Innovation potential
Innovation already plays a critical role in China's economy.Like other developing economies，China has been an innovation sponge，absorbing and adapting existing technology and knowledge from around the world.Indeed，China may be the most successful innovation sponge in history，systematically mastering technologies and acquiring know-how as it has industrialized.As a result，over the past three decades，China has come further and industrialized faster than any other economy in history.
The next step is to progress from innovation sponge to innovation leader.China already has strong positions in industries such as Internet services and appliances，where innovation involves solving consumer problems.In serving consumer needs，Chinese companies have created a unique innovation model that takes advantage of the size and speed of the Chinese market.China also has had success in efficiencydriven innovation in manufacturing，based on its ecosystem advantages.In engineering-based industries，such as telecommunications equipment and autos，the picture is mixed，and the most progress is needed in science-based innovation.The government has invested heavily in building capabilities in engineering and science，which have created a strong foundation for future innovation.
Chinese policy makers have long been aware of the innovation imperative and have devoted substantial resources to building capacity for innovation.China's total investment in R＆D has risen from＄30billion in 2005 to more than＄200 billion in 2014.That makes China the No.2nation for R＆D spending，behind the United States，which spent about＄500 billion in 2014.China now spends about 2 percent of GDP on R＆D，which is comparable to the level of the Netherlands and the United Kingdom.Chinese policy and public investment have built a solid foundation of innovation institutions and talent.Chinese universities confer 28，700 PhDs in science and engineering per year，the largest number in the world.Chinese researchers published more than 420，000 scientific papers in 2013，second only to the United States.Based on metrics of innovation prowess such as patent awards，the government's investments should have put China well on its way to becoming a global innovation leader.Yet these input-based approaches have not produced the commercial successes that raise productivity.Moreover，while the magnitude of the effort is impressive，there are some questions about quality.
The government has continued to expand innovation policies in recent years，such as the“mass entrepreneurship and innovation”initiative，announced by Premier Li Keqiang as a way to counter China's slowing growth.The State Council followed with a series of policies to improve the environment for entrepreneurship by offering funding and streamlining administrative processes to lower barriers to starting a business.The moves are aimed at encouraging college students，scientists，and engineers to start new businesses.In March 2015，Li announced the“Internet Plus”plan to boost the economy through digitization.It calls for greater adoption of the mobile Internet，cloud computing，big data，and the Internet of Things to encourage e-commerce，industrial networks，and Internet banking，and to help Internet companies increase their international presence.These initiatives could prove very helpful in efforts to raise service-sector productivity by providing the connectivity to make businesses more efficient.
The government also has launched a comprehensive blueprint to maintain the nation's lead in manufacturing.The effort includes three ten-year plans that are expected to culminate in 2049，the centennial of the People's Republic of China.It is aimed at driving further efficiencies in manufacturing while raising the value added of Chinese manufacturing output by encouraging companies to move into goods such as numerical control machine tools for automation，robotics，and aerospace equipment.