When DeepSeek unveiled an AI model last year that rivaled America’s best at a fraction of the cost, or when a Chinese hypersonic missile test caught U.S. intelligence off guard to the point that a top U.S. general called it “very close” to a “Sputnik moment,” the reaction each time was the same: that a handful of Chinese firms had suddenly pulled ahead.

But a sweeping new National Bureau of Economic Research study of nearly 14 million Chinese patents suggests that this framing misses the bigger story—and that it is more unsettling for the United States.

Harvard Business School’s Josh Lerner and his co-authors examined who is filing patents in the 14 technology areas the Pentagon considers critical, including advanced computing, space technology, AI, hypersonics and biotech. Their answer: Chinese universities account for more than a quarter of the country’s inventions in those fields, 8 times the U.S. rate of 3.3%, while state-owned enterprises and the government account for just 4%. Fewer than one in 10 Chinese critical-technology patents involve an inventor with U.S. work experience, challenging the idea that Beijing depends on returning U.S. talent to drive innovation.

The university-heavy pattern aligns with Beijing’s decade-old Military-Civil Fusion strategy, a state policy framework that formally directs civilian research—including academic work—toward defense and dual-use applications. The policy, codified as a national strategy in 2015, helps explain why academic patenting in the Pentagon’s critical technology categories is not incidental but structurally encouraged.

Lerner told Fortune that his team had been “programmed” to expect a few large corporations such as Huawei and Tencent to lead Chinese innovation through patents in the same way IBM and Samsung did in the U.S. Instead, the researchers found Chinese innovation in critical technologies is “much more diverse—spread out across the parties,” with universities “more represented” there than anywhere else in the country’s patent system. That is the reverse of the U.S. pattern, where academic patenting is “more of a sideshow.”

“We’ve clearly seen this dramatic boom in terms of research funding and patenting in China,” Lerner said. “And the natural question being is this bearing fruit? In the software side, Deepseek was certainly something that was really not anticipated, and clearly these open-source Chinese models are getting an enormous amount of traction.”

The findings come as the quality gap many assumed would protect American technology leadership appears to be narrowing, with DeepSeek, Moonshot and Z.AI competing directly with U.S. frontier labs and undercutting them on cost.

Using four text-based measures of patent novelty and scientific relevance, the authors found no evidence that China’s patent boom has come at the expense of quality. Chinese patents have converged with, and in some technologies overtaken, their U.S. counterparts. The share of Chinese critical-technology patents containing “disruptive” technical language rose from less than 2% in the early 1990s to 16% by 2022, approaching the U.S. share of roughly 20%.

The study also points to important differences in how universities operate in China and the U.S., particularly as the Trump administration’s international student crackdown strained campuses and raised questions about the future of STEM talent.

The paper describes Beijing’s role as “coordinative rather than directly productive,” steering research through funding and priorities rather than owning the institutions that produce it. Lerner contrasted that with Harvard’s public standoff with Washington over research funding.

“When you think about the dynamics between our university and the administration, which has been a lot of back and forth in the courts,” he said, “one doesn’t suspect the same kind of interactions would characterize those between a major Chinese university and the state.”

The U.S. has also scaled back its federal research grant pipeline. Last year, the Trump administration moved to cut $4 billion from NIH’s reimbursement of universities’ research overhead costs, capping a rate that had typically run 50% to 60% at just 15%. By April, the administration had formally terminated 1,392 NIH grants worth $539 million in unspent obligations, while the National Science Foundation had cancelled or suspended nearly 2,000 awards of its own. The Brennan Center for Justice has put total NIH and NSF cuts and freezes at more than $3 billion since 2025, with roughly $1.4 billion still frozen or unresolved. Some terminations have been reversed by courts, but the disputes continue on a grant-by-grant basis.

These reductions come despite the 2022 CHIPS and Science Act, which authorized roughly $200 billion in scientific research and development funding over a decade as a legislative response to Chinese competition. Much of that authorized R&D money has yet to be fully appropriated, and the current budget environment has further constrained its disbursement.

The effects may not show up immediately, but Lerner warned they could matter significantly in the competition with China as the Trump administration has proposed steep cuts to federal science funding and a rewrite of federal grant rules that critics, including groups well outside academia such as farm cooperatives and bankers, say would allow agencies to cancel research awards midstream.

“You don’t really see the consequences until perhaps years or even decades afterwards, just given the very long-run nature of this process,” Lerner told Fortune.

Dan Wang, a China analyst at Eurasia Group, offered a more cautious reading of the patent data. He told Fortune by email that commercialization rates for Chinese university patents remain low and that few are filed overseas, while companies such as Nvidia and Google continue to drive “exceptionally strong” R&D in the United States.

Still, the rankings are beginning to reflect the shift in resources. In June, Harvard lost the top spot in the Nature Index Research Leaders, a closely watched measure of high-quality research output, for the first time since the index began tracking universities in 2015. Among academic institutions, Zhejiang University, the alma mater of DeepSeek founder Liang Wenfeng, moved into first place, with Harvard falling to second. Including the Chinese Academy of Sciences, a government research body rather than a university, Harvard falls to third. Nine of the top 10 academic institutions globally are now Chinese; five years ago, eight of the top 10 were American.

“China is likely to narrow the gap in patent-related indicators, but not in overall technological leadership,” Wang said. “The university innovation system is heavily influenced by administrative process and political mandate, and thus does not leave enough room for self driven research.”

Wang also cautioned that Washington’s focus on sanctioning a handful of Chinese “national champions” such as Huawei and Tencent overlooks “the real base for China’s technological upgrading”—decentralized networks of universities, suppliers and state-owned enterprises. He estimates there are 18,000 state-designated “little giant” firms working on components and materials alone.

“Sanctioning a few major firms alone is unlikely to halt the broader ecosystem,” Wang added.

China surpassed the U.S. in total R&D spending for the first time in 2024, investing $1.03 trillion to America’s $1.01 trillion, and has posted R&D growth of more than 14% annually since 2004, more than double the U.S. pace.

This story was originally featured on Fortune.com