Could US Sanctions Facilitate the Creation of a Chinese Innovation System?

American sanctions against Chinese firms were intended to preserve the United States’ technological and scientific edge. But they may have had an unintended side effect: boosting Chinese corporate investment and interest in basic research and science.

That’s the finding of a new study, published in Science and co-authored by the HKU Business School’s Professor Yanbo Wang together with Professor Junhan Wang of Shenzhen University and Professor Xiaobo Li of Tsinghua University.

Analysing data from a 12-year period between 2010 and 2022, the authors found that Chinese firms have rapidly increased their scientific output and utilization, including more than doubling their scientific publications in domestic journals and increasing their science-linked patents in the US more than 13-fold.

The effect was particularly pronounced among companies subject to sanctions, with those firms filing for over 70% more patents than their peers.

The gap with the US remains large, however, as American publicly listed companies’ scientific output was about five times larger than Chinese-listed firms in 2021.

After the paper’s publication last Friday, Professor Wang sat down with The HKU Lead for a wide-ranging discussion about what drew him to the study of sanctions, how US-China tensions are reshaping Chinese corporate science, and the potential emergence of a Chinese-led innovation ecosystem.

Lead: How did you first become interested in this subject?

Professor Yanbo Wang: This was a homecoming of sorts for me, in terms of research topics. I majored in International Relations (IR) as an undergrad at Peking University, and earned my PhD from MIT, where I studied technological evolution.

But you never know where life will take you. I tried moving away from IR, but because of my background, when I saw the emergence of US-China tensions, I naturally paid a lot of attention. And I began to wonder, when Chinese firms get cut off from global technology, what will they do? How will they handle the new reality?

This is one of the first papers to really provide a detailed, data-driven look at how the sanctions are changing Chinese corporate science. How were you able to pull all these disparate data points into a cohesive picture?

It was a learning process. When my collaborators and I started, we heard all these stories about firms trying to build up their research capacity, and the struggles associated with that, but these were just anecdotal.

So we built a huge data set, covering both the years leading up to the sanctions and the years after. We wanted to be able to look at the data rigorously.

What we found is essentially a three-layered story. In the first, you can see how Chinese firms are really leveraging science to drive growth. That’s not necessarily surprising, but there’s still this stereotype of China as relying on cheap labour for economic growth, and that’s not really the case any more.

The second is that firms aren’t just consuming scientific production, they’re also looking to produce and publish their own science. They’re pushing into high-tech areas and treating science as a source of potential competitive advantage.

The third layer is geopolitical. For decades, Chinese firms saw themselves as part of a global innovation ecosystem. They pursued their strengths and were fairly comfortable with global collaboration and the international division of labour. However, when the US began cutting companies like Huawei off from not just American tech, but also key international suppliers like ASML, many Chinese companies were shocked into action.

Are they managing to close the gap?



When we look at the trends, Chinese firms are evolving at an extremely fast pace. In one 13-year period, the number of science-linked patents filed by US firms increased 1.3-fold; for Chinese firms, it increased nearly 20-fold for domestic patents and 13-fold for USPTO patents.

Although some of this is due to the “fast follower” effect, where it’s much easier to build off or recreate existing knowledge, there’s real progress being made here.

Yet the gap remains huge, at least for the average firm. Between 2010 and 2021, US-listed firms’ scientific publications rose from 12.24 to over 20. Chinese firms’ output grew 6.5-fold, but in 2021 they still published just 4.26 articles a year on average, well below the 2010 US level.

What do you hope people take away from your paper?

A lot of people still hold outdated perceptions of Chinese firms as based around cheap labour and subsidies. Whether or not those factors exist, they’re not the whole story. Many are now increasingly science-driven.

Big multinationals, in particular, if they weren’t comfortable with competition from China a decade ago, I think they’re going to be really uncomfortable about what the landscape will look like in a decade.

At the same time, for all the success stories like EV and solar, China needs to be realistic. Having sectors of excellence is not the same as global technological dominance like the US enjoyed in the 1960s to the 1990s.

China only systematically embraced science after the Reform and Opening-up. There are a lot of holes and gaps in China innovation system, and in its knowledge system. There’s still a lot for us to learn from the rest of the world.

What do you think the future holds? If the US rolls back its sanctions, will Chinese corporate science recede?

It comes down to trust. It takes a long time to build trust, but it’s easy to lose and hard to repair.

Previously, Chinese firms thought it was totally fine to be part of the global innovation ecosystem, even if it was dominated by the US. Now they realise that’s a risky proposition. Even if the relationship becomes warmer, I think firms will take a wait and see attitude.

That said, at the end of the day, it’s much better for everyone to operate inside a global innovation system – to learn from each other, to collaborate and complement, and become more efficient.

The US and China are the two largest economies on earth and the two leading scientific knowledge producers. They can do a lot on their own, but that’s probably not the best way to solve some of the world’s most pressing problems.

Think about climate change, public health, and artificial intelligence. How do we leverage this tech for society? That will require cooperation.