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The China Effect on Global Innovation

By McKinsey Global Institute

How innovative is China? How innovative does it need to be? These are the fundamental questions underlying this research. The answers are somewhat surprising. In many ways, we find, Chinese industry is more innovative than is generally acknowledged. Chinese companies have established strong positions in two types of innovation—developing new products and services that address consumer needs, and process innovations that make manufacturing more efficient. We also find that China has a growing need to innovate more broadly, across more industries, and raise innovation performance in engineering and science. China needs to evolve from an innovation “sponge” to an innovation leader to sustain GDP growth in the coming decade as other drivers of growth—an expanding labor force and capital investment—decline.

We conclude that China has the potential to meet its “innovation imperative” and to emerge as a driving force in innovation globally. The “China effect” in global innovation would be felt in several ways. As the nation with the largest population and the second-largest economy in GDP terms, China will be a growing source of innovation to serve the needs of an enormous and increasingly demanding consumer market. It is also a logical location for R&D and rapid commercialization of new ideas by global companies—for China, for other emerging markets, and for the rest of the world. Finally, the Chinese model of rapid, low-cost innovation can be applied around the world, potentially disrupting a range of industries…

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