As tensions between China and the West have increased, innovation has become central to gaining an edge in their great-power rivalry; a technological advantage can provide both economic and military benefits. Until recently, China was considered unable to innovate, but this perspective has shifted dramatically and now many reports suggest that China may be surpassing the West. This report provides further context to this discussion, exploring what it means to be ahead or behind in innovation, how we can measure it, and the implications for China's innovativeness going forward. The report finds that quantitative reports comparing Chinese and Western innovation capacity tend to primarily measure invention capacity. This means that important parts of the innovation race are not captured by quantitative studies, and complementary qualitative studies are needed in order to gain a full picture. While Xi Jinping has grand strategic ambitions for China's innovation power, national policies only partially play on the Chinese system's strengths. This indicates that the characteristics that have allowed China to advance in innovation- including its large population, market, and prominent enterprises-may be less consequential in a changed economic, demographic, and regulatory environment.