below_freezing
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That's an interesting point.
China has a pool of 1.2 billion people; does it really need foreign brains?
Is there anything special about foreign-educated scientists that cannot be provided by Chinese people themselves?
In any case, the biggest driver of innovation is good old fashioned human ego/greed. If China can convince its people that fabulous wealth lies at the end of the rainbow, innovation will flow.
the important part is this: as long as the US can print USD and people accept USD, then it will have an endless supply of cheap and highly skilled PhDs making less than garbagemen. Everyone that has a PhD in science/engineering from the US, knows that a PhD means you are making contributions hundreds of times your salary when you have the PhD: in effect, you are doing more for the degree, than the degree is doing for you. The pie in the sky prize, of course, is a stable job as a professor or company boss, but the majority are stuck as postdocs making near minimum wage while the hot jobs are mostly reserved for native born whites.
The real problem is, of course, cutting losses try to prevent people from leaving. A good way to start is to pay grad students more. Attracting PhDs back is more natural: the better China gets, the more they'll naturally come back. No amount of policy incentives can change that.