Because having people think rationally and with some notion of distance would mean the suicide of the system. This is so much easier to have control over a submissive mass that finds submersion in the mere fact of questing anything, and relying on whatever you can steal from the outside, than to actually build something of yourself. That's a super convenient way of governing, but in the competitive global market they gladly got involved in, this is as far as it goes: cheap garbage incomes make good money, until it doesn't.

The government knows its firms cruelly lack innovation and innovative talents. They probably also know it's entirely the fault of the mass brainwashing system they promote in the first place (or maybe they delude themselves into blaming something else, I wouldn't be surprised). But unfortunately, there is no magic innovation-enabling trigger in the human mind, nor is there one that you can only restrict to your industrial needs. Innovation is part of the freedom package, so you won't see it coming anytime soon. Right now, they're trying to promote innovation with slogans and money, which sums up the scope of their understanding of the problem. Next they might open innovation classes, where students will have to memorize books and write essays to the glory of innovation.

Trapped in the hole they dug themselves.

For a nation that has locked out the world for 30 over years, I'd say they have progressed a lot. Many of us feel that they are copy cats which is true until you look at South Korea, Taiwan and perhaps Japan. These economies developed through time and developed their own competencies. South Korea copied so many things from Japan from household equipment to cars. When Korea first produced cars (some of you may recall the brand Pony), everyone laughed at them. It was cantankerous, rusted easily and would probably fall apart after a few years of use. But look at them today. Can we say no innovation was put into the automobile industry there? Take another look at the cell phone industry, namely Samsung as a brand. What I am trying to say is that given only 30 odd years, China has caught up in certain areas but still has huge gaps particularly in education, social welfare etc. People of working age (25 to 55 years old) now in China would mostly comprise of those born in the early 60s to early 90s.. While we can see that those born after the mid 80s have different mind sets, it will take at least another generation to really see significant changes. Another point is that the government is still filled with old guards, so the tendency to cling to old methods may still persist. In my opinion, given time, China will have their share of innovative and creative people. It is quite impossible to even think that a nation with 1.4 billion people do not possess innovative skills. Nevertheless, we, who come from a far more developed world cannot use what we know and push them to be on par. What we can do is to help with the knowledge transfer a little at a time. 

I was asked to explain critical thinking to a Chinese colleague the other day. How would you explain it to get the meaning across?

When teaching science at a uni., I got some of my students (those who had both interest in studies and the will to work a bit) to think by themselves, solve new problems and stop reading the book. After the semester, some sent me emails to thank me about the teaching style and the whole experience I gave them (young guys, you repaid me for all the effort, thanks forever). So yup, they are human being, and as such can be creative and critical. However, Chinese society and educative system does not promote those traits, it represses them.

And guess what, *ALL* Chinese with a tiny bit of education I met says that, understand that, told me that, without any suggestion from me. However, the same Chinese people feels completely powerless, helpless about this situation (ie. repressing creativity & critical thinking). The optimistic one might say half-heartedly that things are improving a bit. The pessimistic will just sight and move on the conversation to an other topic. Bring hope, rule of the law, and Chinese people will shine. Just look at those who were educated in HK, Singapore or Western countries

I agree. It's definitely something that's stamped out by every aspect of society. Also, if you look into China's history you'll also see a tendency towards seeing only one path forward, and no lateral thinking at all.
Even before one-child-policy, Chinese farmers had a reputation of killing/discarding their 'useless' daughters because they saw no other alternative. Chairman Mao spent most of his efforts on staying in charge, and not without reason: Even his chosen successor couldn't take his eyes off the prize, and attempted to assassinate Mao rather than wait his turn. It's hard to implement reform of any kind when nobody cares, and everyone is just being phony to get hold of power.

In the "nature or nurture" debate, the nurture aspect is apparrent in a repressive government stamping out individuality in all its facets. I can only hope that 'unoriginality' isn't hardcoded into Mongoloid people, since I'll soon have 2 half-Chinese children myself. To be honest, I'm really starting to worry that it's in their nature to not be interested in anything other than food/money and sex/family.

Schools in China place emphasis on intelligence(=memorization only), relationship building, teamwork, dedication and leadership. And the importance of appearances is taught, when kids learn that all the aforementioned values can be faked to satisfy parents/teachers/authorities/etc. I recently had a discussion about tutoring lessons with a parent, and I tried to explain the importance of independence, creativity, improvisation, and that true learning is achieved by making inquisitive efforts, and making mistakes.
Although my point seems to have been understood, the values I mentioned are perceived as irrelevant or ephemerical. I was instructed to get rid of the parts of the lesson that were too 'difficult': No more 'tell me a story', 'listen to English and answer questions', 'write a small story about this picture'. The only component deemed worthwhile was the most useless one: 'Read from a book'. So, I'll just correct his pronunciation mistakes like a glorified dictionary, because that's how Chinesed students like to learn. I said I'll try to think of other ways to encourage his creativity, but maybe I won't bother - it just leads to more complaints. A full hour of reading from a book interspersed with me saying Well Done in Chinese is what being a good training school teacher is all about...