- Beijing’s recent spate of regulatory changes and technology initiatives have affirmed the idea that the battle for technological leadership will be a focal point of geopolitical competition going forward.
- China has a two-pronged approach to achieving global technological leadership: (1) in the short term, utilise ‘mercantilist’ strategies and policies to close the technological gap between China and her competitors; and (2) in the long term, invest heavily in a multifaceted restructuring and development of its domestic innovation ecosystem.
- China will have to enhance the ‘dual circulation strategy’ to simultaneously foster more foreign participation in the contested technology sectors while also providing the time to allow domestic infrastructure to move towards technological self-sufficiency.
The COVID-19 pandemic has greatly altered the nature of global economic systems and expedited our digital transformation. Given this context, it is not surprising that the race for global technological leadership by these two superpowers is coloured by a type of ‘techno-nationalism.’ Techno-nationalism can be understood as an ideology that “links technological innovation and capabilities directly to a nation’s national security, economic prosperity and social stability.”
The fundamental idea in the CCP’s blueprint for achieving global technological leadership is a strategic decoupling from China’s competitors in order to gain technological self-sufficiency. To that effect, China needs to (1) indigenise technologies to replace foreign know-how and compensate for persisting technological gaps (a prominent example being China’s focus on bolstering its semiconductor industry); and (2) invest heavily in creating an innovation infrastructure that can rival those of China’s strategic competitors.
Innovation Mercantilist Policies: patching technological gaps of today
In the quest for technological self-sufficiency, China’s immediate concern is to tackle the area in which there is a greatest reliance, or ‘coupling,’ with its strategic competitors. As an economy which relied upon its manufacturing sector as the dominant ‘engine of growth’ for the better part of the last half century, China’s manufacturing ability is well reputed. China has historically demonstrated a great deal of versatility by generating improved business models using cutting-edge technologies invented overseas; however, what China desperately lacks in comparison to the West, is the capacity for innovation in the realm of General Purpose Technologies (GPTs), namely Artificial Intelligence, 5G etc.
The current technological race between China and its strategic counterparts is derived from an increased pressure to acquire GPTs, given their vast applications across industries and their ability to create substantial economic wealth. In this regard, China still relies heavily on foreign know-how to provide the blueprint and schematics upon which the manufacturing sector depends on.
To make up for the severe shortage of engineers and scientists needed to shorten the technological gap in the short-term, China has been accused of relying upon ‘innovation mercantilist’ policies such as illicit transfer of technology, theft of intellectual property (IP), and requiring transfer of technology from foreign firms operating in China. Technology transfers have since evolved from a state policy, imposed by administrative bodies, to one of contractual nature between companies, although China is still ultimately responsible for providing the legal framework where such practices are permissible.
These policies are in staunch opposition to the liberal international order which advocates free market principles, and have recently led to increased international scrutiny. Former US President Donald Trump cited these mercantilist policies as the reason for his tariffs on Chinese exports, which led to the ongoing US-China trade war. Current US President Joe Biden has continued with this ‘tough on China’ rhetoric. Many are now advocating for a coalition of “like-minded nations” to force China to comply with its WTO commitments and to contest China’s innovation-mercantilist strategies.
China is unlikely to be willing to acquiesce fully to WTO regulations and evolve toward a free market-based economy as such an evolution would first and foremost weaken the CCP’s economic and political control. Simultaneously, China cannot continue on the current path. As China is increasingly recognised as an existential threat to the liberal international economic order, China’s position becomes more and more untenable. Despite the focus on self-reliance, a coordinated multinational effort still poses a significant threat to China’s economic health. Given that China’s innovation infrastructure is still in a process of developing, it is not in China’s interests to alienate its strategic competitors who are often their largest trading partners in the short to medium term. In order to provide the leeway for China’s innovation infrastructure to mature, China should look toward finding common ground with her competitors.
The introduction of the Dual Circulation Strategy (国内国际双循环), a strategy which is partly predicated on strengthening the innovation capabilities domestically (via the ‘internal circulation’) while maintaining global ties (via the ‘external circulation’), is pertinent to the discourse on technology as it allows China to reinforce its Middle Kingdom (中国) identity and work towards redefining technology standards. In addition, as China becomes more self-sufficient with this strategy, it would provide China the grounds for a greater decoupling from its strategic counterparts.
China’s Innovation Infrastructure: investing for the future
In the long term, the main pillar in China’s move towards self-reliance is the creation of an innovation infrastructure which is “active in creating, leading, and defining international technological standards.” A country’s innovation performance is inextricably tied to the underlying innovation infrastructure, which includes components such as higher education of technical workforce, tax treatment of R&D activities, access to venture capital, and industry/university/government partnerships. Having such an ecosystem would allow China to “free itself from dependency on foreign technology and develop indigenous, high-tech capabilities that satisfy its lucrative domestic market and serve and strengthen its military.”
It is accepted that the United States is the world’s innovation leader, but this position is not unassailable. The last few decades have seen China repeatedly increasing their assault for the top spot. ‘Made in China 2025’ and its immediate predecessor, the ‘National Medium and Long-Term Plan for Science and Technology (2006-2020)’ are the latest policies designed to move China toward the goal of technological leadership. Under these ambitious national policies, China has undertaken a broad range of initiatives with the aim of strengthening innovation infrastructure.
China has taken a number of steps to improve its R&D infrastructure. China’s 13th Five-Year Plan includes increased R&D spending by the Ministry of Science and Technology, National Natural Science Foundation, and Academy of Sciences to stimulate innovation and achieve global leadership through innovation. The plan highlights 10 priority sectors: new advanced information technology, automated machine tools and robotics, aerospace and aeronautical equipment, maritime equipment and high-tech shipping, modern rail transport equipment, new-energy vehicles and equipment, power equipment, agricultural equipment, new materials, and biopharma and advanced medical products.
It is important to note that advancements in many of these fields have the potential to be used in both civilian and military applications. Domestic advancements in military technology could allow China to expand its sphere of influence by exporting advanced weaponry to strategic allies and more confidently stand up to the US’s military arsenal.
China has also taken steps to revamp its universities. In imitation of the US style of education which focuses not solely on imparting technical skill but also the personal development of students, China has invested in creating homegrown liberal arts colleges. Additionally, China has welcomed projects spearheaded by foreign universities, such as NYU Shanghai, with the hope they will import innovation-focused sensibilities. However, this is not to say China is neglecting the technical side of education. China has also in the last decade established Shanghai University of Science and Technology, which aims to be California Institute of Technology’s oriental rival. This broad and multifaceted effort in improving higher education seeks to address the lack of scientific talent caused by Mao’s social experiments and produce a domestic pipeline of highly skilled talent who can drive the next generation of China’s economic growth.
However, although China’s total research and development (R&D) expenditures are growing faster than those of the United States, China is still at a lower absolute level. Similarly, private venture capital spending in the US is still significantly higher than in China. Additionally, it is unlikely the US will take China’s steady advancement without some form of action or retaliation of their own. A richer and longer history of innovation coupled with a more liberal business environment is likely to mean that every dollar spent by the US on their innovation ecosystem will lead to a greater compound in some measure of innovative efficiency as compared to China.
In the grand scheme of things, China’s techno-nationalism is evident in its innovation ecosystem. China’s innovation drive is derived from its national unity programme: the Jǔguó system (举国体制). This national mobilisation programme linking universities, incubators, industries, high-tech parks to accelerated IPO is the backbone of China’s technology industry as it has paved the way for effective decoupling and self-reliance in the field of high-tech/GPTs. With 100+ national labs and 100+ science and technology parks, China’s Jǔguó system resembles the ‘Olympic Gold medals model’ in that it is results-oriented. A similar ambition underlies China’s technology race; instead of tallying the costs of innovation, with no particular regard to efficiency, the Chinese state is injecting capital to strengthen its capabilities in developing GPTs.
Technology colours every facet of modern life, and having a framework of superior technology provides the country who wields it great economic, military and by extension, geopolitical might. China has a vested interest in securing technological self-sufficiency and reducing its reliance on its strategic competitors. China’s approach to achieving this is two pronged: (1) in the short term, utilise ‘mercantilist’ strategies and policies to close the technological gap between China and her competitors; and (2) in the long term, invest heavily in creating a domestic innovation ecosystem which is both self-reliant and expands the technological gap between China and competitors in China’s favour.
It is certain that China’s competitors will not let China go about realising this vision without significant opposition. Given both China and the US’s global importance, many smaller countries will inevitably be caught in crossfire should tensions escalate. The global geopolitical environment for the next generation(s) will be centred around this complicated struggle for primacy between the number one and number two superpowers. The CCP should seek to foster more foreign participation in the contested technology sectors to offset the trepidation induced by China’s rapid technological developments.
This article gives the views of the authors, and not the position of the China Foresight Forum, LSE IDEAS, nor The London School of Economics and Political Science.