Well, your point works perfectly in the academic world, but not in the commercial/military world outside your school.Reverse Engineering is not illegal. Violating Intellectual property rights is. Now coming to the question of Chinese reverse Engineering and their espionage of IP from Western companies I will add my 2 cents here.
You start with Newton's laws and then progress further building upon that knowledge. It is not just "know how" but also "know why?". The fact that Chinese government are willing to throw money at a problem and yet they still want to steal technology seems to me that most of their researchers don't know where to start and might as well have their original thinking eroded.
where the sole emphasis is on pushing the boundaries of human knowledge. I have simplified my argument here. But I hope you got my point.
1. In the external world, the only judgement is money. If your R&D can't bring in profit, you are out. You can try to start from Newton's laws and progress further to rebuild the knowledge that people already have 20-30 years ago, but the problem is that no one wants to buy the products built upon your 20-30 years old technologies. Then your lab will be shut down, you are fired. The only way to close that gap is reverse engineering. That is how Germany, Americans, Japanese quickly catch up with British.
2. The idea that because Chinese intelligence agencies can steal technologies so that Chinese researcher don't know where to start is laughable. No one handle out the big cheque to these researchers without asking question. They have to show their detailed plan with the deadline for each stage. Their plan will be reviewed and evaluated against their competitors' plan. Only winner will get the cheque. Certainly, there are some technologies are too hard to get in reasonable time, only for these that Chinese government will order the special agency to steal. But in the meantime, the related researchers are still working on their own R&D since they have no idea if the special agency can get the tech and their next year pay-cheque is depending on their own performance.