I read the wikipedia article. I think I should rephrase my question thus: why did Europe undergo an industrial revolution while China did not? I guess there must be something different about Europe that prevented it from falling into the same high level equilibrium trap as China. However, the high level equilibrium suggests that the Europeans were unable to improve the efficiency of their preindustrial tools to the same degree as the Chinese did- how can that be?
You're right about Japan. I didn't think of that. Although in Japan, modernization only began after the Japanese were humiliated by Western warships with superior firepower. Actually, from what I've read, China under the Qing Dynasty did begin a program of modernization beginning with the army- it was staffed with foreign advisors from Europe and America. Again, modernization only happened after humiliating defeats by Western powers.
Maybe, in Europe there is a higher level of warfare and economic competition because of the relatively small nation states existing in close proximity to one another. This competition, rather than the relative inefficiency of their preindustrial tools, coupled with the Renaissance and the Crusades ultimately brought about the industrial revolution. Comparatively, China has definitely had less economic competition. Without this stimulus, the rate of economic development in China was slower. I feel that this is a better explanation.