Recently, in addition to being the “world’s factory,” China has solidified its position as an undeniable hub of innovation. The country has become a global leader in the production of solar panels, electric vehicles, and batteries. In 2024, Huawei opened an R&D center with over a hundred buildings in Shanghai, and in early 2025, DeepSeek demonstrated China’s advances in AI, despite increasing Western restrictions and sanctions on markets and advanced inputs.

These examples reflect the success of the Made in China 2025 strategy, launched in 2015, and subsequent initiatives. To a large extent, it is in response to this process that Western countries—not just the United States—are implementing measures that are transforming the governance of global trade and cross-border investment, as the Institute has previously addressed in Letters No. 1004, 1088, 1154, and 1168.

Today’s Letter IEDI revisits the discussion of China’s industrial development strategy based on science, technology, and innovation, drawing on two recent studies: one from Johns Hopkins University, titled “Innovation Policies, Technology Parks, and Development in China”, and another from the Oxford Institute for Energy Studies, “China’s Green Industrial Policy: Lessons for Innovation.”

The first article, authored by María José Haro Sly, traces China’s trajectory, emphasizing the development of high-tech industrial parks, which currently number 169 and account for 12% of GDP, and the country’s transformation into a major player in cutting-edge technologies, with government R&D spending rising from 0.9% of GDP in 2000 to 2.3% in 2020.

According to the author, since 2006, China’s internal innovation capabilities have been strengthened by government strategic plans, with key milestones including the Made in China initiative and the 14th Five-Year Plan, which placed innovation at the core of China’s development and modernization process.

Haro Sly highlights the recognition of industrial parks as a concrete mechanism and the locus of China’s innovation process. These parks are also seen as a key tool for the internationalization (going out) strategy of Chinese technology.

Transferring the drivers of innovation from public research organizations to industrial sectors, using public R&D investments to foster industrial innovation capacity, and improving the commercialization of basic and applied research outcomes have long been objectives in China.

For example, unlike other global powers, China directed the majority (85%) of its government R&D spending toward experimental development related to manufacturing and production, rather than basic or applied research. In other words, support for innovation and support for the industry are well-integrated.

According to the author, the Torch Program, launched in 1988, evolved to become a key instrument of the Chinese government in guiding high-tech industrial development, characterized by institutional experimentation, decentralized policies, company-dominated financing, and the inclusion of non-state SMEs in its incubator activities.

The program also coordinates high-tech industrial zones, established to transform scientific and technological achievements into practical productive forces, oriented toward both domestic and foreign markets.

Since 2013, the internationalization of Chinese technology and innovation has become an objective, largely pursued through the Belt and Road Initiative (BRI), with the construction of industrial parks abroad. According to the author, there are 85 Chinese industrial parks overseas with varying strategic orientations.

The Oxford Institute for Energy Studies’ work, conducted by researcher Anders Hove, analyzes a concrete example of China’s “indigenous” innovative engagement: technologies essential for the energy transition.

According to Hove, China’s dominance in these technologies (solar energy, batteries, electric vehicles, etc.) is not solely due to unfair subsidies or cheap labor. The author notes that Western discourse often overlooks the role of strategic industrial policies that fostered innovation, technology transfer, and the rapid scaling of innovative goods production.

China’s progress also stemmed from extraordinary learning rates as new technologies reached manufacturing scale. Subsidies, local content requirements, regulation, and other government mandates were integral parts of industrial policies for large-scale production of new technologies.

As a result, learning by doing, tacit knowledge sharing, and interactions with suppliers bolstered China’s endeavors. Despite the strategic role of public policy, the author emphasizes that the market economy increasingly determines the winners and losers. In other words, industrial and technological policy integrates with market competition.

The development of technological and productive competence in electric vehicles is a cited example. Unlike solar panels, the production scale of electric vehicles was driven by China’s domestic market, but a major foreign competitor was attracted to the local market to push domestic companies to upgrade their products while benefiting from knowledge spillovers, local workers, and suppliers.

Thus, the traditional requirement for joint ventures with local partners was not applied to Tesla when it established a factory in Shanghai, although the company’s willingness to use Chinese suppliers was a key factor in relaxing these requirements.

Moreover, in both the solar energy and electric vehicle sectors, local governments promoted manufacturing clusters as a path to industrial development. Geographic proximity to local supply chains and intense competition accelerated the pace of innovation and new product cycles. According to the author, Chinese electric vehicle models last, on average, 1.3 year on the market before new versions are released, compared to 4.2 years for foreign brands.

According to the Oxford Institute study, the main attributes of China’s experience in promoting clean energy sectors include:

• Clear policy signals from the government indicating that clean energy industries are a development priority.

• Local content and technology transfer requirements in exchange for market access.

• Promotion of industrial hubs, fostering interactions with suppliers and leading to the emergence of local equipment players.

• Encouragement of accelerated innovation and new product cycles through proximity to supply chains and intense competition.

• Creation of pilot projects to test policies, combining manufacturing with deployment.

• Requirements for establishing pilot projects in regions based on their existing industrial base, local policy incentives, and infrastructure.

• Monitoring project progress and linking future support to specific metrics.

In the author’s assessment, these attributes do not rely on centralized planning, first-mover advantage, or cheap labor, making them a potential model for other countries.

The full text is available in Portuguese