This paper analyzes the available evidence of China's S&T, R&D, and innovative capabilities, to provide an assessment of the effectiveness and potentialities of its national system of innovation (NSI) ), and to formulate some preliminary policy suggestions aimed at improving China's overall innovation strategy. Our approach focuses particularly on the evolving relationship between China's NSI and the country's overall market socialist social and economic system - both of which are developing fast and undergoing deep qualitative changes - and on related policy challenges. China's innovation strategy aims at embodying world-class best practices from technological world leaders and successful late industrializers, but is also peculiarly Chinese in at least two crucial aspects. The first is China's sheer size, which has allowed her to leapfrog to rank 2 worldwide in terms of the absolute quantitative magnitude of its NSI, at a stage when it still far lags behind all technological leaders in terms of per capita educational, technological, and research achievements. The second is China's specific form of market socialism, which has the potential of conferring her leaders an outstanding advantage in the crucial area of strategic planning, i.e. the capability to master national resources and to earmark them towards key goals accordingly to a clear set of priorities. China's goal is to engineer in a relative short period a decisive qualitative leap in her NSI, developing a systemic ability to generate world-class indigenous innovations. In addition to fostering technical progress, China's development strategy shall also take into account the challenge of establishing a model of innovation compatible with an equitable pattern of income distribution and environmental sustainability, thereby paving the way to the eventual evolution towards a higher and more developed form of socialism. This is the expressed aim of the Chinese leadership. However, the simple NSI approach is not necessarily sensitive to these strategic requirements, and therefore there is a need for more advanced analytical and planning tools. In this context, we propose to consider the utility of nonlinear models of the POLIS (positive feed back loop innovation system) class, which are suitable to chart strategically the market socialist course, as their internal logic is consistent with China's unique catch up strategy.
