Centuries before the communist era, Chinese innovators came up with four of mankind’s truly profound and influential inventions: gunpowder, paper, printing and the compass. China also invented some of our handiest household items, including the wheelbarrow, the chopstick, the toothbrush, and toilet paper.

But where are China’s innovators today? Could it be that Beijing’s meddling ‘visible hand’ is stifling the entrepreneurial spirit it is so desperately seeking to foster?

This week’s Economist (‘Comeback Kid: The American Economy is Reinventing Itself’) describes the success of Texan wildcatter George Mitchell, known for exploring oil wells in areas not known to be oil fields. Mitchell, the father of America’s current shale gas boom, is called “the kind of risk taker that America has in abundance”. The innovation that spawned Silicon Valley and its vast global influence was fostered in a political economy where risk-takers had the freedom to ‘have a go’.

In their efforts to achieve similar successes, Chinese leaders are spending billions of dollars every year on research and development initiatives hoping that subsidising ‘strategic’ industries – largely dominated by Chinese state-owned enterprises – will foster innovation.

As Sydney University’s Dr John Lee pointed out in a recent speech for The New Zealand Initiative, strategic sectors in China are seen as core to the national and security interests of the state. To that end, the Chinese Communist Party ensures that strategic industries dominate the economic landscape through a combination of cheap loans, protectionism, and tax and subsidy programmes.

To the Chinese, it’s not just about picking national ‘winners’ and protecting them from competition.Beijing’s ‘indigenous innovation’ strategy also puts pressure on foreign firms to transfer their intellectual property so Chinese companies can assimilate, absorb and re-innovate.

But imitation is not innovation. Without a dynamic environment that nurtures innovation by freeing up entrepreneurs and risk-takers, nations can find it difficult to create jobs and raise wages and living standards. China is in no immediate danger of hollowing out, but it does urgently need to find ways of genuinely encouraging innovation.

As the failures of New Zealand’s ‘think big’ period of the 1970s remind us, government is not good at picking winners or facilitating innovation. More often than not, it gets in the way of those who can.

With recent signs of a slow-down in China’s growth, Beijing’s leaders need to turn their attention to developing a less top-down approach and give their own risk-taking wildcatters and private sector firms more freedom to experiment.