A new report from CSIS, a top US think tank, reveals four truths about Chinese technology and one misjudgment…

Author: Top Innovation Block Research Institute

In early March 2026, Scott Kennedy, a senior fellow at the Center for Strategic and International Studies (CSIS), released a major 147-page report entitled "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 a leading expert on China. The Center for Strategic and International Studies (CSIS), where he works, holds a very important position: among the hundreds of think tanks scattered throughout Washington, D.C., CSIS is widely recognized as being at the very top of the pyramid, often “guiding the U.S. government on how to intervene in the world.”

Scott Kennedy's style is pragmatic and rational, and he has an excellent understanding of how China operates. Think tank scholars like him often play the role of "unofficial diplomatic envoys" (track two diplomacy).

It is worth mentioning that in September 2022 (when China's epidemic control measures were still strict), Scott Kennedy became the first Western think tank scholar to personally visit mainland China for several weeks of on-site research and face-to-face exchanges with Chinese political and business circles since the outbreak of the epidemic, which demonstrates his network of contacts and communication influence in both China and the United States.

This important report explores the following questions:

How exactly does China's technological innovation translate into geopolitical power? Why are some industries advancing at breakneck speed while others struggle? With the "decoupling theory" increasingly failing, where is the global technological competition headed?

1. The underlying logic of the Great Leap Forward in science and technology

Over the past decade, China's science and technology policy has undergone a paradigm shift from "market for technology" to "introduction, digestion and absorption," and now to "independent innovation" and "security first." In particular, since the United States launched the Entity List sanctions against Huawei and other companies in 2019, the surge in external pressure has become a catalyst for China's technological self-reliance.

Kennedy included a set of data in his report:

In 2023, China's R&D spending, measured by purchasing power parity, reached $1 trillion, equivalent to the world's second-largest economy throwing more than 2.6% of its GDP into this money-burning machine. In the years of the most aggressive subsidies, various industry funds and policy incentives combined exceeded $250 billion annually—enough to buy the entire General Electric company and make change.

This "powerful and efficient" national system has yielded obvious results:

First, there is the rise of innovation clusters:

In the 2025 Global Innovation Index (GII), China will rise to 10th place, with 24 of the world's top 100 innovation clusters (of which the Pearl River Delta ranks first globally).

The patent figures also look quite good: 13.3 patents per 10,000 people.

But if you take a stroll through the Yiwu small commodities market, you'll find that some "innovations" are nothing more than changing the color of a screwdriver handle. Kennedy's team clearly noticed this as well, subtly mentioning in a footnote: "There are significant differences in patent quality."

But numbers don't tell you the whole story.

However, the astute point of Western think tanks is that they were not entirely intimidated by these staggering figures. The report points out that significant structural weaknesses still exist in China's technology ecosystem:

For example, total factor productivity (TFP)—a metric that measures the real contribution of technological progress—has almost stagnated in China. In other words, despite investing so much money, output efficiency has not improved accordingly, and large-scale subsidies often lead to inefficient resource allocation and severe overcapacity.

A deeper problem lies in the talent structure gap. China has 4 million STEM graduates every year (a huge engineering dividend), but there are still gaps in frontier breakthroughs and rural education/basic talent development.

And then there's that age-old but ever-present topic: intellectual property.

China’s innovation ecosystem is too good at “large-scale diffusion” and “engineering iteration”—give me a sample, and I can replicate it in one-tenth of the time and one-hundredth of the cost, and do it even better.

But when you need to create a completely 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 becomes a shackle.

However, the situation is definitely improving.

2. The Four-Quadrant Rule

The report included a four-quadrant diagram.

This is what we think is the smartest part of the report.

Too many people view Chinese technology as a whole—either it will rise to prominence or it will collapse—but that's not the reality.

The report proposes an "industry differentiation framework" that divides the success or failure of Chinese technology into four quadrants, depending 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 more than the total number of engineers in the entire Detroit auto industry.

But money and people are not the whole story. What truly allows companies like BYD to dominate the global market is the "meat grinder" nature of the Chinese electric vehicle market.

Kennedy's team found during their research in Shenzhen that a new model takes an average of only 18 months from concept to mass production, while in Germany, the figure is 36 to 48 months. In 2024, there were more than 100 electric vehicle brands competing in the Chinese market, with price wars so intense that each vehicle only earned a few hundred yuan.

The story of CATL is similar.

They hold 38% of the global battery market share. The government didn't set any "quotas" for them to do this. Instead, driven by the market, they built their factories next to lithium mines and set up their R&D centers next to car manufacturers, forming an almost obsessive vertical integration.

When you can turn a battery from raw material into a finished product in 24 hours, while your competitors need two weeks, the game changes.

"Those that survived are evolved species, not designed ones."

Quadrant II

Adaptation success

Conforming Success

If electric vehicles represent a "leapfrog development," then biomedicine takes a completely different path—

"Embrace globalization deeply."

In 2023, China accounted for 39% of global clinical trials. This is mainly because China's hospital system can recruit a sufficient number of patients within three months, while in the United States, this process can take up to a year. In the pharmaceutical industry, time is money, and it determines the length of the patent term.

The story of Hengrui Medicine is very representative.

Instead of trying to invent a completely new anti-cancer mechanism—that would require a breakthrough in basic research—they chose to bring in top talent from overseas, directly benchmark against FDA standards, and embed themselves in a global innovation network.

In 2024, China saw the emergence of approximately 1,250 new drugs, most of which were not "first-in-class" drugs, but rather "me-too" or "me-better" drugs. However, this is entirely commercially viable.

Quadrant 3

Disruptive failure/obstacle

Disruptive Failure

This is the most heartbreaking part. The National Integrated Circuit Industry Investment Fund invested hundreds of billions of yuan, and SMIC and Yangtze Memory Technologies Co., Ltd. obtained resources they could never have dreamed of.

But the reality in 2026 is:

While China does hold a significant share of production capacity in mature processes (legacy chips, i.e., 28 nanometers and above), TSMC and Samsung still lead by a wide margin in advanced processes below 7 nanometers.

Currently, each EUV (Extreme Ultraviolet) lithography machine that can achieve 3nm technology costs approximately $200 million.

Currently, only ASML is involved.

The problem is that semiconductors are not an industry that can be solved simply by throwing money at it. An EUV lithography machine has 100,000 parts, sourced from more than 5,000 suppliers worldwide.

ASML was able to build this machine not because the Dutch were particularly clever, but because they integrated German optical technology, American laser sources, and special Japanese materials.

This is an extremely complex system that requires a fine division of labor among hundreds of "hidden champions" worldwide.

Quadrant 4

Adaptive failure/inefficiency

Conforming Failure

The case in this quadrant is C919:

In an industry dominated by the Boeing and Airbus duopoly for half a century, good airplanes cannot be built by protectionism and nationalism alone.

In 2024, COMAC delivered only 16 C919 aircraft.

In comparison, Boeing delivered 348 aircraft in the same period, while Airbus delivered 735.

Furthermore, among those 16 C919s, the engines came from General Electric (CFM International), the flight control system from Honeywell, and the avionics from Rockwell Collins—the import dependence on core components was as high as 90%.

The image above shows information on some components and systems suppliers for the Boeing 787 Dreamliner. Source: Boeing, Reuters (Chart not drawn to scale).

In reality, policy subsidies can only get things started. What truly forms a competitive advantage is either the extreme engineering efficiency gained through fierce competition in the red ocean (such as EVs) or an open attitude that proactively connects to the world's most advanced innovation networks (such as pharmaceuticals).

Working in isolation is a major taboo in technological innovation.

3. Innovation equals power; technological potential is transformed into geopolitical leverage.

Technology is never neutral—this sounds like a truism, but Kennedy spent a full 30 pages arguing for it.

In his view, the profound strategic value of China's high-tech-driven development lies in its ability to substantially reshape the international power structure. This spillover of power is mainly reflected in two core dimensions:

The hard power of military-civilian integration (MCF) and the soft power of international standards.

1. Military-civilian integration

Military-Civil Fusion

Between 2010 and 2024, China invested approximately US$105.8 billion in the field of military-civilian integration.

Where did this money go?

iFlytek's voice recognition technology is used for military intelligence analysis; the BeiDou Navigation Satellite System has transformed from civilian use into the cornerstone of precision guidance; and DJI's drones—the little gadgets sold on Amazon for wedding photography—have become standard equipment for reconnaissance and strikes on the modern battlefield.

The contribution of commercial technology to China's military strength is real.

However, this feedback is "supplemental" rather than "transformative." Inherent trust barriers within the system and the division of interests between departments limit the seamless transformation of disruptive technologies from the civilian sector into the military-industrial complex.

Therefore, China has gained an asymmetric tactical advantage in areas such as AI and drones, but has not yet fundamentally overturned the United States' military technology hegemony.

Why?

Because of the trust barriers within the system—I won't go into details about that.

2. Standard-setting authority

Standards Power

Without a strong monopoly influence

"Third-rate companies make products, first-rate companies set standards."

This saying, which is widely circulated in Chinese business circles, has another meaning in the context of technology diplomacy: whoever controls the code and protocols controls the rules of the game.

By 2025, China had participated in 780 ISO (International Organization for Standardization) technical committees and led 19 working groups in 3GPP (3GPP, the telecommunications standards organization). Huawei's IP share in the 5G field remained around 20%.

At the same time, China can use its huge domestic market (85% domestic standard conversion rate) to support international standards (such as the adoption of HarmonyOS on 36 million devices and the advancement of NearLink technology).

But there is a delicate balance to be struck:

International standards organizations adhere to a "consensus-driven" approach.

You want to push for a standard? Sure, but you have to convince other member countries. Past lessons are clear—WAPI (China's wireless LAN standard) and TD-SCDMA (3G standard) both became expensive but ultimately useless due to incompatibility with the global 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 statement is:

China can prevent some things from happening.

But we can't let things happen the way we want.

4. The bankruptcy of the theory of complete decoupling

Looking ahead to 2026, you'll notice an interesting phenomenon:

International top think tanks and policymakers have split into several distinct camps, and the winds of change are undergoing profound shifts.

1. The Anxiety and Backfire of Hawks/Restrictors

Represented by some members of Congress and early ITIF (Information Technology and Innovation Foundation) reports, they view the US-China technology relationship as a zero-sum game, and their logic is simple:

If China becomes strong, the United States will become weak, so it must be contained.

However, a growing number of retrospective reports from organizations such as RAND Corporation and Carnegie Endowment for Peace point out that overly broad export controls and the proliferation of "small courtyards and high walls" have had the opposite effect.

The supply disruption not only damaged the revenue of American companies (which could have been used for next-generation R&D), but more fatally, it dashed the hopes of Chinese companies, forcing China to build up its domestic alternative supply chain at an astonishing speed (the return of the Huawei Mate series 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 among mainstream think tanks such as the Brookings Institution: a "complete decoupling" would be extremely costly and impractical.

What would happen if the global supply chain were forcibly disrupted?

Severe inflation in the West—because cheap Chinese-made goods are unavailable;

The global green energy transition is slowing down because China produces 80% of the world's solar panels and 60% of its wind power equipment.

Furthermore, the West has lost its window into understanding China's technological evolution—when you stop doing business with your competitors, you no longer know how far they have progressed.

3. The Third Voice of the Global South

The Atlantic Council report astutely points out that, in the eyes of many developing countries in Asia, Africa, and Latin America, China's 5G networks, affordable electric vehicles, and AI infrastructure represent "affordable development opportunities" rather than "national security threats."

If the West only peddles "security anxiety" without offering competitively priced alternatives, its narrative of the Global South will completely collapse.

5. The solution to breaking the deadlock: precise targeting

If "complete decoupling" is poison and "unconditional embrace" is a fantasy, then where is the way out?

CSIS, taking the US perspective, offers the following answer:

"Calibrated Coupling".

Domestically: Strengthen the local innovation ecosystem (from an economic perspective).

The United States’ real strength lies not in how many Chinese companies it can suppress, but in its unparalleled “beacon effect”—its ability to attract the world’s brightest minds, its deep venture capital network, and its strong basic scientific research.

They believe that US government subsidies should be precisely targeted at a very few strategic nodes such as semiconductors, rather than initiating widespread trade protectionism.

Externally: Establish "surgical" guardrails (realist perspective).

Instead of a blanket ban, strict restrictions should be imposed only on key bottleneck technologies (Chokepoints) with direct military applications, while normal commercial and academic exchanges should be restored and maintained in areas such as consumer electronics, mature process chips, and basic open-source AI models.

In the field of standards, Western governments should not withdraw from international standards organizations out of fear of China's influence. Instead, they should participate more actively and shape rules that are conducive to an open system through alliances and consensus.

In transnational cooperation, such as in climate change, AI safety ethics, and global public health (medical clinical practice), deep interdependence and cooperation can not only bring huge economic benefits, but also serve as a key "shock absorber" to prevent great power competition from sliding into hot war.

6. Let technology return to human well-being

This CSIS report, along with the flurry of pronouncements from major think tanks in 2026, sends an extremely clear signal:

China's high-tech-driven strategy is multifaceted.

It has gained momentum to reshape the global industrial landscape in certain fields—electric vehicles, batteries, 5G, and biomedicine; however, it still faces long-term, structural challenges in the fundamental and underlying ecosystem—advanced semiconductors, aero engines, and cutting-edge basic research.

The future global technology landscape will be an extremely complex interplay of competition and cooperation.

Who can attract global talent with the most open mind?

Who can make technology accessible to developing countries in the most inclusive way?

Who can maintain restraint and rationality in competition, and uphold pragmatism and openness?

Whoever does it will truly win the next decade.