In China, where weavers and assemblers have cobbled together the fastest-growing major economy on Earth, the government is pushing beyond manufacturing. It wants innovation.

The shift underscores the changing dynamics and growing influence of the world's most populous country. As the engines of creativity churn, U.S. manufacturing workers won't be the only ones sweating the China effect.

Engineers, scientists and techies in Research Triangle Park, Seattle, Boston and elsewhere could find themselves in fierce competition with Chinese workers to design the latest software, medical device or other high-tech gadget.

"They have incredibly ambitious goals," said Adam Segal, a senior fellow for China studies at the Council on Foreign Relations in New York. "The Chinese leaders are always talking about how China doesn't want to be the factory floor of the world any longer. They want to be at the cutting edge."

In major cities such as Beijing and Shanghai, science and technology parks have sprung up. Incubators give Chinese entrepreneurs a chance to test and validate ideas. The central government is funding more scientific research to gain an edge, boosting the coffers of the National Natural Science Foundation by 25 percent this year, to $425 million.

Despite that, China's spending on basic research and development lags spending in developed nations. The $320 billion that U.S. industry, government and nonprofits spend annually on research and development is more than three times that spent in China.

But China is racing to catch up. By 2020, the country wants to be known as an innovation nation, and the government expects about 2.5 percent of gross domestic product to be spent on research and development. That's on par with other developed economies.

By 2050, funding could be far more. By then, China wants to be an international scientific power.

The reason is simple. A nation needs its own technology and scientific development to fuel long-term expansion. If it only copies ideas and products developed elsewhere, it cannot lead. The Chinese government wants its people to develop and create goods and services that the rest of the world wants.

"Innovation is the core of the nation's competitiveness," Chinese President Hu Jintao said in January at a national conference on technology, Chinese news services reported. "Only with strong capacity of innovation can a country win the initiative in the international competition."

That ambition could threaten the underpinnings of North Carolina's own evolution. The state lost 31 percent of its manufacturing jobs between 1990 and 2005, and officials have pushed to reinvent North Carolina as a place driven by knowledge and innovation. Technology-related jobs rose 33 percent in that period.

China, in part, forced the transformation. It could eventually spark another.

China has many challenges to overcome before it can produce fundamental breakthroughs like those discovered in the United States and Europe. Its primary education system must be modified to foster creativity. It needs a patent-like system to protect inventions from copycats. And it needs to prove that it is committed to innovation. Some investors are wary, because a change in the government's focus could stamp out innovation efforts.

Art Pappas, founder of Pappas Ventures in Research Triangle Park, recently returned from a tour of Asia that included universities and research centers in China. His firm invests in the life sciences, putting money into promising biotechnology and pharmaceutical companies.

While in Shanghai, he visited a neuroscience institute with a "very novel, very interesting" approach that could be used to develop treatments for depression or other cognitive diseases. He wouldn't partner with them now, he said, because of concerns about whether discoveries would be protected as intellectual property. Still, it got his attention.

The experience built on an earlier one. A company in his firm's investment portfolio turned to WuXi Pharmatech in Shanghai for some chemistry help. WuXi, over a few months, developed a compound that could become the basis of a new drug.

"As that happens, our confidence level improves," Pappas said. Even so, "we have a longish window here before we have anything coming out of China."

That hasn't stopped venture capitalists -- people who help fledgling businesses get going -- from pursuing the possibilities. Between April and June, they pumped about $480 million into Chinese companies, double what they pledged in the same period last year, according to a report from accounting firm Ernst & Young and publisher Dow Jones. The report predicted that venture capital funding for the full year will exceed funding for each of the past two years.

As more money pours into China and other developing economies, it could become harder for RTP startups to get cash. They would compete with more entrepreneurs in more places for the same resources.

That possibility highlights one of the most immediate risks of China's innovation efforts.

The other: talented technicians leaving the U.S. for China.

Brain drain

"China needs some people like me," said Xiaodong Wang, who returned to China in May from the Triangle. "In this country, we have the talent and the infrastructure. We just need some information and knowledge and experience."

Wang, 45, came to the United States 20 years ago to study at Ohio State University. After getting his doctorate, he joined Procter & Gamble in Cincinnati. In 2000, he moved to Research Triangle Park to lead a team that looked for new drugs at Icagen.

Wang became attuned to changes in his home country after China joined the World Trade Organization in 2001. Rules were relaxed, and investment flooded in.

Wang considered the opportunities and the trade-offs of going home. His wife is a doctor at UNC Hospitals. His daughters are in school -- one attends Duke University, the other is in middle school.

Wang decided to take a chance and move back to China. His family stayed in the Triangle.

"It was a really hard decision," Wang said. "I left my family. ... Some people may think, 'Well, this is an opportunity to come back and make some money.' But for me, it's really a dream.

"Very fortunately, my wife and family understand what I'm trying to do."

Wang set up a pharmaceutical research company, PharmaAdvance, in Jiangyin, about 80 miles outside of Shanghai. The 14-person business helps drug companies in the early stages of development by screening compounds to determine their potential. PharmaAdvance also helps companies figure out how to mass-produce drugs.

Wang envisions the company growing into an international enterprise. Within two or three years, he hopes to have offices in the United States and Europe. He is looking for partners.

"This is really a golden opportunity for people like me," he said. "A lot of talent is going to come back and take the opportunity to start businesses and do business here."

Studying stateside

Indeed, the United States could indirectly stoke the innovation engine in China. The country sends more students to study in the United States than any other nation, except for India.

During the 2004-05 school year, 62,523 Chinese students were enrolled in U.S. universities, according to the Institute of International Education. That was up from 39,403 a decade earlier.

They enrolled in universities such as N.C. State and Duke, attracted to the educational and research opportunities.

"Eventually, some of them take that back to their own country," said John G. Gilligan, vice chancellor for research and graduate studies at N.C. State. They develop competencies and create a "brand of innovation."

It has occurred before, in Japan and Korea. As scholars returned home with knowledge gained in the United States, they helped push their countries to new innovation. As that happened, companies such as Toyota and Canon gained advantages over U.S. companies such as General Motors and Kodak.

But that process takes time. Ling Xiang, president of the Chinese Student Association at N.C. State, said many of his friends plan to look for jobs at U.S. companies when they graduate. After a few years, they might return home.

"The experience is what they're looking for," he said. They want exposure to technologies and practices that aren't yet available in China. That way, if they choose to return, they will have an advantage against other job hunters.

Though much further behind, China is moving in a direction similar to its more developed neighbors. It is reforming education, aiming to create world-class universities that may attract students from the West. China's entrepreneurs are pushing for stronger intellectual property protections, which could have more effect than the pleas of foreign companies.

Grass-roots changes

Where the government isn't acting, citizens are finding solutions. The Internet has become a powerful tool for spreading information, and it allows people to work around official censors. Young people talk openly about downloading episodes of U.S. shows such as "24" that aren't broadcast on television. Scientists and researchers could use such measures to spread ideas.

In some ways, China must change. Manufacturing jobs that built its middle class are disappearing. Indeed, between 1995 and 2002, China lost more manufacturing jobs than the United States, according to a report by the Conference Board, a private research group that studies business. China lost 15 million positions as the United States lost 2 million. Vietnam and other Asian countries gained as labor costs rose in some parts of China.

What's more, the energy and environmental toll of manufacturing has been steep. China has become the world's largest consumer of coal, a consequence of its efforts to keep up with the energy demands of its factories and the power consumption of its rising middle class. That has led to choking pollution.

It could take a generation before China catches up enough to really challenge American innovation. But it will, said Segal of the Council on Foreign Relations.

"I don't think it's a huge threat right now," he said. "Long term, the Chinese will be able to do everything we can do."

(News researcher Denise Jones contributed to this report.)

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