Former Singaporean Prime Minister Lee Kuan Yew (LKY) long argued that China would struggle to reach the global frontier of creativity because its political system constrained dissent, independent thinking, and intellectual freedom; in his view, China would excel at absorbing and refining foreign technologies but not at pioneering them. Yet today, China has produced notable breakthroughs—from electric vehicles and advanced batteries to high-speed rail, commercial drones, renewable energy, fintech, and AI applications—developments that appear to challenge key elements of LKY’s prediction.
China’s Technological Ascent and a Revisit of Lee’s Forecast
Lee Kuan Yew long maintained that China would struggle to equal the United States in creativity, innovation, and open intellectual debate. He argued that China’s political and cultural environment—characterized by limits on free expression, centralized governance, restricted information flows, and traditions that prize conformity—would structurally constrain its ability to achieve cutting-edge breakthroughs. In his assessment, America’s enduring strength lay in its open society, world-class universities, and decentralized, risk-taking entrepreneurial culture, all of which encourage the kind of intellectual freedom China’s system inhibits.
By 2025, however, this forecast appears only partly accurate. China has made striking advances in areas such as artificial intelligence, advanced manufacturing, 5G, and quantum research. While the United States continues to rank higher on most global innovation benchmarks, China has sharply reduced the distance. Its output of scientific papers, international research partnerships, patent filings, and overall R&D investment has expanded at an extraordinary pace. China’s rise into the top tier of global innovation indicators—and its leadership in several critical technology supply chains—complicates the belief that its political system inherently limits creativity or scientific progress.
These trends also call into question an older assumption embedded in some of Lee’s remarks: that sustained innovation is possible only within liberal democracies. Despite stringent political controls, China has rapidly built its STEM talent base, digital infrastructure, industrial policies, and research institutions. It has demonstrated that a state-directed model, even with constrained political freedoms, can generate world-class technological capabilities and approach U.S. levels in multiple frontier domains. Although China’s political limitations remain significant, evidence from the 2010s through the mid-2020s shows they have not stopped it from emerging as a scientific and technological heavyweight—raising doubts about Lee Kuan Yew’s once widely held prediction.
China’s Rise as U.S. Loses Edge in Talent and Manufacturing
Lee Kuan Yew consistently argued that the United States possessed an extraordinary capacity for renewal—one rooted in its openness, its innovative culture, and above all its long-standing ability to attract the world’s top talent. For decades this assessment held true: America combined leading research universities, entrepreneurial dynamism, and a permissive immigration system to sustain its technological and military preeminence. Yet recent structural shifts, both domestic and international, suggest that this advantage is no longer uncontested.
A central factor weakening the U.S. position has been the ongoing financialization of its economy. Since the late twentieth century, corporate America increasingly prioritized capital efficiency, shareholder returns, and asset-light business models over long-term industrial capability. High-value production, once a defining American strength, was steadily offshored as firms sought to optimize balance sheets rather than preserve domestic manufacturing expertise. As research has shown, these incentives diverted scientific and engineering talent into finance, consulting, and business services—fields that offered higher wage premia but did not contribute to the country’s technological frontier. Over time, this talent reallocation hollowed out the nation’s technical workforce and weakened its capacity to innovate at scale.
China, meanwhile, pursued an opposing developmental strategy. Rather than maximizing short-term returns, it invested massively in hard assets—factories, supply chains, infrastructure, and advanced industrial capabilities. This commitment generated a large, skilled industrial workforce capable of supporting complex manufacturing, rapid prototyping, and fast commercialization cycles. It also created synergies between tangible capital and intangible assets such as technology and research expertise. Today China produces far more STEM graduates than any other country and dominates in fields where scale, manufacturing proficiency, and coordinated national investment are decisive.
These structural differences have coincided with significant changes in global talent flows. For years, Chinese students and scientists were the largest foreign cohort in U.S. universities and laboratories. But restrictive U.S. immigration policies, heightened geopolitical tensions, and a less welcoming political climate have driven many to remain in China or return after completing their studies. At the same time, China’s expanding research ecosystem, generous recruitment programs, and rising institutional prestige have pulled back thousands of high-level scientists. The result has been an erosion of one of America’s most important strategic advantages: its ability to attract and retain elite global researchers.
The cumulative effect is clear. The United States remains a formidable R&D powerhouse with unmatched strengths in foundational research, artificial intelligence, and biotechnology. Yet it no longer monopolizes global scientific talent, nor does it dominate the full spectrum of technological innovation from discovery to production. China and other emerging competitors are closing the gap—sometimes rapidly—benefiting both from their own expanding ecosystems and from U.S. missteps that redirect skilled researchers away from traditional scientific and engineering pathways. In this environment, America’s resilience remains real, but it can no longer rely on the automatic inflow of global talent or on the manufacturing depth that once translated its inventions into enduring industrial leadership.
China’s New Role: Leveraging Global Minds, Testing Western Tech
Lee Kuan Yew long predicted that America’s greatest strategic asset was its capacity for renewal—a product of its openness, its ability to attract global talent, and its deeply rooted culture of innovation. For decades, this assessment held true: the United States combined world-class universities, entrepreneurial dynamism, and a welcoming environment for scientists from every continent. Yet recent shifts in global talent mobility, rising geopolitical tensions, and the emergence of new innovation centers have begun to reshape this once-unquestioned advantage.
A revealing window into this changing landscape emerged in November 2025, when the ICPC Beijing headquarters released minutes from a meeting between Ren Zhengfei, coaches, and winning contestants. Ren, founder of Huawei, articulated a rational, pragmatic, and cooperative stance toward the United States—rejecting zero-sum notions of talent competition. He praised the United States for its fertile environment for scientific growth and emphasized that global technological progress benefits from the free movement of people and ideas. Rather than seeking to monopolize talent, he advocated what he called the “beneficial theory of global talent mobility,” highlighting that breakthroughs often arise from cross-cultural and cross-national exchange.
Ren’s philosophy is consistent with his earlier remarks at a 2018 meeting with University of Science and Technology of China President Bao Xinhe. There, he described Huawei’s strategy of building research institutes wherever scientists wish to work, from Belarus and Ukraine to France, Japan, and Canada. This approach has attracted mathematicians, physicists, chemists, and AI researchers from every region. Ren framed this as part of a new wave of global talent migration—akin, in its transformative potential, to the post-war movement of Jewish scientists to Israel—arguing that technological civilization belongs to humanity as a whole. Huawei, he stressed, seeks not to “own” talent but to create mechanisms that allow scientists worldwide to turn foundational ideas into practical standards, as illustrated by the company’s adoption of Professor Erdal Arikan’s polar codes for 5G.
This globalized R&D philosophy now characterizes a broader cohort of leading Chinese companies. Firms such as DJI, ByteDance, and BYD have built international research networks that absorb specialized knowledge from Europe, North America, and Asia while anchoring product definition and industrial integration in China. DJI collaborates with German and Japanese institutions on precision mechanics and sensor fusion; ByteDance has established AI hubs from Mountain View to Singapore and Dublin; BYD recruits engineers from Japan and Germany to elevate design, safety, and regulatory compliance. These networks demonstrate that China is increasingly capable of leveraging global intellectual resources, complementing its manufacturing depth with distributed, world-class technical expertise.
At the same time, China has become an indispensable testing ground for Western industries. Foreign automakers—facing intensifying competition from Chinese EV leaders—now treat China as the center of global automotive innovation. Volkswagen, once dominant in the Chinese market, openly describes China as its “fitness center,” investing heavily in local R&D and developing autonomous-driving chips through Chinese joint ventures. As one consultant noted, global automakers must innovate in China if they hope to compete with Chinese firms abroad. Ford CEO Jim Farley has echoed this sentiment, describing how the company imported several Chinese EVs, including BYD and Xiaomi models, for internal benchmarking. Their superior engineering, he admitted, triggered a fundamental rethinking of Ford’s EV strategy.
Taken together, these developments signal a profound transformation in the geography of innovation. China is no longer merely a manufacturing hub or a recipient of foreign technology; it has become a global integrator of scientific talent and a proving ground where international companies measure their competitiveness. As U.S. and European firms confront this new reality, the global innovation system is shifting from a hierarchical model dominated by the West to a more distributed, multipolar landscape—one in which China increasingly defines both the frontier of production and the global flow of expertise.
China’s Manufacturing Might Fuels Applied AI Innovation—U.S. Struggles to Scale Beyond Invention
Over the past decade, the global balance of technological power has undergone a profound shift, shaped not only by advances in artificial intelligence but also by the deeper industrial foundations that support innovation. As Richard Baldwin has argued, China has emerged as the world’s sole manufacturing superpower, producing more than the next nine manufacturing nations combined. This dominance increasingly functions as a strategic resource: manufacturing capability has become a core driver of technological development, particularly in AI, where real-world data, hardware integration, and rapid iteration are essential. Just as the United States’ unmatched defense spending has made it the sole military superpower, China’s unparalleled industrial capacity has positioned it as the world’s primary engine of applied technological progress.
This structural reality framed a 2025 fireside chat with Joe Tsai at HKU Business School, where he outlined four major advantages shaping China’s AI trajectory: lower-cost energy and data-center infrastructure; a deep engineering talent pool; an open-source ecosystem that accelerates global adoption; and a world-class manufacturing base that acts as a “computing power carrier.” Together, these elements create an environment where AI innovation is not isolated in laboratories but embedded in factories, supply chains, energy systems, and physical production networks. China’s innovation strategy is therefore not merely about producing algorithms but about integrating digital intelligence into the country’s vast industrial apparatus.
This stands in contrast to the United States, whose innovation system has become increasingly oriented toward invention rather than industrial deployment. Venture capital incentives favor asset-light, rapid-return consumer AI applications—recommendation systems, entertainment models, and general-purpose LLMs—over the long-cycle, capital-intensive development required for industrial intelligence. The erosion of U.S. manufacturing has compounded this shift. Without sufficient factory lines, it becomes difficult to train robust industrial vision systems, refine robotics, or perform the iterative learning-by-doing that James Bessen describes as the “ninety percent under the water” of real innovation. America remains a powerhouse of breakthrough ideas, yet repeatedly struggles to translate them into production at scale.
China, conversely, has built an innovation model centered on continuous improvement, tight integration of R&D with manufacturing, and rapid scaling of physical technologies. Its AI strategy emphasizes real-world application: smart factories, logistics optimization, robotics, autonomous industrial systems, and national-level infrastructure. This applied orientation reflects both the priorities of the state-led innovation ecosystem and the size of domestic markets capable of absorbing and iterating on new technologies. While China invests in frontier AI research, its comparative advantage lies in deploying AI across broad swaths of the physical economy—turning computing power into productivity.
The United States continues to lead in frontier AI research, foundation models, and consumer-facing software. But its fragmented political system and weakened industrial base make national-level coordination difficult, particularly in areas requiring hardware, supply chains, and long-term public investment. As the strategic significance of AI becomes clearer—shaping economic security, national sovereignty, and global norms—the competition between China and the United States has entered a phase of strategic clarity. Washington seeks to constrain China’s access to the high-end segments of the AI supply chain, while Beijing leverages its manufacturing superpower status to climb these segments through scale, application, and hardware-software integration.
In this emerging landscape, the essential difference is becoming unmistakable. China is able to convert industrial strength into innovative capacity, using its manufacturing ecosystem as a platform for applied AI leadership. The United States, by contrast, risks seeing its inventive brilliance outpace its ability to turn ideas into industrial reality. The next decade of AI competition will be shaped less by who can produce the most advanced algorithms in isolation, and more by who can embed intelligence into the physical world at scale. On this frontier, China’s manufacturing base has become not merely an economic asset, but the foundation of a new model of innovation.
China Leverages State-Led Innovation While U.S. Free-Market Approach Weakens Industry
Unlike nations such as Germany, Sweden, Finland, or South Korea, which have developed national innovation strategies to align research and development, workforce development, and industrial transformation, the United States has traditionally relied on market forces to drive technological progress. This laissez-faire approach reflects a deep-rooted American ideology: that the government’s role should be limited to providing foundational inputs such as basic research, education, and infrastructure, while private enterprise handles the rest. While this model fostered innovation during earlier periods, it has increasingly struggled to compete with state-led innovation systems, particularly China’s, which combine strategic government coordination with private-sector dynamism.
The consequences of the U.S.’s fragmented approach are compounded by corporate management philosophies that prioritize short-term financial returns over long-term industrial capability. As David Gelles highlights in The Man Who Broke Capitalism, Jack Welch’s tenure as CEO of General Electric reshaped American corporate culture, emphasizing quarterly stock performance at the expense of R&D, manufacturing capacity, and workforce development. This logic of short-termism encouraged offshoring, cost-cutting, and consolidation, hollowing out the U.S. industrial base and weakening its capacity for sustained technological leadership.
One stark illustration of this vulnerability is the U.S.’s dependence on China for rare earth magnets—critical components in electric vehicles, wind turbines, robotics, consumer electronics, and military hardware. China now dominates the global supply chain, controlling over 80–90% of production through decades of coordinated industrial policy, subsidies, and integrated manufacturing. Recent export restrictions and licensing delays by Beijing have highlighted the fragility of U.S. supply chains and the strategic leverage China holds in sectors essential to economic and national security. The United States’ reliance on foreign sources for such vital materials underscores the consequences of decades of offshoring and underinvestment in domestic industrial capabilities.
This example illustrates a broader systemic challenge: while China can leverage state-led capitalism to align policy, finance, and private-sector innovation toward strategic objectives, the U.S. approach remains fragmented. Publicly traded U.S. companies continue to face relentless pressure from equity markets to maximize quarterly returns, often at the expense of long-term research and domestic production. Without coordinated government intervention and long-term strategic planning, the U.S. risks losing ground in industries that are central to economic competitiveness and national security.
Rebuilding the U.S. national innovation system will require overcoming ideological resistance to state coordination and reinvesting in long-term technological capabilities, reminiscent of initiatives during the Cold War, such as DARPA and NASA. The challenge is not a shortage of talent or capital but the misalignment of institutions, incentives, and political culture with the demands of 21st-century innovation. Without a strategic pivot, the U.S. may continue to cede technological leadership to nations that successfully integrate state strategy with private-sector agility, leaving its industrial base—and national security—exposed to growing global risks.
Chinese Language: From Innovation Barrier to AI Asset—and New Diffusion Bottleneck
In his reflections on China’s long-term development, Lee Kuan Yew repeatedly emphasized that language and culture impose structural constraints on the country’s innovative capacity. He argued that China’s linguistic complexity—marked by tones, monosyllabic words, and the difficulty of rapid reading—makes it hard for foreign talent to enter, integrate, and contribute meaningfully to Chinese institutions. Combined with a political culture that historically discourages open contestation of ideas, he saw these factors as enduring inhibitors to breakthrough innovation. China could grow into the world’s largest economy, he suggested, but the Chinese language and cultural tradition would continue to limit both innovation and the assimilation of global expertise.
Yet conditions in the global technology landscape are shifting. At a 2025 fireside chat at HKU Business School, Alibaba co-founder Joe Tsai highlighted an unexpected reversal: Chinese is emerging as an advantage in certain high-tech fields, especially artificial intelligence. Nearly half of the world’s AI researchers, he noted, received their education in China, creating a vast and globally distributed professional network that often communicates naturally in Chinese. Tsai joked that, for the first time, Chinese has become a competitive asset—Chinese engineers across continents can exchange ideas more fluidly with one another in their native language than with colleagues using English as a second language.
This shift has become visible inside major American tech companies. On the anonymous employee forum Blind, a Meta employee using the online name piriir lamented that his team—composed almost entirely of Chinese engineers—conducted all daily communication in Chinese, even in meetings and shared workspaces. Far from Joe Tsai’s celebratory framing, piriir described feeling isolated and excluded from key discussions, especially when teammates coordinated privately over Chinese-language channels such as WeChat. What was once considered a linguistic disadvantage for Chinese professionals abroad has, in some settings, created a de facto “language wall” for non-Chinese colleagues.
Even as Chinese becomes a surprising linguistic asset within elite AI networks, the language still poses barriers at the global manufacturing and technology-diffusion level. China’s own rise was enabled by rapid technology transfer—much like the United States in the 19th century, which learned from Britain through imitation, adaptation, and strategic protectionism. Chinese engineers historically absorbed knowledge from multiple global sources: Soviet scientific training, German technical education, American finance, Japanese business management, Israeli agricultural engineering, and Hong Kong land policy. By contrast, many emerging manufacturing economies today—India, Vietnam, and others—struggle to integrate deeply with China’s production ecosystem precisely because Chinese-language technical documentation, standards, and workflows slow the diffusion of know-how. In this sense, the language that once enabled China’s internal cohesion has become an obstacle to the rapid outward transfer of its own industrial expertise.
Thus, a paradox has emerged. The Chinese language continues to constrain China’s ability to attract foreign talent and to disseminate its manufacturing knowledge globally, yet within advanced technology sectors—most notably AI—it has become a form of social capital, enabling dense, fast, and insular networks of Chinese-educated researchers worldwide. This duality underscores the complexity of China’s linguistic and cultural position: simultaneously a brake on broad innovation diffusion and a catalyst for concentrated innovation within a global Chinese-speaking elite.
China’s Hybrid Model: State Control Meets Market-Driven Dynamism
Although Lee Kuan Yew himself was an authoritarian leader, he was pragmatic and recognized the limits of his own system for global innovation. Lee argued that China’s leaders would modernize through every available means except Western-style liberal democracy. In his view, competitive multiparty politics would fracture China’s vast and diverse society; a strong, centralized state remained, in Chinese political culture, the indispensable foundation of order and prosperity. For millennia, he emphasized, the Chinese have believed that stability depends on the strength of the political center, and that a weak core invites disorder. This deeply rooted fear of chaos shapes both elite decision-making and public attitudes, leading China’s leadership to reject democratic liberalization while embracing pragmatic experimentation in almost every other domain.
This conviction underpins China’s distinctive governance model—a system where the Communist Party retains strict political primacy while deliberately fostering market dynamism. The Party’s influence extends across state-owned enterprises and, increasingly, private firms through mechanisms such as tightened SOE discipline and the embedding of mandatory Party committees in private corporations. These structures are not designed to micromanage daily operations; rather, they function as a coordination backbone, ensuring that firms’ long-term trajectories remain aligned with national goals while allowing substantial operational autonomy.
Economic scholars describe this system as a form of “grand steerage”: the state provides strategic direction, sets broad priorities, and establishes the institutional scaffolding, but does not centrally plan every industrial decision. In this sense, China resembles a “venture-capitalist state,” with the government acting as the general partner supplying vision, regulatory support, and capital, while private and foreign investors serve as limited partners bringing resources, technology, and market expertise. The portfolio of enterprises—state, private, and mixed—competes vigorously, and success or failure is determined largely within the market arena rather than by bureaucratic fiat.
This hybrid system has been central to China’s transformation from an imitator to an innovator in critical industries. Nowhere is this clearer than in clean energy, where China has become both the world’s largest emitter and the largest engine of renewable deployment. It accounts for more than half of global solar and wind capacity, and its technological ascent has been remarkable: competitive clean-energy patents rose from just 18 in 2000 to over 5,000 by 2022. China’s strength lies less in moral appeals and more in scale, manufacturing capability, and coordinated industrial policy—factors that traditional Western frameworks often struggle to interpret because they assume liberal democracy and free markets as the default template for modernization.
The implications extend beyond climate and energy. Multinational firms that once treated China as a reliable profit center now view it as the most competitive market in the world. The era of easy returns is over; China has become a proving ground where global companies must innovate rapidly or fall behind. Volkswagen, for instance, now calls China its “fitness center,” deepening its “In China, for China” strategy by co-developing chips for advanced driver assistance and autonomous driving with Chinese partners. Such examples reflect a broader reality: China’s governance model, combining firm Party control with intense market competition, has created an ecosystem where disciplined strategic direction coexists with relentless private-sector dynamism.
This synthesis—authoritarian political stability paired with competitive economic vitality—remains one of China’s most consequential innovations. It defies conventional assumptions about how modernization must occur, and it continues to shape global markets, technology, and geopolitics in profound ways.
China’s Rise Shatters the Myth: Democracy Alone Doesn’t Guarantee Innovation
China’s emergence as a global innovation power challenges long-standing assumptions about the relationship between political systems, technological dynamism, and modernity. For decades, a prevalent Western belief held that sustained scientific leadership required a liberal-democratic, Anglo-American–style ecosystem. Lee Kuan Yew himself often contrasted the openness and creativity of Western societies with the constraints of authoritarian systems, implying that only the former could reliably generate world-class innovation. Yet today, the empirical record no longer supports this conviction with the clarity it once seemed to possess.
Contemporary data show that China, operating under a state-led and technocratic model, has rapidly ascended to global leadership in multiple frontier technologies. In numerous critical domains, Chinese researchers now produce more top-tier scientific papers, deploy advanced industrial capabilities at greater scale, and push forward in fields once considered exclusively Western strongholds. Industrial strategies such as Made in China 2025 — once dismissed as mere central planning — have delivered measurable advances in semiconductors, AI, green energy, advanced manufacturing, and other strategic sectors. Whatever China’s political constraints, they have not prevented the country from becoming a formidable center of technological creativity and scientific production.
This rise is striking partly because it coincides with deep structural underinvestment in the United States and much of the developed world. Over several decades, Western economies neglected their industrial foundations: manufacturing capacity eroded; infrastructure development stagnated; and investment in STEM education, vocational training, and applied research failed to keep pace with global competitors. China, by contrast, has redirected vast domestic savings into precisely those sectors — advanced industry, modernized infrastructure, and large-scale R&D — that drive long-term productivity growth. In this context, Western complaints about China’s industrial strategy obscure a more fundamental issue: the West’s own abandonment of its productive capabilities.
China’s ascent thus represents more than a geopolitical shift. It is a conceptual and philosophical challenge to the Western narrative that liberal democracy is the sole reliable pathway to modernity. The Chinese model — blending state direction, technocratic governance, and cultural traditions distinct from Western liberalism — has demonstrated that innovation and development need not conform to Anglo-American institutional norms. This outcome is unsettling for societies that long regarded themselves as the unique authors and custodians of progress. The failure of earlier predictions about China’s supposed limitations reflects not only misjudgments about China, but also a deeper Western need to preserve the assumption that its own system remains universally superior.
Ultimately, the most profound impact of China’s rise may be the mirror it holds up to Western societies themselves. It exposes unresolved internal crises: economic stagnation, political polarization, institutional mistrust, and an erosion of confidence in the liberal-democratic project. Far from vindicating Western inevitability, the 21st century has reopened fundamental questions about how innovation is generated, how modernity is defined, and which political-economic arrangements can sustain national renewal. If the West wishes to regain technological and industrial leadership, it will need less rhetoric about China and far more commitment to rebuilding its own productive and scientific foundations.
Final Thoughts
China’s rapid industrialization, massive investments in digital infrastructure, education, and R&D, and its steady rise in economic and technological capability have outpaced many of the assumptions underlying Lee Kuan Yew’s earlier predictions. His view that China would “never” rival the United States in innovation or global standing now appears overly conservative, as real-world developments show China far closer to the U.S. across scientific, industrial, and technological dimensions than observers in the 1990s or early 2000s imagined. Yet his deeper cautions about the limits of systems that constrain open exchange, institutional adaptability, and long-term social cohesion remain relevant.
What remains uncertain is whether China can sustain its present momentum while managing structural risks and maintaining social welfare and rising living standards, or whether the systemic rigidities LKY warned of will eventually impose constraints. The trajectory ahead will test the durability of both China’s current model and the assumptions that once framed global expectations about innovation, governance, and long-term prosperity.