I don't know much about China's IT sector, but at-least in their manufacturing sector, they have built up a sizable manufacturing base, not by being innovative, but by being sweatshops for western countries, and, ahem, borrowing their IP.
Most Chinese companies that are on the radar now, like Xiaomi, have taken this path. They have learnt from western counterparts and built upon it.
As somebody whose career was linked to well being of the Chinese manufacturing sector I can say that manufacturing was on decline for quite a long time, with first symptoms appearing right at around 2009-2011.
The way the new mayor of Shenzhen ordered to bulldoze all factories in city center at around 2009-2010 shows how much esteem Chinese government has for entrepreneurship.
Can anybody imagine a governor of California ordering to bulldoze all silicon valley corporate campuses on a whim just because he wanted to have few hundreds more empty luxury shopping malls and 5 star hotels with blackjack and hookers?
Replacing SV corporate headquarters by skyscrapers would probably help lowering real estate prices a bit. And if Google had to rebuild their HQ it probably wouldn't even change quarterly income by a lot.
Most Chinese companies that are on the radar now, like Xiaomi, have taken this path. They have learnt from western counterparts and built upon it.