The United States of Technology?

NEW YORK (Fortune) -- As we celebrated the nation's birthday, I asked myself a patriotic question: Does the United States still lead in tech? As an American myself, my lens is inevitably distorted. Even so, the answer is hardly an unqualified yes.

On the positive side, this is the country where some of the most important breakthrough products are still being created. The iPhone came out of Cupertino. As the packages say: "Designed by Apple in California." And here some of the most revolutionary new Internet businesses are still being incubated - including Facebook of Palo Alto, Second Life (created by San Francisco's Linden Lab), and Salesforce.com (Charts), also of San Francisco. Each is pointing the way to whole new ways of doing things online.

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But the equally-disruptive Skype came out of Europe, and Joost, launched by the same visionaries, seems a truly international company. Nokia (Charts) of Finland continues to be the world's largest cellphone-maker by revenues, and Samsung of Korea is close behind. SAP (Charts) of Germany, of course, still dominates the enterprise software business that Salesforce.com is unsettling. (Though much of SAP's engineering is done from its tech center in Palo Alto.)

No other country can duplicate the American environment of tech creativity, which arises from a unique stew of entrepreneurs, academics, engineers, imaginative marketers and savvy financiers packed together in an atmosphere of risk-taking and plentiful capital. There is nowhere outside the United States remotely like the three places where this formula is most clearly at work - Silicon Valley of course, plus Austin and Boston.

But while Silicon Valley retains its unrivaled vitality, the rest of the world is now paying close attention and is never far behind. Every innovation is mimicked elsewhere. For instance, there is a German clone of Facebook, called StudiVZ.

My own best guess is that the next great hotbed for tech innovation will be China. It is steadily tightening the rules for software intellectual property protection. And a raft of amazingly fast-growing Internet businesses have already arisen, including portals Sina.net and Sohu (Charts), search engine Baidu (Charts), game company Shanda (Charts), auctioneer Alibaba, and communications and gaming pioneer Tencent. Some number their customers in the hundreds of millions.

The United States for much of the 20th century had the natural competitive advantage of the most developed and largest domestic market. If you could make it here, in effect, you could make it anywhere. Now the numbers are starting to favor China, which will eventually have the world's largest domestic market in all parts of tech. It is already the world's second-largest PC market, with 120 million installed PCs, and another 21 million expected to be sold this year, according to Microsoft (Charts, Fortune 500). And in China there are an astonishing 460 million cellphone subscribers, by far the biggest such market anywhere. Tech innovation in China will garner customers and become fine-tuned, then begin penetrating markets elsewhere.

It's been sad to see post-9/11 immigration paranoia inhibit the free movement to the United States of creative engineers from around the world. We have survived, sure, and it's not so bad that many of those smart people have stayed in their own countries. But it's telling that a new survey of recent graduates from the Indian Institutes of Technology - that group of schools that offer superb engineering training - shows that for the first time IIT graduates are more interested in working in China or India itself than in coming to the United States. In the past, they have helped start many of the United States' most aggressive and creative tech firms.

Of course the lure of India, China and other developing markets is powerful regardless of what is happening in the United States. That's where the growth is.

Which leads to perhaps my ultimate patriotic thought - it's great for the United States when formerly poor countries get wealthier and stronger. As the gap between our own wealth and that of the rest of the world diminishes, we will be more secure and less the subject of jealousy and hatred. And who doesn't want the most people possible to thrive?

So let's keep leading the world in tech, if we can. But as people around the world take advantage of great U.S. innovations like the PC and the Internet, I'm happy to see them adding further innovation no matter where they come from.