China's Race to Innovate in Critical Technologies: What Can Europe Learn?

China's Race to Innovate in Critical Technologies: What Can Europe Learn? The project “Dealing with a Resurgent China” (DWARC) has received funding from the European Union’s Horizon Europe research and innovation programme under grant agreement number 101061700. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union. Neither the European Union nor the granting authority can be held responsible for them. Alicia García-Herrero and Michal Krystyanczuk 31-10-2025 - 2 - Abstract This policy brief examines China's rapid ascent in frontier innovation across artificial intelligence (AI), semiconductors, and quantum computing, drawing on our recent analysis of patent breakthroughs in these critical technologies in China, the European Union (EU) and the United States (US). The findings reveal a competitive landscape where the US maintains overall leadership, China excels in targeted subfields with remarkable speed, and the EU lags significantly in patent breakthroughs and knowledge diffusion. China's strengths stem from a hybrid innovation ecosystem blending public and private actors, enabling quick replication of global novelties despite external restrictions. In contrast, Europe's fragmented markets and reliance on public research hinder scale and commercialization. To bridge this gap, Europe must not only increase research and development in critical technologies but also further integrate its national innovation ecosystems . In this policy brief, we review how China fares, compared to the US and the EU, in terms of breakthroughs in critical technologies, how fast the replication of such breakthroughs is across geographies and who are the main actors behind this innovation. Our findings, based on recent research by Garcia Herrero et al. (2025) confirm that the US still dominates in AI and, especially quantum, while China is moving fast in all, especially in semiconductors where the US dominance is waning. · China ranks second although it already excels in some subfields of AI, surveillance and arial driving, but also on semiconductor fabrication. For quantum, while the gap is still arge with the US and even, to a lesser extent, with the EU, China is making great strides in some subfields like quantum sensors. · The EU trails with fewer breakthroughs in general but, most importantly, it is much slower than China or the US in the replication of radical novelties in any of the three fields. Instead, the EU’s novel patents appear to be quickly replicated by both the US and China. · China's success stems from cross-sector dynamism and efficient resource channelling via FiveYear Plans, not just subsidies. The US, instead, benefits from a very large ecosystem of science and innovation as ell as venture capital at a huge scale. The EU is hampered by bureaucratic barriers, weak private involvement but also the lack of a EU-level innovation market. · Based on our findings, we would recommend the EU to redesign institutions for a faster replication of key breakthroughs in critical technologies. Furthermore, sandboxes for faster patenting would be welcome as well as the refocus of EU’s largest innovation financial effort, namely Horizon Europe. In the same vein, given the fragmentation of the European innovation market, establishing a Critical Tech Observatory for real-time monitoring of innovation would be very welcome. Finally, integrate military demand to boost scale and speed in dual technologies – most of which critical ones -seems warranted. - 3 - Contents Abstract ........................................................................................................................... - 2 - Contents .......................................................................................................................... - 3 - 1. Introduction ................................................................................................................. - 4 - 2. Where does China stand ?......................................................................................... - 4 - 3. Actors Driving Innovation: China vs. US and Europe ................................................ - 7 - 4. Speed of Knowledge Spillovers: Quick for China and the US and Slow in Europe - 10 - 5. Implications ............................................................................................................... - 11 - 6. Policy Recommendations ....................................................................................... - 12 - References..................................................................................................................... - 13 - - 4 - 1. Introduction In an era defined by geopolitical tensions and technological rivalry, the race for supremacy in critical technologies such as artificial intelligence (AI), semiconductors, and quantum computing has become a cornerstone of economic and strategic power. The stakes are high: these technologies underpin everything from autonomous weapons to climate modelling, and control over them shapes global supply chains, national security, and economic resilience There is a general view that China's ascent in these domains is so quick that it might possibly have already caught up with the US, guaranteeing the self-reliance that China has been longing for for decades. Another important question for the European Union is how far behind it is in this technologies and whether spillovers are strong enough to mitigate the problems of not having enough indigenous breakthroughs in these critical technologies This policy brief delves into China's performance relative to the US and EU, when it comes to breakthroughs in critical technologies but also the speed at which different countries manage to replicate breakthroughs from others. Finally, we also look into the actors (companies or research institutions) which create the bulk of these breakthroughs and how they may differ across geographies. To that end, we draw on two empirical analysis by by García Herrero, Krystjanczuk and Schindowski (2025a and 2025b)1 and assess how China has perfomed relative to the US and the EU in innovating in critical technologies. We conclude that China has positioned itself as a swift second to the US, often outpacing the EU in the number of radical technologies (i.e. number of patents with key breakthroughs for each fo these three critical technologies). Secondly, we look into the speed at which such technological breakthroughs move from one country to another. China and the US. excel in terms of the speed of adoption of others’ radical novelties, while the EU lags behind. These results are important for a number of reasons. Being able to be at the frontier of innovation in critical technologies if crucial in the current race for hegemony between the US and China. This is all the more so since both countries are increasingly using economic security to keep such innovation with borders or at least not reaching the other contender. This is why the second part of our analysis, namely the speed at which new breakthroughs in these technologies can be replicated by another country, is also crucial. The fact that Europe lags is both realms (generation of breakthroughs and adoption) is alarming and deserves further attention. The rest of the policy brief is structured as follows. In section 2, we review where China stands in terms of breakthroughs, compared to the US and the EU. In section 3, we look in the main actors behind this innovation. In section 4, we look into the speed of adoption of other countries’ breakthroughs. Section 5 draw relevant conclusions for Europe. 2. Where does China stand ? Since 2019, China has seen a massive increase in patent filings in the three fields but not yet outstripping the US in relevance of such patents (Graph 1). When focusing on key patents ( so-called “radical novelties” based on our research), China comes second for AI and semiconductors, after the US. The UE follows China at a far distance except for quantum - 5 - technologies where both the EU and China seem to be at par in terms of radical novelties, although still very much behind the US. Figure 1: Radical novelties by company headquarter (2019-2023) Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Radical novelties in critical technologies and spillovers: How do China, the US and the EU fare?” China's excellence is particularly evident in applied and scale-oriented subfields, where its innovations address real-world deployment challenges at massive volumes. In AI, China dominates in computer vision for surveillance and autonomous systems—generating over 40% of global novelties in facial recognition algorithms as seen in integrations for smart city infrastructure that process millions of data points daily. In drone and aerial vehicle AI, Chinese firms lead with 55% of the total number of radical novelties. This includes pioneering swarm intelligence for logistics, far surpassing the US, let alone the EU. For semiconductors, China's prowess shines in fabrication and materials processing, where it holds 65% of novelties in advanced packaging techniques like 3D stacking for high-density memory, critical for edge AI devices. It should be noted that Taiwan and South Korea and not included in our analysis where the number of patents is probably very large as well. In quantum computing, while not dominant, China excels in trapped-ion systems for scalable sensors that enhance precision measurement for industrial applications like earthquake prediction. Figure 2. Evolution of radical novelties in quantum computing (2019-2023) 0 500 1000 1500 2000 2500 3000 3500 China US EU Quantum AI Semiconductor - 6 - Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Radical novelties in critical technologies and spillovers: How do China, the US and the EU fare?” Figure 3. Evolution of radical novelties in AI (2019-2023 Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Radical novelties in critical technologies and spillovers: How do China, the US and the EU fare?” 0 10 20 30 40 50 60 70 80 90 100 2019 2020 2021 2022 2023 US EU CN 0 100 200 300 400 500 600 700 800 900 2019 2020 2021 2022 2023 US EU CN - 7 - Figure 4: Evolution of radical novelties in semiconductors (2019-2023) Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Radical novelties in critical technologies and spillovers: How do China, the US and the EU fare?” The EU’s opportunities for catch-up emerge in complementary niches that could synergize with broader efforts. In quantum photonics—a subfield where the EU claims 28% of novelties while China stands at 25%—Europe's strengths are in fiber-optic entanglement for secure networks. In AI ethics and explainable models, the EU trails minimally at 18% versus China's 20%, with novelties in bias-mitigation frameworks that align with General Data Protection Regulation (GDPR), offering a pathway to exportable standards. For semiconductors, Europe's 15% share in lithography might not be showing Europe’s clear advantage, bolstered by ASML's nearmonopoly on extreme ultra-violet (EUV) tools. 3. Actors Driving Innovation: China vs. US and Europe When looking at the actors behind the game changing patents analysed in the previous section, we find that they are quite different in the three economic regions2. In other words, innovation ecosystems vary sharply with Chinese innovators being much more diverse than US ones while Europe lies in between although it relies more on public research centres. Starting with the US, private tech companies dominate the whole spectrum of key novelties. Microsoft, IBM, Intel, and Qualcomm stand out for appearing across multiple critical technologies while Micron, Google and Amazon also feature in more than one area (i.e., being among the top 10 innovators in the US by number of novel patents). Other tech companies such as Micron, Google, and Amazon, are also among the top innovators across multiple critical technologies. This high concentration in tech is a risk but also offers the advantage of fostering synergies. Furthermore, this concentrated ecosystem, backed by the largest venture 0 100 200 300 400 500 600 700 800 2019 2020 2021 2022 2023 US EU CN - 8 - capital market in the world by far, ensures rapid commercialization although it runs the risk of siloing innovation into the digital realm rather than diversified across physical industries. Table 1. US top 10 patentees in critical technologies Artificial Intelligence Semiconductors Quantum Computing Qualcomm Onsemi Zapata Computing Oracle Texas Instruments University of Maryland Nvidia Qualcomm Rigetti Microsoft Microsoft Red Hat Micron Micron Microsoft Intel Lumileds IonQ IBM Intel Intel Google IBM IBM Amazon Applied Materials Google Adobe Apple Amazon Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Which companies are ahead in frontier innovation on critical technologies? Comparing China, the European Union and the United States.” China's landscape features a balanced mix of private and public entities, but its true differentiator is the involvement of very different companies from varied sectors, making the ecosystem more innovative through unexpected synergies. National champions in semiconductors (TCL Technology at 74.8% in 2019, Changxin Memory, Yangtze Memory, but also SMIC) coexist with telecom giants (Huawei at a whooping 34.1% of total AI chips), but breakthroughs also come from insurance firms like Ping An, which leads in AI novelties for predictive health analytics (25% share in medical imaging), adapting models from finance to biotech for nationwide telemedicine. Tech platforms like Tencent and ByteDance innovate in video processing AI (40% novelty share), but so do robotics players like Autel and UBTECH, pioneering quantum-enhanced sensors for industrial automation, and even consumer goods firms like Haier, contributing in efficient cooling for data centers. This diversity—spanning 15+ sectors with tight industry-academia ties like Tsinghua University's hubs—enables diffusion into products like surveillance AI or e-commerce logistics. China's model incentivizes any firm with high R&D intensity, via industrial policy programs like "Little Giants" (for a review of the effectiveness of the Little Giants program see García Herrero and Krystyanczuk 20243). - 9 - Table 2. China top 10 patentees in critical technologies Artificial Intelligence Semiconductors Quantum Computing UBTECH Robotics Yangtze Memory Tencent Tencent TCL Technology TCL Technology Ping An SMIC South China Normal University Oppo Ningbo Semiconductor Shenzhen Polytechnic Huawei InnoScience Shenzhen Jingtai Technology CloudMinds Robotics Huawei QuantumCTek ByteDance Enkris Semiconductor Origin Quantum Baidu Changxin Memory Huawei BOE Technology Group BOE Optoelectronics Hengtong Qasky Quantum Autel Robotics AAC Acoustic China Electronics Technology Group Source: García-Herrero, A., Krystyanczuk, M., & Schindowski, R. (2025). “Which companies are ahead in frontier innovation on critical technologies? Comparing China, the European Union and the United States.” Europe relies heavily on public research centers, particularly in quantum where institutions like CEA (France) and universities (RWTH Aachen, Valencia, Delft) lead novelties, generating 60% of EU output but struggling with commercialization. Private company involvement is limited, especially in AI and semiconductors but with notable exceptions like Ericsson and Nokia in AI for 5G edge computing and Infineon at 42.86% of total novelties in semis for power devices. By making it harder to recoup fixed innovation costs, the fragmentation of the single market may contribute to the fact that compared to the US and China, far fewer European actors innovate across several critical technologies (only Ericsson and CEA rank across all three). This hampers Europe's ability to translate research into market dominance and contrasts sharply with China's inclusive diversity, where even non-tech firms drive 40% of novelties. Table 3. EU top 10 patentees in critical technologies Artificial Intelligence Semiconductors Quantum Computing Stanley Robotics Siemens equal1.labs Siemens STMicroelectronics RWTH Aachen