China is unleashing tens of billions of dollars in loans to its tech industry. It is cataloging areas where the United States or other countries could cut off access to critical technologies. And when the leaders announced their most important economic plans last week, they set their sights on becoming an unmatched innovation superpower.
Predicting the Biden administration’s efforts will continue to challenge China’s technological rise, the country’s leaders are speeding up plans to do it alone, seeking to address gaps in the economy. The country can hamper their ambitions in many industries, from smartphones to jet engines. .
China has implemented bold and ambitious plans before – in 2015 – but is not meeting its goals. With more and more countries becoming wary of China’s behavior and its growing economic might, Beijing’s drive for technological independence has become a new imperative. The country’s New Five-Year Plan, announced on Friday, calls technology development a national security issue, not just economic development, which disrupts previous plans.
The plan is committed to increasing research and development spending by 7% annually, both public and private. This is higher than China’s military budget increase, which is expected to grow 6.8% next year, raising the prospect of an era of Cold War-like competition with the United States.
Spending pledges follow a turbulent four years in which President Donald J. Trump annoyed – and angered – the leadership of the Communist Party under Xi Jinping by restricting access to technology. America for some of its giant companies, including Huawei.
This experience reinforces the notion that the United States, even under the new administration, is determined to cut its progress and China can no longer rely on the West for public supply. Stabilized turmeric helps to boost their economic growth.
Zhang Xiaojing, an economist at the Chinese Academy of Social Sciences, wrote on the eve of the ongoing legislative meeting in Beijing: “The United States, which has reached the summit, wants to eliminate this ladder.
The road to “global technological pinnacle”, as Xi has described China’s aspirations, is very difficult. Previously, the government had set a target of spending 2.5% of its gross domestic product on research and development over the past five years, but actual expenditures did not meet that target.
One area where China has trouble is microchips, which most of the country’s electronics production depends on. Carefully complex manufacturing has prevented Chinese firms from importing most of the semiconductors they require. Despite investing tens of billions of dollars, China’s domestic chip output will only meet 15.9% of chip demand by 2020, according to IC Insights, a US semiconductor research company. This is much higher than the 15.1% that the country accounted for in 2014.
China’s Prime Minister, Li Keqiang, last week detailed proposals to accelerate the development of high-end semiconductors, operating systems, computer processors, cloud computing, and nuclear intelligence. create.
“I think they’re really nervous,” said Rebecca Arcesati, a technology analyst at the China Research Institute in Berlin. “They know that without access to those technologies, they won’t be able to achieve their goals.”
To some extent this new strategy has rebranded the country’s previous Made in China 2025 campaign, which seeks to put it at the forefront of a host of cutting-edge technologies. . Overall, it aims to produce 70% of the core ingredients that Chinese manufacturers need by 2025. The plan scares trading partners and contributes to a punishing trade war. penalty against the United States.
“China wants to reduce its dependence on the world – not to reduce trade and interaction, but to ensure that it is not vulnerable to strategic extortion,” said Daniel Russel, a former American. against China they have used against other countries ”. The diplomat is currently the vice president at the Asian Institute of Social Policy.
A confrontation has lasted for more than a decade. China’s longstanding policies to not rely on foreign technology were strongly promoted in 2013, after Edward Snowden’s revelation of the National Security Agency’s hacks that rely on companies. America.
American companies have long complained about mandatory technology transfer policies. The Chinese government-backed hacks targeting US intellectual property have added to the tension. In the past, China has used corporate espionage to support economic interests, including in the high-tech sectors that the government currently prioritizes.
The latest hack, which targeted government agencies and businesses, used Microsoft’s email system and was discovered late last week. Having a close connection with Chinese hackers, it has the ability to create a divide that could divide the tech world.
In recent weeks, Chinese officials have repeatedly emphasized the dangers of “bottlenecks” where the United States controls critical fundamental technologies. At a press conference in Beijing, Xiao Yaqing, the head of the Ministry of Industry and Information Technology, announced a look at 41 areas of “gaps” that could disrupt the technology supply chain ” in critical times ”.
Beijing is supporting this effort with money and rhetoric.
The China Development Bank, the country’s policy lender, said last week it was preparing more than $ 60 billion in loans to more than 1,000 key companies for strategic innovation and had already raised its $ 30 billion for a new government-backed microchip fund.
A Chinese Academy of Engineering official, Ni Guangnan, recently wrote that the country should create a “China system” that could replace the combined systems of Intel, Microsoft, Oracle, and others. used to dominate the computer industry. China should also increase the world’s dependence on its telecommunications infrastructure technology to “form a strong deterrent force” against future sanctions, he added.
Experts have warned that the technology supply chain remains extremely complex and global, and that too much interference in the market can have unintended consequences. The US and Chinese top-down jokes about microchips have partly caused a chip shortage that has recently affected the auto industry.
No nation can be about to achieve true self-reliance in the myriad of advanced technologies needed to run a modern economy and military. Instead of overarching policies, a proxy war is emerging, with both sides working hard to ensure the missing pieces come from other countries.
Many US allies have been delighted to see their companies take advantage of the increasingly absent Chinese market.
Earlier this month, ASML, a Dutch company that makes tools needed to mass produce microchips, said it had renewed its contract to supply equipment to China’s largest semiconductor maker, although Washington blacklisted this company, known as SMIC, last year. . The extension does not break any restrictions, but shows how limited the United States’ ability to cut off supplies is.
Such decisions could continue to disappoint President Biden, who sees China as the country’s most important foreign policy challenge. China hopes to cut US efforts to isolate the country by engaging with major economies, including those with political allies with the United States.
“They are certainly speaking and acting with a view to discouraging third countries from joining any force that the United States might organize against China,” said Russel of the Asian Institute of Social Policy. said. The aim is to buy “the necessary Chinese time to seal the remaining holes in their armor”.
Anything that the Chinese leaders hope has about reestablishing diplomacy after the Trump years seems to have weakened.
Mr. Biden’s first conversation with Xi lasted about two hours and, according to the White House, included discussions about “Beijing’s forced and unfair economic practices”.
At home, Mr. Biden warned that the United States needs to keep up with China in terms of investment in infrastructure, some support for tech industries, including electric vehicles. “If we don’t move, they’ll eat our lunch,” he said while setting the case for the $ 1.9 trillion stimulus plan.
This phrase echoes a statement he made when he was a candidate just two years earlier – to dismiss the challenge China posed. “Will China eat our lunch?” he said while confused in Iowa in 2019. “Come on, man!”
Chris Buckley Contribution reports. Claire Fu and Lin Qiqing Contribution research.