Global Supply Chains as Drivers of Innovation in China

China’s manufacturing and innovation capabilities are directly related. Availability of complementary resources in rapid prototyping, test production, and components and the ability to deploy innovations at scale increasingly lead high-technology firms, including startups, to consider China as a developmental base across sectors from big data to cloud computing, smart grid, renewable energy, and alternative energy vehicles. Entry into global value chains (GVCs) has led to vast transfers of knowledge, creating human resource capabilities that continuously facilitate the upgrading of Chinese firms. China’s most advanced industries were all those characterized by active participation in GVCs. China’s entry into GVCs has differed significantly from the experiences of other emerging economies, arguably affording China greater innovation benefits. This is directly related to China’s institutional environment of “structured uncertainty.” Structured uncertainty shaped the pattern and impact of entry into GVCs, dictating which regions entered GVCs, when, and how, with long-term knowledge transfer effects.