This chapter aims to dig deeper into the source of knowledge driving innovation. What are the sources of innovation and how different sources impact innovations are other vital questions for academics, practitioners, and students. After providing historical developments, this chapter discusses sources of innovation by analyzing a typology of top-down vs. bottom-up, external vs. internal sources of innovation, and collaborative sources for innovation. For instance, while ideas emanating from employees are typically bottom-up and internal sources, ideas emanating from the prime minister are top-down and external sources of innovation. This chapter also discusses external innovations beyond the government, such as business and industry, citizens, service users, universities, and research centers, and the implications of these different sources on public sector innovation.

China’s approach to innovation is unique. To analyse the main features of economic innovation and entrepreneurship in contemporary China, it is first necessary to dispel some common misconceptions. In addressing that topic, this chapter focuses on explaining: (1) technological innovation and how it has been conventionally understood in the literature; (2) China’s distinctive approach to technological innovation; (3) in particular, the complex role of the government, and regulation, in innovation in China; and (4) how China’s distinctive approach to innovation may actually be better at promoting innovation in AI technologies, and other rapidly developing technologies, than other approaches.