China has entered the era of science and technology (S&T) in which innovation plays a crucial role in driving economic growth. After historical debates on the national innovation system (NIS), a general consensus has been reached that NIS success can be attributed to the “right” combination of institutional, developmental, and technological conditions (Krumm and Kharas 2004), which determine a country's national technological absorptive capacity (Freeman 1995). The NIS gives various actors, such as universities, industries, and government institutions (Etzkowitz and Leydesdorff 2000), the opportunity to interact, create, and disseminate knowledge across levels (i.e., national, regional, and sectoral) for S&T development (Etzkowitz 2001; Etzkowitz and Leydesdorff 2000; Freeman 1987, 1989, 1995; Lundvall 1992; Nelson 1993). To enhance national absorptive capacity and encourage innovation, governments must adopt a delicate balance of technology policies and incentives to promote successful S&T interaction and knowledge diffusion (Fuller 2015; Krumm and Kharas 2004) and sustain gradual technological catch-up from imitation to innovation.
From the 1980s to the 1990s, Japan, Korea, and Taiwan successfully made this transition (Freeman 1987; Hu and Mathews 2008; Kim 1997; Krumm and Kharas 2004; OECD 1997) in a process similar to the one that China is currently experiencing. Technological catch-up is characterized by an initial period of lax intellectual property rights (IPR) policies and strong incentives to promote the importation of foreign technologies (i.e., by imitation, reverse-engineering, or incremental improvements) and to generate positive technological spillover. Over time, through learning by doing, countries gain greater technological expertise, which contributes to the strengthening and upgrading of their national technological absorptive ability to innovate. As the system gains sophistication, the government needs to tighten technology policies to facilitate a smooth transition from a system focused on quantity to one focused on quality. The adoption of tighter policies pushes domestic firms to become more competitive and, thus, strengthen the nation's technological capacity for innovation.
China began this process in the 1980s, after Deng Xiaoping's 1978 implementation of the Open Door policy, which began with the establishment of an IPR legal framework to integrate China's economy into the world economy and allow foreign direct investment (FDI). To facilitate global integration, China instituted an IPR system modeled after the advanced Western countries’ IPR regimes at the time, with adaptations for its social, economic, political, and industrial development context.