You're kidding, right? The way things work in China is highly conducive to innovation, from small startups and even individuals to factories. From electronics to vehicles and even space flight. They are not afraid to blatantly copy ideas, which gives them a leg up...they don't stop there, the copy is just the starting point of their development. Meanwhile, the government doesn't micro-manage innovation, they provide focus... and that comes with resources. Some advantages they have:
- Companies, even large ones, seem to do very well at scaling up as well as scaling down production runs.
- Extremely short iterations. Want to try something new, with new materials, new shapes? Takes weeks or months in the West, but the Chinese will overnight it. Something that Apple commented on: they did not shift a lot of R&D to China because of cost, but because of speed.
- Lots of cross-pollination between innovators, especially the smaller ones. So-called innovation hubs work in China.
They do go from prototype to production a little fast sometimes, cutting crucial corners. But the speed is impressive. Remember that ridiculous idea of putting a bus on stilts so it could drive over traffic jams? They actually built one. Didn't take more than a few weeks either. I don't think they can get their Starship clone in orbit and back down in one piece before SpaceX will... but if they do, it would not surprise me greatly either.