Chinese President Xi Jinping has claimed that the direction of China’s technological development is “innovation, innovation and more innovation.” But besides prominent success stories like Huawei and Lenovo, how innovative are other companies in China’s tech sector? In this week’s Asia Unbound podcast I talk with Douglas Fuller, professor of business administration at Zhejiang University’s School of Management, about his upcoming book—possibly the best China book I have read all year—Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development. Fuller paints the big picture of China’s tech sector and describes how heavy support from the state, which actually disincentivizes innovative behavior, has led to weak domestic tech firms in China. Hybrid firms that combine Chinese management with foreign financing and “irrational” firms like Huawei, which initially pushed away state support in favor of competing abroad, are the true “hidden dragons” driving Chinese innovation. However, the Chinese government’s faith in a “techno-nationalist paradigm” that prioritizes indigenous Chinese ownership and control puts these foreign-invested Chinese firms at a disadvantage when it comes to state procurement and support. Listen below to hear why, at least for now, it seems that China’s tech sector is not the innovation powerhouse that Xi might hope for.