Why China Is Beating the U.S. at Innovation

For decades, America lost factories and jobs to China but retained a coveted title: the world's leader in inventing and commercializing new products. Now, even that status has been eroded, and it's hurting the economy. While the United States is still at the top in total investment in research and development — spending $500 billion in 2015 —  a new Boston Consulting Group (BCG) study released Monday has made a startling finding: A couple of years ago, China quietly surpassed the U.S. in spending on the later stage of R&D that turns discoveries into commercial products. And at its current rate of spending, China will invest up to  twice as much as the U.S., or $658 billion, by 2018 on this critical late-stage research.

In other words, the U.S. Is doing the hard work of inventing new technologies, and China, among other countries, is reaping the benefits by taking those ideas and turning them into commercial products,the report says. The slippage is a significant blow for the U.S. economy, costing the country tens of billions of dollars a year in manufacturing output and hundreds of thousands of factory jobs over the past decade or so, BCG says. Companies that lead in commercializing ideas also typically build factories near their research centers so scientists can test products before making them.

The burgeoning commercial drone market is a prime example of the shift. The U.S. military developed drone technology throughout the 20th Century for reconnaissance and other purposes, adding microchips for better wireless control and longer-lasting batteries. But China’s Da-Jiang Innovations has refined the unmanned vehicles to better avoid obstacles and has become the world’s largest builder of commercial drones. It sells them to U.S. real estate and construction firms for applications such as aerial photography and mapping. DJI has three factories in Shenzhen...