How High? Tales of China's rise now assume that it is gaining fast on the information age elite, churning out semiconductors and engineers. But raw numbers can be deceiving.

Byline: Melinda Liu

To hear many western pundits tell it, China is rap-idly building a "knowledge economy." That phrase was a buzzword of the late ' 90s, when Beijing leaders were dazzled by the notion of China's leapfrogging into the high-tech ranks of developed nations by emphasizing science and technology. These days China is churning out two and a half times more university grads than the United States, boosting R&D investment at a faster rate and registering three times more patent applications on the mainland than Americans register in the United States. The implication that many observers draw from these numbers is that China is building on its prowess as a cheap-labor export machine to storm into the Information Age. After all, didn't Beijing send two Chinese astronauts into orbit in October--and doesn't it aspire to plant a flag of the People's Republic on the moon?

In fact, China's journey toward the Knowledge Age is beginning to look less like a shortcut and more like a new Long March. First, the Chinese numbers game that so impresses the West can be very deceiving. Things aren't quite so bullish when you look at the big picture. Of the mainland's 1.6 million young engineers, so many are biased toward theory, with little hands-on project experience, that only one tenth of them are considered suitable for employment in multinational companies, according to McKinsey & Co. consulting. As a proportion of its 1.3 billion population, China produces only half as many college grads as the United States, and only one eighth as many engineers specializing in R&D. Although China's R&D investment is rising, most of the funds--and many patents, too--are in the hands of hidebound state labs that are less innovative than their private counterparts. "The government has invested in state-run re--search institutions with no regard to whether they've made any progress in R&D," says Prof. Xia Yeliang of Beijing University. "By contrast, in the West investment is often made in accordance with economic results."

This is only a window into a larger potential problem: whether China must undergo a profound political transformation before it can truly become a superpower of the Knowledge Age. Can a nation still governed from the top down by mandarins summon up the creativity and innovativeness to best the competition? That is the deeper issue raised by China's still-prevalent habit of ripping off the intellectual property of Western and Japanese companies, says James McGregor, the author of "One Billion Customers." McGregor says China still adheres to the "stuffed-duck system of education," in which students are told what ideas to master and are compelled to swallow them. The resulting lack of curiosity and creativity among many Chinese students is often cited as the reason no mainland scientist has received a Nobel Prize--despite the fact that six Chinese scientists overseas have been so honored in the past half century.

To be sure, China's average annual growth rate of 9.5 percent over the past 20 years is arguably the fastest sustained transformation of a major economy that the world has ever seen. And if current trends continue, a recently released report by the Organization for Economic Cooperation and Development predicts, "China could become the largest exporter in the world by the beginning of the next decade, with as much as 10 percent of global trade compared with six percent at present."

Even so, China experts cite the decade-old warnings of U.S. economists, which were popularized by Paul Krugman at Princeton, about the quality of growth in East and Southeast Asia. Back then Krugman questioned whether the hard-charging "tigers" of Southeast Asia--the highly ...