The term “lose out” is valid depending on what innovation you are referring to. As I explain in my blog on the evolution of evolution, at a macro-level, there are two types of innovation, downstream innovation and upstream innovation.
Downstream innovation takes a particular status quo and drives new economies of scale along with evolutionary perfection. Upstream innovation challenges the status quo and builds a new solution from a higher normalization of root-cause, a revolution of sorts.
China will do well in downstream for a variety of reasons. China will have a hard time innovating upstream as the ability to think and act freely lies at the foundation of breeding outliers, who unafraid to fail, rely on fundamentally challenging the status quo (and its governance) the Chinese are not “trained” or even allowed to do.
So, China’s snail-pace migration to a free society will yield little upstream innovation. And for the foreseeable future, China will continue to rely on other countries to deliver the goods of upstream, to subsequently generate a continuous ripple of downstream it can apply its economies of scale.
But I hasten to add, the evolutionary path of China’s innovation may not be such a bad one (under certain conditions), as it will have a clean-slate opportunity to redefine the integrity and evolutionary value of upstream innovation when it can contribute. A compass and integrity of innovation that has been soiled by crony capitalism in the West.
Much (not all) of what the West advertises as upstream innovation, is when measured along an axis of renewable evolutionary value, in actuality nothing more than a trojan horse of oligarchic wealth-creation out of the pockets of innocent greater-fools. And subsequently yields, after the dust of make-believe has settled, in evolutionary value the equivalent of a dried-up creek of downstream.
The value of innovation can only be determined by how innovation produces renewability that yields the strengthening and sustainability of the evolution of humanity. Any other measure is irrelevant if not the source of an anthropogenic cascade.