Consider this:
I can buy an o-ring, made in China, from a US distributor cheaper than my China Regional Office can buy an o-ring from a local supplier who supplies the US with o-rings.
I can get any amount of o-rings that I want. China has to order 20,000 pieces
I can get them tomorrow. China has to wait 8 weeks.
I can have the distributor bill me. China has to pay cash, upfront.
It is instances like these, and there are many of them, that put the US at a distinct advantage over China. Imagine you are a Chinese engineer and you need a 1000 o-rings to complete your validation testing. You need cash money, upfront, and then you have to wait eight weeks. The US engineer has tried a hundred different o-rings in that eight weeks.
China is full of talented, motivated people who given the right tools would rival any country in the world with their innovation talent. But, because the system is so vertically integrated the infrastructure hasn’t been fully built yet and as a result the seemingly simple things are hard to accomplish.
Don’t get me wrong, China Innovation will rival the United States' someday, but that day is not as close as the headlines would lead you to believe.