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Breakthrough? China’s and India’s transition from production to innovation

China and India have become major producers of products and services for global markets. This article explores to what extent they are also building up innovation capabilities. It draws on a combination of approaches – innovation systems, global value chains and professional networks – to analyse four of the most dynamic industries: electronics and automobiles in China; and the software and space industries in India. The study finds that mounting innovation efforts only rarely materialised in cutting edge innovations, but suggests that if capital accumulation proceeds at the current pace, innovation capabilities will rapidly be built up in China and, with a time lag, India. The paper concludes by setting out the implications for both the developed and the developing world.