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China’s Great Leap in High-Tech Ambitions
Senior adviser and Trustee Chair in Chinese Business and Economics, CSIS
Chinese officialdom has long viewed state intervention as central to promoting economic development and expanding China’s overall national power. In the post-Mao era, China introduced its first sector-specific industrial policies in 1994 on semiconductors and automobiles. Over time, more sectors have been added; some have been pursued as top-down “mega projects.” In most, the state has provided a wide array of support to domestic firms, shielding them from international competition while simultaneously trying to acquire foreign technology.
Despite this general continuity, Chinese views about how precisely the state should intervene—in which sectors and to what ends—have constantly evolved. And that has translated into variation in actual policies and results. As the readings here show, such variation has persisted even in the years since Xi Jinping took power. Understanding these internal debates is essential for U.S. policymakers and stakeholders.
For example, a 2017 report by Miao Wei, the Chinese Minister of Industry and Information Technology, is in stark contrast with the more recent contributions to the Interpret: China project. He highlights Made in China 2025 (MC2025), a framework that has been excised from Chinese discussions over the past three years. This is not just rhetorical; MC2025 aimed for China to gain substantial market share in several advanced technologies within relatively stable global supply chains. The most recent Chinese discussions, by contrast, emphasize the worsening international environment—first the rising tensions with the United States and then the Covid-19 pandemic—and the need for China to gain technological self-sufficiency. In addition, whereas Miao Wei stressed the value of the online economy in general, over the past year, internet services firms have come under attack, and support has narrowed to the industrial internet and other ways information and communications technology can support advanced manufacturing.
Despite this overall shift, the readings also reveal a variety of ongoing debates that have not been resolved. There is a recognition that China’s institutional structures—government, firms, and universities—all have weaknesses, but there is no clear path to strengthening them individually or making them work better together. It is not surprising that officials from China’s State-owned Assets Supervision and Administration Commission (SASAC) would highlight the importance of state-owned enterprises, but that sentiment is not shared by everyone. There is broad awareness that the international environment is much more problematic, with the United States and others increasing restrictions on sharing their technology. But when the discussion turns to precisely how China can effectively respond and develop fundamental technologies that will allow it greater independence, the answers often seem to be doing “all of the above,” as opposed to pursuing a specific, finely tuned strategy. Relatedly, while some experts point to Japan and Germany as models for China, others still single out the United States, not only for defense-related programs such as the Defense Advanced Research Projects Agency (DARPA), but also its broader innovation ecosystem.
My final takeaway from these readings is that there is one surprising point of consensus: China has made substantial progress, but it is still far behind the United States and other advanced economies in many key technologies. This poor evaluation does not appear to be an intentional effort to deceive and reduce Western anxieties but a heartfelt admission of continuing weaknesses. A careful empirical comparison of China and the West, looking at both current capabilities and potential future trajectories, would likely show that while the United States (and the West more generally) should not breathe a sigh of relief or drop its guard, it still has substantial technological, commercial, and institutional strengths that—if mobilized effectively—could help it maintain its position as the preeminent global power well into the future.
Technology analyst, Gavekal Dragonomics
Three trends have changed China’s technology trajectory since the 2015 publication of the Made in China 2025 strategic plan.
First, developed countries have become more hostile to China’s technology ambitions. European countries were uncomfortable with the detailed market-share targets listed in a semi-official advisory document within the Made in China 2025 plan. The U.S. government reacted more strongly, strengthening investment restrictions through the Committee on Foreign Investment and export controls through the Department of Commerce. It has thus become far more difficult for Chinese firms to make acquisitions and investments in developed countries. And many of China’s most dynamic firms have ended up on one of several blacklists maintained by the U.S. government, sometimes to devastating effect.
Second, because of U.S. measures, many Chinese firms have been forced to cultivate domestic technologies. China’s most successful companies are not state-owned enterprises that are formally part of the state system; they are instead the internet and hardware companies started by entrepreneurial founders. During the Trump administration, it was this latter group of firms that faced the bulk of U.S. restrictions. Many Chinese tech leaders previously had no interest in buying products from domestic vendors. But by withholding American technologies, the U.S. government has given them a real business reason to cultivate local production. Therefore, the United States has turbo-charged Chinese competition by aligning the interests of entrepreneurial firms more closely to Beijing’s goals of self-sufficiency and technological greatness.
Third, Chinese commercial capabilities more generally have become stronger, a trend that has mostly been unrelated to geopolitical issues. This greater economic sophistication is a tailwind for China’s technology development. Over the past several years, Chinese firms have put to bed questions about whether they are capable of innovation (or only copying). Instead, it is now clear that Chinese firms have developed strong capabilities in fields such as renewable energy generation, software and consumer internet technology, and advanced manufacturing. There are, of course, critical deficiencies in China’s technological development, especially in semiconductors and aviation. But Chinese firms increasingly resemble their European and U.S. counterparts, all of which exhibit distinctive strengths and weaknesses.
How exactly will these trends play out? No one can answer that with certainty. Chinese commentators in these documents acknowledge both that the country has built strong industrial foundations and that U.S. actions have created “extreme pressure” and exerted a “stranglehold” on Chinese development. Even in the absence of U.S. pressure, Chinese efforts might fail, given the tensions in its state-driven model. But the United States cannot assume that China will fail as a matter of course. Instead, it should recognize that China’s capabilities have come a long way and assume that Chinese competition will be robust in the decade ahead.
China’s Industrial Policy and Its Implications for Climate Change
Fellow, Trustee Chair in Chinese Business and Economics, CSIS
The role of Chinese industrial policy is impossible to overlook when evaluating the rapid rise of climate technologies over the past decade. Technologies such as solar photovoltaic modules and lithium-ion batteries have been developed outside of China, but their falling costs and rapid deployment are linked to the country’s manufacturing and economies of scale. But while China increasingly looks like a leader in new energy technologies, the debate within the country is far from settled on what this means for future policy.
The documents made available by Interpret: China are not specifically focused on decarbonization, but they do highlight several issues relevant to the advancement of new energy technologies. A common thread in several of the documents is the recognition that while China has reached a dominant status in manufacturing, it is still dependent on the global trading and innovation systems. Consequently, it needs to manage vulnerabilities to disruptions in supply chains and talent flows. Moreover, China has not secured its path out of the middle-income trap—i.e., it is not yet a “manufacturing power”—and observers have serious concerns about the country’s innovation capacity.
Many of the leading clean energy technologies of today were developed in a globalized world where supply chains, innovation, and technology have flowed between countries. So, as China pursues further technological independence, the fallout from a less globally integrated system is a concern. He Jun, for example, points out that China’s “indigenous innovation” strategy would require openness to global technological innovation for it to stay on the innovation frontier. But the unsolved dilemma is how to stay integrated in a global system while also reducing international dependencies and championing state capitalism.
If China and other governments decide to tilt toward more domestic rather than open innovation, we may see a slowdown in innovation and cost reductions in the technologies needed to achieve decarbonization. One solution that He Jun identifies to China’s indigenous-innovation dilemma is to strengthen support for the internationalization of Chinese firms so they can draw on their experiences outside China’s borders to advance. Yet if China’s own domestic environment becomes less favorable to foreign investment, large economies may not welcome such strategic investments, potentially leading to further tensions in the international sphere.
Ultimately, the essays and documents in this collection perceptively identify many of the threats to China’s continued state-sponsored promotion of innovation in strategic sectors, but the solutions seem less straightforward. Although increasing coordination and supply-chain resilience while applying new technologies to existing industries seems like a palatable solution, details on the actual implementation remain vague. The ongoing debate in China on the topic points to an awareness within the country that policy and strategy will have to evolve.
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