/Embattled China seeks greater technological self-reliance (via Qpute.com)
East Asia Forum

Embattled China seeks greater technological self-reliance (via Qpute.com)


Author: Denis Simon, Duke University

One of the most conspicuous aspects of China’s 14th Five Year Plan is the new emphasis on technological self-strengthening (keji zili ziqiang). During the Cultural Revolution, as China sought to delink itself from the West and follow a policy of autarky, self-reliance (zili gengsheng) became an important ideological path chosen by the Maoist leadership. With the onset of the reform and opening policies initiated under Deng Xiaoping from the 1980s, technological self-reliance was largely abandoned in favour of a set of policies that sought to promote China’s increased integration with the world economy and international science and technology ecosystem.

A logo of Semiconductor Manufacturing International Corporation (SMIC) is seen at China International Semiconductor Expo (IC China 2020) in Shanghai, China, 14 October 2020 (Photo: Reuters/Aly Song).

Even after China launched its 15-year National Medium-to-Long-Term Plan for Science and Technology Development (2006-2020) and began a new policy position built around the theme of ‘indigenous innovation’ (zizhu chuangxin), connectivity with the international economy was still a core aspect of Chinese policy under both former president Hu Jintao and current president Xi Jinping. In contrast to what many observers thought was a distinct turn inward, these efforts were chiefly aimed at strengthening the performance of the Chinese research and development ecosystem to yield more of the intellectual capital China needed to drive its economy.

With the onset of the US–China trade war after 2016 — which was always more of a ‘technology war’ than a real trade war — the US government began to tighten the export of advanced know-how and equipment to China, especially for semiconductor chips and the equipment to manufacture advanced electronics devices. The Chinese government has likened this to placing a ‘choke hold’ on its future competitiveness and transition into becoming a more innovation-driven nation. The Chinese government has now apparently identified 35 ‘stranglehold’ technologies around which it feels vulnerable due to existing or potential Western controls.

US restrictions impacted Chinese telecommunications companies such as Huawei and ZTE, as well as key Chinese firms in the semiconductor industry such as SMIC. Emphasising technological self-reliance is not by choice, but rather the result of Chinese leaders feeling backed into a corner by the United States and other countries anxious to slow the pace of Chinese technological progress.

The drive towards greater technological self-reliance reflects heightened Chinese concerns that they will be denied access to core technologies, especially advanced semiconductor devices and the equipment to produce them. These chips form the building blocks for everything in high-tech, including artificial intelligence, quantum computing and advanced telecommunications.

China needs alternative sources of supply or domestic capabilities to meet its own needs. Neither path is ideal: the United States is continuing to apply pressure on its European and Asian allies to align with US efforts to restrict technology exports to China and the build-up of such advanced production capabilities in China is not something that can be done overnight. Xi has exhorted Chinese industry to focus on building ‘secure and controllable supply chains’ to overcome dependence on the West, but this will not be easily accomplished.

China also plays an important role in consuming and producing information-intensive products. It serves as a component manufacturer, as well as an assembler, sub-assembler and producer of many products that contain high-end microelectronics components. It accounts for one-third of global semiconductor demand, though Chinese producers can only meet 10 per cent of that demand. If Chinese firms are constrained from importing and lack domestic sources of supply, they could lose out in terms of the prevailing international division of labour.

In addition, limiting Chinese purchases of final devices, as well as relevant production equipment, would likely have a tumultuous impact on Western firms like Intel, Qualcomm and others who depend on sales to the Chinese market. While it is clear that China’s ability to buy devices on the open market will not be totally cut off, it is clear that the US government intends to deny China access to the most advanced items.

Placing China in a corner could produce serious reverberations. The Economist recently argued that Taiwan had become the most dangerous place on earth due to the possibility of military conflict. Taiwan is the home of Taiwan Semiconductor Manufacturing Company (TSMC). TSMC supplies 54 per cent of the global semiconductor market while SMIC and Hua Hong, the major Chinese foundry operations, supply only 5 per cent and 2 per cent respectively.

Boxing in China by restricting access to advanced semiconductor technology is a potentially risky path that could catalyse heightened cross-strait tensions— with one worst-case outcome being the invasion of Taiwan by the Chinese military to seize TSMC’s facilities. While such a scenario is not likely at this juncture, the overall situation is fragile and uncertainties have left all sides increasingly uncomfortable.

In the 1930s, the Japanese government felt a similar type of stranglehold as Western countries prevented Japan from accessing the natural resources and raw materials it believed it needed to fuel its industrialisation. Japan’s subsequent invasion of China and parts of Southeast Asia and attack on Pearl Harbor was motivated in part, among other factors, by growing Japanese concerns about sustaining its path to modernity and economic prosperity. Today’s evolving situation has many parallels, except that the focus is now on advanced technologies such as semiconductor chips.

The imperatives motivating Chinese leaders towards greater technological self-reliance have the potential to drive China further outside of the mainstream of the global economy. Were China to succeed in achieving greater technological independence from the West, the global economy could fundamentally change. Whether or not China will feel compelled to go down this path remains uncertain as the world seems to be shifting away from techno-globalism towards techno-nationalism.

Denis Simon is Professor of Chinese Business and Technology at the Fuqua School of Business, Duke University.

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