How important have endogenous science and technology been to China’s economic growth? How has China achieved the economic growth it has experienced over the past decades?

The answer to this question is fairly simple: Science and technology have been absolutely central to the growth of China. But let me backtrack just a little bit. I think everyone knows that China’s growing economy was largely driven over past decades by China’s role as the world’s factory, where everything from clothing to advanced electronics could be made cheaply —initially in factories on China’s east coast, and then throughout China. In other words, low-wage production initially fueled China’s economic growth.

The reason why this has worked in China —and hasn’t worked so well in many other low-income countries— is that the Chinese government has pursued an aggressive industrial policy, investing in strategic science and technology areas it believes are key to economic growth. This investment was fueled by the trillions of dollars in foreign exchange that poured into China from U.S., European, and Japanese firms as they relocated their production to China. The Chinese government has used its foreign exchange reserves to foster economic growth, creating industrial zones, opening research parks, and building advanced high-speed infrastructure, quality universities, entire cities —to the point where China has become globally economically competitive as an innovator as well as a manufacturer. China was once seen as an innovation imitator —today it is emerging as a global innovator in its own right.