Innovation Philanthropy: Why China’s Slowdown Should Worry Canadian Boards

Canada creates ideas, but needs the USA to fund them and China to scale them.

Chinese Premier Li Qiang recently called for China to shore up external demand and deepen international trade, while also encouraging more private investment in infrastructure. At the same time, he acknowledged that weak domestic demand remains a serious problem.

The latest numbers help explain the concern. Industrial output growth slowed to 4.5% in July, while retail sales grew just 0.6%. Fixed-asset investment fell 6.7% over the first seven months of the year, and second-quarter GDP growth slowed to 4.3%, the weakest in roughly three and a half years. Exports, however, remain one of the stronger parts of the economy, particularly in areas benefiting from global demand for AI-related technology. What I find interesting is what happens next. China has spent decades building enormous productive capacity and the systems needed to support it. If its domestic market cannot absorb enough of that capacity, there will be even more pressure to find growth elsewhere.

That capacity is visible everywhere, from its manufacturing base and transportation infrastructure to the technical expertise that has developed around them. None of it disappears because Chinese consumers are spending less or because the property market is struggling.

If anything, weak domestic demand creates even more pressure to put that capacity to work elsewhere. That is one reason I think Canadian business leaders should be careful about interpreting China’s slowdown as a reduction in competitive pressure. A Chinese manufacturer that can no longer rely on its domestic market for growth has a very strong reason to become more aggressive internationally. We may see more Chinese capacity, not less, looking for customers around the world.

That is what makes the contrast with Canada so interesting to me.

Canada has spent decades investing too, but our investments have produced a very different set of strengths. We have excellent universities, highly educated people, respected researchers and genuine areas of scientific leadership. We have helped create important advances in artificial intelligence, life sciences, quantum technologies, energy and advanced materials.

The problem is that we have never been nearly as good at turning those strengths into large Canadian companies.

The distinction between creating knowledge and capturing the economic value from it will matter enormously to Canadian living standards over the next decade. There is also a parallel inside Canadian companies, where spending heavily on technology does not necessarily mean an organization is building technological capability it actually owns and can use to differentiate itself.

We are better at the beginning than the end

Canada’s innovation statistics tell an interesting story once you look beneath the headline rankings.

In WIPO’s 2025 Global Innovation Index, Canada ranked 17th in the world, down from 14th the year before. More revealing than the overall ranking is the gap between what Canada puts into innovation and what comes out the other side. Canada ranked 13th globally on innovation inputs, with top-ten scores in market sophistication (8th), university-industry R&D collaboration (6th) and late-stage VC deals (8th), but WIPO ranks our innovation outputs just 20th.

The same pattern shows up in R&D. Canada is exceptionally strong in research conducted through universities and other post-secondary institutions and has been at or near the top of the G7 in post-secondary R&D spending as a share of GDP for the past decade.

Business R&D is another story. Canadian companies invest considerably less in R&D than businesses in many of our peer countries, and the OECD continues to identify weak business R&D investment as part of Canada’s longstanding productivity problem.

Canada is clearly capable of producing knowledge. We have researchers and institutions capable of generating sophisticated science and technology, supported by substantial public investment. The difficulty comes when we try to move from a discovery to a patent, from a patent to a company, from a company to a meaningful commercial operation, and from that operation to a globally competitive Canadian business.

I don’t think Canada has an ideas problem. I think we have a conversion problem.

The part of innovation we don’t talk about enough

Imagine a Canadian researcher develops a genuinely important technology using a combination of university resources and public research funding.

We tend to celebrate that moment, and rightly so. A successful research program is something to be proud of. But from an economic perspective, the story is really just beginning.

What happens to the intellectual property? Is a Canadian company formed around it? Can that company raise the capital it needs to scale? Does it find sophisticated Canadian customers willing to take a chance on a new technology? If it requires manufacturing, can that happen here? When the business becomes valuable, does it remain independent or is it acquired? Ten years later, where are the headquarters, the senior management, the patents, the profits and the next generation of R&D?

Those questions are less glamorous than announcing a research breakthrough, but they determine whether innovation eventually translates into productivity, wealth, jobs and globally competitive companies. The OECD has raised essentially the same issue in its analysis of Canadian productivity, noting our strength in basic research alongside persistent difficulty translating that research into large-scale commercial applications.

I sometimes think of the worst version of this as innovation philanthropy.

Canadian taxpayers help educate the scientist. We support the university where the research takes place. Public programs help finance the research itself, and we may offer tax incentives or grants as the technology moves toward commercialization.

Then, if we are not careful, the intellectual property, the company or the economic activity built around that work ends up creating much of its long-term value somewhere else.

There is nothing inherently wrong with foreign investment or international ownership. Foreign companies employ Canadians, conduct R&D here and connect our economy to global markets. We should continue attracting them.

But attracting someone else’s multinational is not the same thing as creating our own. A healthy innovation economy should be able to do both.

China built an ecosystem around its factories

This is where I come back to China.

For years, Western discussions about China’s manufacturing advantage focused heavily on labour costs. That explanation has become increasingly inadequate.

China invested in the system around production, not simply the factories themselves. Transportation and energy infrastructure expanded alongside the workforce and the supplier networks needed to support manufacturing at enormous scale. Over time, those investments created industrial ecosystems that are difficult to reproduce quickly.

It has also steadily increased its investment in research and development. China’s R&D intensity reached 2.6% of GDP in 2023, just below the OECD-wide level of 2.7%, while the absolute amount being invested is enormous.

China certainly made mistakes along the way. There has been waste, overbuilding, excess capacity and debt, and the country now faces serious economic and demographic challenges. I am not suggesting Canada imitate the Chinese political system, nor do I think every Chinese industrial policy should be treated as a success.

The more useful lesson is that capacity compounds. When a country spends decades developing engineering expertise, infrastructure, supply networks, manufacturing knowledge and research capabilities, those assets give it options when circumstances change.

China now needs to shift more of its economy toward advanced manufacturing, artificial intelligence, robotics, computing, energy technology and other higher-value industries. It is attempting that shift from a position where much of the physical and human infrastructure already exists.

Canada is attempting its own economic transition from a very different starting point. We possess an impressive amount of intellectual capital, but we have not built the same machinery for consistently turning that intellectual capital into commercial scale.

We need to pay more attention to what happens after the research

A lot of Canadian innovation policy understandably focuses on inputs. We talk about how much we spend on research, how many grants are awarded, how much venture capital is raised and how many startups are created.

Those are useful measures, but I would like to see us become much more interested in what happens five, ten and fifteen years later.

How much Canadian research results in commercially valuable intellectual property? How much of that IP remains Canadian-owned? How many companies created around Canadian research grow beyond the startup stage? How many reach meaningful scale while remaining headquartered here? And how much do Canadian businesses themselves invest in R&D once they become larger?

Thinking this way would change some of our policy choices.

SR&ED has historically focused on encouraging companies to perform R&D, but there is a reasonable case for paying more attention to what happens when that R&D succeeds, including the costs of international patent protection, IP maintenance and commercialization.

The same applies to university technology transfer. The objective should be to get promising technologies into the hands of entrepreneurs quickly, on terms that make it realistic for Canadian companies to succeed. Licensing revenue for the institution matters, but it should not become an obstacle to commercialization.

Government procurement may be even more important. Grants can help companies get started, but one of the greatest challenges facing an early-stage technology company is finding a serious first customer. A Canadian government department willing to buy and deploy a promising Canadian technology can provide validation, revenue, operating experience and a credible reference when that company begins selling internationally.

Sometimes the most useful thing government can do is skip the next grant and become the first serious customer.

There is a corporate version of this problem

The more I think about Canada’s commercialization gap, the more I see a direct parallel inside Canadian companies.

Organizations can spend enormous amounts on technology without necessarily building much technological capability of their own. They can buy cloud services, subscribe to AI platforms, hire consultants, implement enterprise software and announce ambitious transformation programs while becoming increasingly dependent on technology, intellectual property, talent and expertise that reside somewhere else.

There is nothing inherently wrong with that. No company should build everything itself, just as no country should attempt to produce everything domestically. In many cases, buying an established platform or using an external provider is absolutely the right decision.

The governance question is whether those choices are understood and intentional.

When a board reviews a major technology investment, the discussion is still often centred on whether the project is on time and on budget and whether the implementation risks are being managed. Those are necessary questions, but I no longer think they are sufficient.

Boards and executive teams should also be asking what strategic capability the organization will possess when the investment is finished.

Are we developing capabilities that differentiate us, or simply implementing technology our competitors can buy too? What do we need to own or understand deeply ourselves? And where we choose to depend on an outside provider, do we understand what that dependency could mean if the economics or strategic direction changes over time?

Those questions become even more important with artificial intelligence because many of the decisions organizations are making today will shape how their data, processes, talent and technology architecture develop over the next decade.

A company can become very sophisticated at purchasing technology without becoming particularly sophisticated at using technology strategically. That is not so different from the challenge Canada faces at a national level. Spending money on technology is an input. What ultimately matters is the capability that remains afterward.

This is one of the reasons I think technology governance has to evolve. It cannot be limited to overseeing IT projects, cybersecurity risks, vendor contracts and technology budgets. Those responsibilities remain important, but boards increasingly need to understand technology as part of business strategy: what the organization needs to own, where it can safely depend on others, which technologies are becoming strategically important and whether today’s investments are expanding or reducing the choices the company will have tomorrow.

For me, that shift from overseeing projects to shaping capability is where technology governance is heading.

Having the technology isn't enough

This is ultimately why the Chinese slowdown caught my attention.

China has a difficult domestic economic problem to solve, but it enters this period with decades of accumulated industrial capacity behind it. Canada has many remarkable intellectual and scientific assets, but we still struggle to convert enough of those assets into business investment, commercial intellectual property and large, globally competitive companies.

Artificial intelligence will make this distinction even more important.

We tend to talk about the AI race as though access to models and computing power will determine the outcome. I suspect the larger advantage will come from the systems around the technology, including the ability to supply the energy, capital and industrial capacity needed to put it to work at scale. The research breakthrough is one part of a much larger system.

The same is true inside a company. Having access to AI will not in itself create a durable competitive advantage when competitors can subscribe to many of the same models and platforms. The advantage will come from how companies combine those technologies with what is distinctive about their own business, particularly their data, experience and ability to make better decisions.

Simply having access to the technology tells us very little about who will win. What matters is the capability you build around it.

Canada has already demonstrated that we can contribute important ideas to the future. What we have not demonstrated nearly as consistently is that we can take those ideas through every stage that follows and capture enough of the resulting economic value here.

Canadian business leaders have a role in changing that. We cannot treat commercialization as something that belongs exclusively to universities, entrepreneurs, investors or government policy. Companies are ultimately where research becomes commercial reality. They provide the customers, make the investments and create the scale that turns an idea into an industry.

Boards have a role as well, and that role is becoming more strategic. They should understand whether their organizations are creating capabilities and assets that give them a lasting competitive advantage, or primarily becoming better purchasers of technology developed somewhere else. They should understand their critical technology dependencies and whether those dependencies are deliberate, and they should be asking whether major technology investments are increasing the strategic options available to the business or gradually narrowing them.

Those questions may once have been delegated as technology issues. I think they now belong squarely in conversations about corporate governance and strategy.

I don’t want Canada simply to be one of the best places in the world to discover the next important technology. I want it to be one of the best places in the world to build the company that takes that technology to the world.