Gates confirmed on Dec. 7 that he is in discussions with China to jointly develop a new kind of nuclear reactor. (Andy Wong/AP)

TerraPower, a nuclear-power start-up backed by Microsoft founder Bill Gates, former Microsoft chief technology officer Nathan Myhrvold and a handful of top-tier Silicon Valley venture capitalists, has been in negotiations to sell its breakthrough traveling wave reactor technology to China's National Nuclear Corporation.

The negotiations between Gates and China should be a wake-up call for the United States government for both obvious and not-so-obvious reasons.

Here’s why: This move illustrates how free innovators are to travel anywhere in the world and take advantage of conditions that are most attractive for future growth.

TerraPower’s “fourth generation” nuclear technology promises to revolutionize the energy sector within two decades by making it possible to power a nuclear plant with depleted uranium for decades at a time, without the need for refueling or waste removal.

It’s no secret that Bill Gates plays to win.

By reaching out to China — as well as a handful of up-and-coming foreign powers like India, Korea and Russia — to build the experimental new nuclear reactors, there is no mistaking the message: The prospects are brighter for a nuclear power start-up to make it in China than in the U.S. When Gates went looking for partners, he landed in Beijing, not Seattle. In fact, as the Wall Street Journal pointed out in February after Gates met with the Chinese scientific establishment earlier this year, “Current U.S. rules don’t even cover the type of technology TerraPower hopes to use.” Ouch.

Without a doubt, China has been taking a much more proactive role in recruiting the world’s top tech talent and opening its doors to foreign companies. As fellow Washington Post columnist Vivek Wadhwa has pointed out, China is rapidly catching up to the U.S. not just in the sheer volume of new patents and new engineers produced each year, but also in launching new entrepreneurs and making it more attractive to create new start-ups. Chinese technology grads studying in the U.S., if given a choice, are voting with their feet and returning to China after earning a degree. New homegrown start-up heroes, at the same time, are starting to emerge in China.

The Chinese government has also launched a major new initiative — “Thousand Foreign Talents” (not to be confused with Mao’s “Let a Thousand Flowers Bloom”) — to attract the world’s best entrepreneurs and engineers to China from overseas. In areas where the U.S. no longer has the budget or willpower to continue, such as in manned space exploration, China now senses an opening. While NASA is shuttering its space shuttle program and ceding leadership to the private sector, China is ramping up its space efforts — including an aggressive new push to put a man on the moon by 2020. The Chinese government may even look to scoop up top NASA scientists on the cheap.

Is the same thing now happening to our nuclear power industry?

TerraPower is one of a handful of nuclear power start-ups tagged as the future of the industry. What makes TerraPower so important is not the megawatt star power of Bill Gates — it’s the fact that the company has found a way to combine supercomputing technology with nuclear power technology to create a future vision of cheap, sustainable energy. Traveling wave reactor technology makes it possible - at least theoretically - to power a nuclear plant for decades without the need for re-fueling or waste removal. Imagine being able to power entire cities or industries with cheap, plentiful energy. If nuclear technology is still viewed with apprehension within the U.S., it’s much more attractive abroad, especially for governments like China that have massive population growth and the need to power immense new mega-cities. Even Japan, humbled by last year’s nuclear reactor core breakdown at Fukushima, has shown interest in the Bill Gates nuclear technology.

The lesson is clear: The U.S. government needs to be just as aggressive as the Chinese in creating incentives for entrepreneurs and technology start-ups to grow and mature. At a time when the U.S. is downplaying efforts to attract and retain foreign entrepreneurs and flirting with legislation that could slow the pace of digital innovation, it is strangely China that is proving to be more proactive in creating the conditions for innovators to thrive. Bill Gates is one of America’s great entrepreneurial legends. Something feels wrong about seeing him launch a new chapter in his tech career in China and not the U.S.

View Photo Gallery: The best moments in innovation for the year 2011.

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