For US politicians, China’s potential to dominate sensitive cutting-edge technologies poses one of the biggest geopolitical threats of the next few decades.
Chinese President Xi Jinping (習近平) is similarly worried that the US would block China’s rise, and this week, he is expected to unveil plans for greater self-sufficiency.
At an annual session of the Chinese National People’s Congress, top Chinese Communist Party (CCP) leaders are expected to approve a five-year policy blueprint to cut dependence on the West for crucial components like computer chips, while also making big bets on emerging technologies from hydrogen vehicles to biotechnology.
Illustration: Mountain People
The push to mobilize trillions of US dollars could help China surpass the US as the world’s biggest economy this decade and cement Xi’s goal of turning the nation into a superpower.
“The most important thing is the magnitude of the ambition — this is bigger than anything Japan, South Korea or the US ever did,” said Barry Naughton, a professor at the University of California, San Diego, and one of the world’s top researchers on the Chinese economy. “The ambition is to push the economy through the gateway of a technological revolution.”
The race to develop the most advanced technology is stoking US-China tensions following decades of integration that raised living standards around the globe. Now, the two countries are aiming for self-sufficiency in strategic areas, each fueled by fear that the other wants to upend their political system: One that sees free speech and democracy as essential to prosperity, and another that puts one-party rule above individual liberty to deliver economic growth.
At stake for Xi is more than just improving the lives of China’s 1.4 billion people, which is key to the CCP’s justification for effectively banning political opposition. He also wants to show that the party can play a successful role in guiding the economy, particularly after former US president Donald Trump sought to undermine its legitimacy to rule and destroy Chinese technology giants such as Huawei Technologies Co and Semiconductor Manufacturing International Corp, China’s largest semiconductor manufacturer.
Beijing’s confidence in its political system has grown after it quickly contained COVID-19 following delays by local officials in sharing information that allowed it to spread around the globe.
Economists forecast that the Chinese economy would expand 8.3 percent this year, compared with 4.1 percent in the US.
“The pandemic once again proves the superiority of the socialist system with Chinese characteristics,” Xi said last year.
On Monday, he called the party’s “glorious traditions” a “precious spiritual treasure.”
However, the US is now looking for allies to help thwart Xi’s aspirations, through denying Beijing access to key technology and shoring up its own supplies of strategic goods.
Last week, US President Joe Biden announced a wide-ranging supply-chain review of semiconductors, pharmaceuticals, rare-earth metals and high-capacity batteries, as part of a broader plan to outcompete China that includes US$2 trillion in infrastructure spending.
“If we don’t get moving, they’re going to eat our lunch,” Biden told reporters last month after holding his first call with Xi.
Last month, EU Commissioner for Trade Valdis Dombrovskis separately highlighted concerns that Beijing was giving unfair advantages to Chinese companies, saying that the bloc would cooperate with the US on challenges stemming “from the socioeconomic model of China.”
Global investors are closely watching the legislative session, which starts today and runs for about a week.
While the CCP has shown that it can quickly channel billions of US dollars to control the supply chains of emerging sectors like solar power and electric vehicles, it has also swiftly reined in the private sector if risks escalate — seen by the 11th-hour halt of an initial public offering by billionaire Jack Ma’s Ant Group Co in November last year.
Chinese Premier Li Keqiang (李克強) is expected to outline plans to keep the economy humming over the next 12 months, which might include fresh measures to boost consumption even as he stops short of giving an official growth target for a second straight year.
Perhaps more importantly, the legislative session is also expected to reveal details of longer-term plans to develop more than 30 “choke-hold” technologies that China currently cannot produce, from chipmaking equipment to smartphone operating systems and aircraft design software.
The focus on technology is more urgent due to the waning efficiency of China’s economic model, which has relied on channeling credit into property investment and infrastructure to shore up growth.
Yet, with housing sales peaking as urbanization slows and local governments struggling to find viable infrastructure projects, Beijing must leverage technology to boost productivity to meet a 2035 target of doubling the size of its economy from last year.
One key number to watch is spending on research and development: Authorities are expected to reveal a target that would match or exceed the US’ annual spending of about 3 percent of GDP. More would likely be allocated to state-funded research, with the Chinese Ministry of Science and Technology announcing priority areas such as hydrogen energy, electric vehicles and supercomputing.
From 2014 to 2019, Beijing raised at least 6.7 trillion yuan (US$1 trillion) in a series of venture capital funds to take stakes in high-technology companies, Naughton said.
China has already announced plans to invest US$1.4 trillion from last year to 2025 in high-tech infrastructure, from artificial intelligence to 5G base stations and high-speed rail.
“If that does end up paying off and Xi Jinping is able to engineer a more centrally steered growth model, then China will overcome the long list of challenges that it’s facing domestically,” said Jude Blanchette, a researcher at the Center for Strategic and International Studies. “If the state-led model is as unproductive as many think it is, then China will have wasted a generation’s capital pursuing a dream of centrally planned technological innovation.”
China’s record of success is mixed.
An example of what Beijing has in mind is biotechnology, which a decade ago barely existed in China and was earmarked as a “strategic industry” in its five-year plan published in 2016.
From that year to last year, the market capitalization of listed Chinese companies developing innovative drugs rose from US$1 billion to US$217 billion, McKinsey data showed.
In 2019, the first China-developed cancer treatment was approved in the US.
The main area in which China has struggled is chipmaking, with its top companies still at least five years behind global rivals.
China’s next five-year plan would likely include measures to boost financing for semiconductors, treating the sector with the same kind of priority it once accorded to building its atomic capability.
However, there is no guarantee that it would work — and the avalanche of state-directed investment risks spawning bad debt that destabilizes the economy.
A taste of such a possibility came last year, when state-owned Tsinghua Unigroup Co, whose investments in chip production failed to pay off, roiled financial markets by defaulting on US$2.5 billion of debt.
To reduce waste, Beijing has signaled that it would continue to rely predominately on private companies to meet its technology goals through tax breaks, direct investment in start-ups and minority stakes in promising, but financially troubled companies.
Beijing also wants more investment from foreign companies such as Tesla Inc, as long as they help meet the goal of upgrading the Chinese technology sector.
While the West sees Xi’s ambitions as a threat, Beijing’s push to achieve self-sufficiency is mainly a defensive move by the CCP, said Meg Rithmire, an associate professor at Harvard University.
“If the CCP thought there were no dark storm clouds on the horizon, I don’t think they would be taking such a heavy hand,” Rithmire said. “It’s a risk-management mindset.”
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