Countries generally do not start creating much new-to-the-world technology until they are pretty wealthy—specifically, until their per capita output and income approach that of the world's richest countries. China is still quite poor. As recently as 2010, its per capita income was less than one-tenth that of the U.S. Yet according to the official data, Chinese businesses increased their R&D spending by 26.2 percent per year between 1996 and 2010. The number of patents that America's own patent office has granted to Chinese inventors rose 4,628 percent between 1996 and 2010. What is going on here?

A close look at these patent filings reveals that multinational corporations, not Chinese firms, own the majority of the U.S. patents that were issued during this recent boom. In other words, Chinese indigenous companies still lag behind their multinational competitors in generating inventions that get patented in major foreign markets.

Compared with the rise of other Asian economies, China's situation is unusual. From the earliest days of their emergence as important innovation hubs, Japanese, Taiwanese and South Korean companies owned and produced nearly all the U.S. patents granted to inventors based there. Things went differently in China for a few reasons. First, China opened its borders more completely to foreign companies and did so earlier in its economic development than did many of its Asian forebears. Second, China's vast size and rapid growth motivated multinationals to establish research and development centers in China at an early stage, to ensure their success in this key emerging market. Third, the Internet made it possible for engineers based in China to collaborate on research projects with colleagues all over the world in something approaching real time. This set of circumstances has allowed for a more intense degree of research interaction between Chinese R&D personnel and their advanced regional counterparts than had been possible when Taiwan and South Korea were becoming innovative economies.

In our research, we have seen this direct international interaction traced out in the patent documents themselves. Most of the China-generated U.S. patents owned by multinationals are actually produced by international inventor teams, some members of which have addresses outside China. We refer to this phenomenon as international co-invention, and it is also a prominent feature of the patents granted to Chinese inventors by the European Patent Office.

International co-invention is not only focused on reengineering existing technologies for the Chinese market. Many multinationals now devote much of their China-based research manpower to producing new technologies for global markets. Viewed as a whole, this growing international research collaboration benefits all parties involved. China gets access to Western technologies that are engineered to meet the needs of the Chinese people. The entire world benefits from the stream of inventions generated by the powerful combination of raw Chinese engineering talent and multinational R&D expertise.

At the moment, unfortunately, other aspects of the Chinese business environment are tempering the enthusiasm of foreign multinationals. We have heard multinational managers complain of patent infringement and trade-secret theft. We have even heard of cases in which the Chinese government and state-owned or state-sponsored companies pressure multinationals to transfer sensitive technology to unaffiliated Chinese “partners.”

Nevertheless, we are already seeing evidence that international co-invention is emerging in India and in Eastern Europe, as well as in China. This phenomenon marks the emergence of something new in the world: an international division of R&D labor that links skilled engineers in emerging economies with the technological expertise of established multinationals. That is a good thing. In fact, it could be essential for confronting the enormous technological challenges facing the human race in the 21st century.