INTRODUCTION

Economists agree that the long-term growth of living standards depends on the capacity of an economy to sustain technological progress, whether by adopting technologies from abroad, through its own technological innovations, or, most likely, through a combination of adoption and innovation. The purpose of this chapter is to describe and analyze China's science and technology (S&T) capabilities and the economic, institutional, and policy context that together are shaping the range and growth of these capabilities. We conduct this analysis against the background of a large and fast-growing literature on the subject.

China's national innovation system is making two transitions – from plan to market as it moves away from a centrally directed innovation system and also from low-income developing country toward Organisation for Economic Co-Operation and Development (OECD) industrialized country status as it intensifies its innovation effort and more effectively deploys the ensuing technological gains.

Many of the impulses and policies of China's current S&T system are legacies of the nation's traditional economy going back to the nineteenth century and before. These include the recognition that access to Western S&T is critical to China's economic modernization and the consequent openness to foreign technology, advisors, and investment, particularly in special zones in the coastal areas.