China has the potential to evolve from an innovation sponge — absorbing and adapting global technologies and knowledge — to an innovation leader. Chinese companies are performing well in some types of innovation, by filling consumer needs with better products and services and wielding the power of China’s manufacturing ecosystem to make innovations in production processes.

In the next ten years, the “China effect” on innovation will be felt around the world as more companies use China as a location for low-cost and rapid innovation. The overall China effect could be disruptive, bringing large-scale yet nimble innovation to serve unmet needs in emerging markets and produce new varieties of goods and services for advanced economies. Around the world consumers could benefit from better goods at lower prices.

-- McKinsey Global Institute