This chapter examines China’s mixed upgrading and innovation record in the context of the ongoing debate over the role of the state vis-à-vis the market. A key finding that emerges is that sectors that have been most open to competition, in which entry and exit are less encumbered and, more generally, in which firms have been free from the often-distorting hand of the Chinese state, are those that have been most successful in cultivating domestic firms able to compete domestically and globally. Central to our assessment is how firms in these sectors have been better able to leverage China’s rapidly growing domestic market to their competitive advantage in the course of their upgrading and innovation efforts.
