So why would 3D printer companies in China bother innovating rather than sit back and cash the government check?

Because the owners want to get rich, not live as pensioners.

Why does anyone innovate? When I sell something I don't care if the dollars come from the end user or the subsidy, I just want more of them.

Because there are over 200 competing 3d printing companies in China.

Because China is actually a capitalist free market economy not a communist one.

Chinese companies compete with eachother ferociously. And Chinese society itself is dog eat dog. Everyone wants to make money.

Well, save for the part where the government directs the parts of the economy they care about.

Same for drones, and you know why? Because all of these civilian technologies can be easily leveraged for military... so a) they get the good stuff first because they're leading the sector and b) western countries buy their shit instead of making their own, which means we don't develop the tech and we effectively subsidise theirs

Can't blame them really, they mastered the rules of the game we forced them to play.