One likely reason the West failed to spot how it was being leapfrogged by Chinese industry could simply be good old-fashioned ingrained cultural prejudice

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Pretty sure that must western countries are still convinced that Chinese industry only excels at copying. As far as semi conductor research goes the Chinese industry lags only 2 years behind. A few years ago the gap was about 8 years.
- It will never cease to amaze me how people keep acting shocked that a country of 1.4 billion people is able to do the same things people in the west can do.
  
  I would say it's racism. Plain and simple.