the middle-income trap (Zeng and Fang 2014). The concept of a middle-income trap was launched in 2007 and the factors leading countries to fall into—or to avoid—such a trap have been debated ever since (for example, Cai 2012; OECD 2013; Doner and Schneider 2016). Regardless of such predictions, China’s leadership has recognised the need for a transition to high value-added production, institutional reform, and innovation as drivers for the next phase of economic development.

Consequently, China in 2019 invested 2.2 per cent of its GDP in research and development (R&D) and China’s total R&D expenditure is the second highest in the world after the United States (Guojia tongji ju 2020). The number of patents filed by Chinese companies and individuals has risen sharply since 2010, domestically as well as internationally. The number of patents filed overseas expanded five-fold from 2010 to 2017, and China’s “total citation count” (number of patents times forward citations) increased from 4 per cent to 7 per cent of that of the US. Over the same period, the number of foreign patents filed by US companies in China increased by 50 per cent. The number of Chinese patents filed overseas is expected to triple by 2025, which would make China the fourth-largest filer after the United States, Japan and Germany. The sharp rise in China’s patent count was in part due to multinationals that offshored R&D to China: the R&D expenditure of US multinationals’ foreign affiliates in China grew fourfold between 2004 and 2014 (Branstetter et al. 2019). Co-invented and Chinese-invented patents assigned to multinational firms made up well over half the patent count until the end of the last decade. This contrasts with the experience in Japan and Korea, where most patents were filed by domestic firms during their take-off of R&D investment. In addition, the number of R&D personnel in China has almost doubled during the ten-year period, with the full-time equivalent headcount growing from 2,291,252 in 2009 to 4,381,443 in 2018 (OECD 2019). The number of STEM (science, technology, engineering and mathematics) graduates in China has also grown exponentially, as more than 40 per cent of Chinese university students major in STEM subjects, thus adding 4.7 million new STEM graduates in 2016–the year that US universities graduated 568,000 new STEM graduates (World Economic Forum 2016). Moreover, China has benefitted from the flow of returnees that have received advanced training overseas, a “brain gain” that is analysed in Chapter 5 by Cong Cao and Denis Simon.

These data are indicative of China’s new global status as a rising technology power.[1] Despite this rise, overseas sources of technology and international linkages to technology, investment and markets remain crucial for China’s technological system. In this volume, the global implications of emerging technological capabilities and the continued dependence on international linkages in China are addressed in particular by the six chapters in Part One. These chapters include discussions of the conflict between the US and China, but they also address the role of international linkages in research cooperation, improvement of human talent and China’s efforts to upgrade its indigenous innovative capabilities.

Despite the increase in R&D spending and patent count, China’s growing innovative capabilities have not, or not yet translated into higher productivity growth. In fact, productivity growth as measured by Total Factor Productivity (TFP) shows a drop since the global financial crisis (World Bank and Development Research Center 2019; Dieppe et al. 2020). This observation is based on micro data from China’s enterprise surveys and confirmed in macroeconomic data (Brandt et al. 2020). The slowdown in productivity growth is a worldwide phenomenon, but the pattern of TFP trends during the last decade in China appears related to the negative impact of institutional constraints and capital reallocation favouring state-owned enterprises over the private sector in the economy (Qian 2020; Wu 2020). Moreover, profitable opportunities in real estate also acted to crowd out investments in corporate TFP growth. This trend affected the state-owned enterprise (SOE) sector in particular, with a less significant effect in the private sector (Lu et al. 2019).

Engagement in a Global Value Chain (GVC) is useful to improve the growth of productivity at the firm level. In a recent OECD report, firms that are initially less productive or smaller are likely to improve their productivity faster than others when they are connected to key players in the production networks (Criscuolo and Timmis 2018). The GVC became a valuable route to upgrading technology for Chinese firms, particularly after China’s access to the WTO, as China’s share of global manufacturing value-added increased from 7 per cent in 2000 to about 27 per cent in 2015 (World Bank and Development Research Center 2019). This also provided opportunities for rapid expansion based on innovation, as Yuqing Xing shows in Chapter 11. Nevertheless, China still relies to a large extent on imports of some core technologies, such as semiconductors, software, among others, and it is likely that a potential de-coupling of the US and Chinese economies will upset these sources of essential inputs.

In order to raise productivity through a transition to high-value economic activities, China has developed a range of new industrial policies. China has had a long tradition of economic planning and industrial policy, with mixed results. The reforms since 1978 emphasised the development of markets and promotion of the private sector, but industrial policy never fully disappeared, and since the middle of the 2000s saw a revival. A stronger role of the state has emerged since the ascent of Xi Jinping to the leadership in 2012, and with it a renewed emphasis on industrial policy. With decoupling threatening to cut off China from critical technologies, such emphasis is only likely to grow. This raises again the challenges of the role, design and implementation of industrial policies in China’s future development. This is the theme of the four chapters in Part Two of this volume, where individual chapters analyse respectively the relation of industrial policies to state investment allocation, the role of intangible assets in the Made in China 2025 policy, local policies to promote cloud computing, and innovation in global value chains in mobile phone production.

In particular, the Made in China 2025 policy issued in 2015 has been controversial in international circles, in part because of China’s size and the potential spillovers of such a policy to the rest of the world. Furthermore, there has been confusion on the nature of the policy, which some argued was China’s attempt at massive import substitution, and even dominance of world markets in particular industries. This confusion is in part based on a working group document that identified the share of imports that China could, if needed, supply itself (Zenglein and Holzman 2019). Communicating these numbers as targets has been damaging to the policy as it created a negative perception abroad.

China’s targeting of new or emerging industries for its industrial policy can be seen as a means to move up the value chain, while avoiding sectors and industries in which other countries already have established abundant Intellectual Property (IP), and therefore collect most of the rents. The debate on industrial policy itself has seen a revival both internationally and in China (Aiginger and Rodrik 2020). Industrial policies have been defined as a set of policies imposed by governments to protect industries with favourable subsidies and tax breaks from competition with products from other countries (Aghion et al. 2015). It is different from trade policy, even if overlap may occur between policy objectives and effect. The EU and various member countries have each defined specific industrial policies, and Germany’s “Industrie 4.0” is said to have been an example for China’s Made in China 2025 policy. Authors such as Mariana Mazzucato (2015) have re-evaluated the role of the state in major technological developments in the West. She argues for “mission-driven” industrial policy, as opposed to industry specific policy. Dani Rodrik (2004) and others consider industrial policy particularly important for achieving economic growth and moving up the value chain, though the tools increasingly appear to be generic policies such as competitive exchange rates and tax incentives, rather than industry specific subsidies. These emerging views contrast with previous mainstream views alleging that governments cannot pick winners and that industrial policy invites rent seeking to the point where net benefits turn negative.

In China, industrial policies have shifted towards more generic development of essential infrastructure and integration of initiatives in various sectors, where national policies function more as signalling devices for priorities and guideposts for coordinated state and private investments, more in line with the ways that promotion of industrial and economic development is implemented internationally (Filipe 2015; Dadush 2016). Part of the reason may be leadership recognition of the need for incentives for private actors to follow the policies, especially since private firms dominate the key industries subject to those policies. Made in China 2025 is a case in point: the policy document maintains broad scope and generalised aims and does not contain specific financial commitments—though these were included in subsequent documents. Moreover, the policies are shaped by the decentralised nature of the implementation of industrial policy in China: most are implemented by local governments, which may have slightly different priorities than the central government.

Much of the financial support for innovation is channelled through the financial sector: government provides seed funding for the industrial guidance funds for new industries or strategic sectors which is leveraged with state and non-state financial sector capital. The amount of the government industrial guidance fund was set to increase to over RMB 10 trillion by the end of June 2019, compared to about RMB 5.8 trillion in 2018 (Xinhua 2019).

After the international critique of Made in China 2025, it was de-emphasised by China. Instead, a long-term plan for the industrial policy, announced by the National Development and Reform Commission (NDRC) and another 14 departments, highlights an ambition to deeply integrate the development of the manufacturing industry with the promotion of a modern service industry. According to the document, a group of deeply integrated enterprises and platforms will be built by 2025 (NDRC 2019).

Innovation, Globalisation and Competition:

The Evolution of the US-China Tech War

From our perspective, the progress of innovative capabilities in the Chinese economy has been driven mainly by a combination of the domestic need for economic development and the new geopolitical strategy adopted under Xi Jinping’s leadership. But they have also challenged established global powers over technological competitiveness and generated strong reactions internationally. The US-China Trade War was launched in 2018 with the US imposing tariffs on imports from China with the stated aim to reduce the trade deficit with China and create manufacturing jobs in the US. This triggered several rounds of retaliation from China and an escalation of tariffs from the US side. Behind the conflict over the balance of trade, there were very serious grievances from the US side regarding Chinese practices that in their view distorted competition, technology transfer and intellectual property (White House Office of Trade and Manufacturing Policy 2018).

Furthermore, China was increasingly seen as a strategic competitor and potential adversary (White House 2021). Thus, the current controversies over trade, investment and technology are only one part of a much larger rivalry between competing systems and worldviews, and the standoff over tariffs was only the first skirmish in what seems certain to be a protracted and difficult conflict (Boustany and Friedberg 2019; Kwan 2020). The dispute over the competition in technology and a potential decoupling of innovative systems between China and the US have consequently become the main battleground of the conflict (Capri 2020b). This conflict was not resolved by the Phase One US-China Economic and Trade Agreement signed in January 2020. This agreement addressed some issues relating to trade but hardly resulted in mitigation of rivalry over Chinese support to innovation and technology (Hofman 2020). To some extent, the linked US-China trade, technology and geopolitical conflicts have precipitated a new Cold War, as both powers are aiming for strategic advantage in an increasingly bitter contest to determine which of them will be the pre-eminent power of the 21st century (Dupont 2020).

Most of the actions taken by the US up to 2020 focused on undermining the efforts of innovative Chinese firms, in particular Huawei, to capture global markets for telecommunications systems such as the 5th generation mobile network (5G) infrastructure (Lee 2020). The actions against Huawei have come as a combination of several measures. These included erecting export restrictions for semiconductors or advanced design equipment from the US, and placing Huawei and 70 affiliates on the so-called Entity List that restricts business dealings with foreign firms that pose a national security risk for the US. Moreover, the US has attempted to persuade governments overseas to exclude Huawei from participating in the development of their national 5G infrastructure (Dupont 2020). In addition, the US-China tech war spilled over into restrictions of the US-based operation of popular Chinese mobile apps such as TikTok and WeChat. US restrictions in China’s access to semiconductors that are essential for the development of advanced artificial intelligence (AI) systems have also challenged Chinese firms in the sector, exposing strategies that lacked advanced fundamental research capabilities and relied chiefly on their ability to exploit huge data sets (Ernst 2020).

While a trade war between the US and China could find a solution over time, resolving the strategic competition in technological innovation or the fundamental political philosophies between the two powers will be far harder. Both sides are driven by techno-nationalism and devote their resources to long-term objectives, witnessing a new symbiosis of state interventionism and private sector activism in defence of strategic and competitive advantages (Capri 2020a). However, there are crucial differences in the world-views of political elites and social actors in China and the US, and with its new status, China will challenge the liberal world order created under western influence in the 20th century, regardless of whether a new willingness to cooperate and adjust generates a political compromise (De Graff and van Apeldoorn 2018).

The prospects of a new Cold War in security and technology, and a decoupling of the Chinese and US economies are likely to be highly damaging for the two countries involved as well as the rest of the world. As discussed in Chapter 2, by Gary Jefferson, a transition towards a more cooperative system, based on a new balance, would provide long-term stability in economic and technological relations between China and advanced industrialised countries. On the other hand, even the mere threat of a new Cold War has induced China to allocate more resources to promote domestic innovation and technology development, and it is evident that the 14th Five Year Plan (2021–25) reflects this trend (Hofman 2021).

Industrial Policies for the New Economy

We see many new developments taking place in China’s promotion of innovation as fundamentally related to the leadership’s commitment to furthering the digital economy. One area of innovation in which China has already been quite successful is the digital economy. Platforms for e-commerce, financial technologies (fintech) and increasingly networks for e-health and online education have developed rapidly in China, coupled with extensive efforts to build digital infrastructure such as 5G communications. New key technologies such as AI have supported these developments, and have benefited from the data the digital economy generates.

Xi Jinping underlined the importance of “the data-oriented digital economy” at the second collective study session of the Politburo in 2017, thus emphasising the role of the digital economy as a new driving force for high-quality growth in China (Xinhua 2017). In China as elsewhere, the criterion for measurement of “high quality” economic growth is the improvement of total factor productivity (Qian 2020). Some recent empirical evidence supports the view that advances in digital technology can improve productivity in both the manufacturing and service sectors (Dieppe et al. 2020: 228).

Given the leadership’s ambition to transform the Chinese economy into a data-driven digital economy, both central and local governments have subsequently released action plans for the development of different areas in the digital economy including cloud computing, artificial intelligence (AI) and the industrial internet. The overall strategy was provided in the Made in China 2025 plan that underscored China’s ambitions to develop intangible assets and capture new value-added in the global economy, as described in Chapter 9 by Anton Malkin. It can be argued that these efforts are creating a new context for industrial policy and indeed transforming innovation policy instruments.

With economic shocks such as the US-China trade war and COVID-19, promoting investment in data infrastructure is considered a major policy initiative to stabilise economic growth (Xinhua 2020). The 2020 government work report saw the first mention of the term “New Types of Infrastructure” which included data infrastructures such as 5G, big data storage centres, AI and industrial internet. It is noteworthy that while previous five-year plans in China have involved ambitious construction of transport and energy-supply infrastructure, the 14th Five-Year Plan (2021–25) is emphasising new infrastructure that will enable the new drivers of economic growth. This includes information-based infrastructure such as 5G base stations; converged infrastructure supported by the application of the internet, big data and artificial intelligence; and innovative infrastructure that supports scientific research, technology development and product development (Stern and Xie 2020).

The contributions in this volume suggest that China’s industrial policies are transitioning to a new paradigm that is heavily influenced by innovation theory and competition in R&D, while also taking into account the role of the new economy based on data-driven development. These policies are often designed to facilitate and promote developments with new investment, facilitating development in the private as well as the public sector and following up on emerging strengths, as illustrated by the analysis of cloud computing by Bai Gao and Yi Ru in Chapter 10. Policies may enhance existing private industry investment with selective central and local funds, as indicated by Carsten Holz (Chapter 8), instead of creating new industries relying exclusively on centralised investment in state-owned enterprises. In the new approach, policy makers are showing more awareness of the impact of intellectual property rights and similar intangible assets, as shown in Chapter 9 by Anton Malkin.

Overview of Chapters

The first part of this volume explores the global implications of China’s rise as an innovative nation in terms of international tensions and the prospects for future cooperation. Given the recent US-China trade war, the discussion is naturally shaped by the way that a conflict that initially appeared to be a trade dispute has morphed into a broader rivalry. Clearly, the interpretation of China’s rise as an economic and technological power calls for a better understanding of the internal forces of change, such as the policies enacted by the state and the response of public and private sectors, as well as the changing external environment and policy directions of other countries, the background against which China’s policies are evolving.

The US-China technology war has brought new challenges for the Chinese leadership and many of the leading innovative firms, and this is addressed in the theoretical analysis by Gary Jefferson in Chapter 2. He argues that the relationship will follow a trajectory similar to that of the Kuznets “inverted U” curve, where the incentives for cooperation dominate the first stage of asymmetrical innovative capabilities, while the incentives for conflict arise in the second stage of rising Chinese capabilities and China threatening to overtake the lead. A third stage of parity could bring back cooperation, as with the relationship that the US has with other industrialised countries. Jefferson explores two political scenarios for US actions—containment of China or transitioning towards a more cooperative system—and finds that the former is founded on a set of somewhat implausible assumptions, leaving the cooperation scenarios as being most likely to yield longer-term benefits to China, the US and the rest of the world.

Chapter 3, by Dan Prud’homme, focuses on contrasting discourses on China’s intellectual property rights (IPR) regime and finds that an important contribution to the origins of the US-China trade war has been two contrasting sets of false myths about the Chinese IPR regime. The falsities include Chinese claims that aggressive forced technology transfer policies have not existed in recent years and that other aspects of China’s IPR regime are not against free-trade norms. On the side of foreign observers, false myths claim, among other things, that China’s longstanding Confucian culture prevents it from seriously protecting IPR, or that China’s IPR regime is categorically weaker than the IPR regimes of developed nations. The debunking of these myths should help the scholarly, policy and practitioner communities in China and abroad to better understand the value of more constructively and truthfully engaging with each other in the future.

China’s policies to promote indigenous innovation have also been subject to international controversy, and in Chapter 4, Erik Baark discusses a range of specific policy instruments that the Chinese government has employed, including public procurement of indigenous technologies and support for independent Chinese IPR and technical standards. It is proposed that the official promulgation of these policy instruments should be seen in the light of a legacy of self-reliance, where the inputs from domestic R&D have become increasingly vital for competitiveness and productivity. Furthermore, Baark argues that whether or not these policies challenge global incumbents, Chinese indigenous innovation may also contribute new, more competitive forms of innovative processes, and Chinese innovations may offer key technologies for a sustainable global future.

Given that international competition in innovation essentially boils down to a competition for human resources or talent, Cao Cong and Denis Simon argue in Chapter 5 that it is the contributions of scientists, engineers, other qualified professionals, as well as Chinese who possess business and legal knowledge and skills, that have propelled China to the global competitive position that it now occupies. China has developed various programmes to attract returnees among its overseas educated students and scholars, seemingly achieving some sort of “brain gain” and “brain circulation”. However, China continues to face some serious challenges regarding its talent situation, just as the country did in the past. For example, not only is the quality of the returnees not completely satisfactory, various talent-attracting programmes may be merely a temporary solution to addressing China’s critical talent challenges, while tensions between China and the US may cut off some of China’s access to the most advanced technology. In their chapter, Cao and Simon argue that the key to meeting China’s ultimate talent challenges lies in answering the “Qian Xuesen puzzle”, specifically, that China has not yet been able to foster such values as independent thinking, tolerance of dissent and freedom of inquiry; these factors are essential for growing and nurturing truly innovative talent.

In Chapter 6 Denis Simon analyses China’s evolving strategy, policies and practices regarding its international science and technology relations. By 2018, China had established S&T cooperation partnerships with 155 countries and regions and executed over 100 inter-governmental agreements on S&T cooperation. Simon highlights China’s strategic posture and footprint in terms of its goal of becoming a player of influence in the international S&T system, including its relationships with several major S&T countries, comparing similarities and differences in terms of the depth and breadth of cooperation. Along with China’s improvement in its S&T capacity and core competencies, China’s role in international S&T cooperation is changing gradually from learner to partner and rule maker. Finally, the chapter concludes with a discussion of the changing landscape of the international S&T system, with a focus on the ways in which China’s expanded participation might alter the evolving structure and operation of the system in the coming years.

Chapter 7, by Xiaolan Fu, Cintia Külzer-Sacilotto, Haibo Lin and Hongru Xiong, provides an analysis of the role and means of international innovation collaboration (IIC) in achieving radical innovation in China. Evidence from an in-depth case study of a leading Chinese technology company supports the suggestion that IIC can enable firms to become radical innovators, but that happens only with effective search and collaboration management. Opening up to international partners, combining problem-solving and blue-sky exploration, and sufficient internal inputs to facilitate absorption and integration are critical in ensuring that IICs become fruitful. Internal R&D capability, especially embedded in extramural R&D, strongly determines the transfer performance in making use of external knowledge or complementary resources, mainly due to the absorptive capacity and technology distance effects. However, most Chinese firms do not have the necessary infrastructure to search and manage IICs effectively. Policies strengthening the layout of the IIC network and facilitating international collaborations, such as the development of platforms and other tools to orchestrate international collaborations, are required to increase the chances of regular indigenous firms connecting with and managing external partners.

Part two contains contributions that address the Chinese experience with innovation in terms of industrial policies and global value chains. These chapters are primarily concerned with analysis of the significant features which distinguish how China implements its efforts to promote advanced technology sectors, and the role of public organisations and private firms in this process.

The discussion of China’s industrial policies is opened up by Carsten Holz in Chapter 8, noting that these have attracted widespread attention lately. The 2015 policy of Made in China 2025, in particular, is widely viewed as creating an invincible economic powerhouse. Underlying such interpretations is the assumption that Chinese industrial policies have a decisive effect on resource allocation. The findings of this chapter suggest that this assumption is not valid. Six sets of industrial policies enacted since 2004 are introduced and their impact on the patterns of investment growth in the industry is examined. Further analysis considers sector, administrative subordination, funding and ownership patterns of investment. The evidence suggests that industrial policies have little or no effect on investment outcomes in the industry. At least through 2015, investment was driven primarily by profitability considerations. When industrial policies appear to have an effect, changes in investment patterns precede industrial policy.

In Chapter 9, Anton Malkin focuses on the less-understood aspects of Made in China 2025, namely intangible asset commercialisation and the promotion of automation, and explains why this part of the plan conforms to, rather than distorts, the emerging logic of globalisation. This logic is defined by growing competitive pressures to amass defensive and strategic intangible assets by means of IP commercialisation, public investment in emerging technologies and government-encouraged mergers and acquisitions. The potential for Chinese firms to earn revenues from their IP is growing rapidly, as seen most vividly in Chinese firms’ growing appetite to register their patents as “standard-essential”, giving them rights to negotiate technology licensing arrangements with global firms that utilise technology that includes the standards they had helped set in the first place. This echoes what is argued in Chapter 5, that China’s role is transforming into a rule maker in the context of international S&T cooperation. The chapter examines a Chinese state-owned semiconductor design firm’s efforts to catch up through both joint ventures and outbound acquisitions, but indicates the risks that this approach entails, suggesting that the goals of Made in China 2025 will need to be revamped to reconcile the duality of China’s industrial upgrading approach.

In Chapter 10, Bai Gao and Yi Ru examine the impacts of Chinese industrial policy on the digital economy in relation to private entrepreneurship, considering whether Chinese industrial policy is different from that practised by governments in other countries. This discussion is based on an analysis of the development of the cloud computing industry in Hangzhou and Shenzhen, focusing on Alibaba and Tencent. Contrary to the stereotype of the heavy-handed Chinese state, Gao and Ru argue that the market-facilitating state in the digital economy focuses on enhancing factor endowment, building infrastructure, reducing transaction costs, creating market demand, encouraging industrial clusters and promoting corporate rivalries. The primary goal of industrial policy practised by the market-facilitating state is to build an effective market, identify technological frontiers and lure private investments towards them. Such an industrial policy is often informed by private entrepreneurship and constrained by the dominance of private companies in the digital economy. The policy’s effectiveness is often determined by private companies’ willingness to follow the state’s guidance.

Global Value Chains (GVC) provide a new channel of innovation for firms participating in value chains or utilising the value chain strategy to grow. Chapter 11, by Yuxing Xing, provides an analysis of the Chinese firms involved in the value chain of the iPhone and shows that the Chinese mobile industry has climbed up the ladder of the iPhone value chain and performed relatively sophisticated tasks beyond simple assembly. In addition, by examining foreign value added and technology embedded in the smartphones of OPPO, Xiaomi and Huawei, Xing argues that Chinese smartphone vendors primarily follow a non-linear model of innovation, jumping directly to brand development before acquiring sufficient technology capacity. They have been focusing on incremental innovations and product differentiation by taking advantage of available technology platforms. This value chain strategy has enabled them to overcome a technology deficiency effectively and has provided a short-cut to catch up with foreign rivals and to evolve into leading smartphone makers in both domestic and foreign markets. However, the US-China trade war indicates that the golden era of these GVC strategies may be over.

Concluding Discussion

Developments in 2020 suggested that China-US competition in technology will continue for some time. This book suggests that China has benefited significantly from international collaboration in innovation and new opportunities for accessing the global market and new sources of technology. Further, industrial policies have been used to promote productivity for the sake of achieving high quality growth. Both policies (that is, international collaboration and industrial policy) are likely to continue in the new geopolitical context because China has embarked on a trajectory founded on new capabilities and with a domestic market that supports demand for more advanced technologies and competition in both the private and public sectors. The concept of supporting a dual circulation with both a domestic economy and the international economic system that has set the tone for China’s 14th Five-Year Plan reveals that the Chinese leadership acknowledges the risk of decoupling led by the US and therefore needs to rely on strengthening domestic innovative capabilities. This book provides insights into the challenges and driving forces of this evolution, and hopefully contributes to a better framework for policy makers in China and overseas to identify ways to reach a new equilibrium.