Xi Jinping’s technology policy in the spotlight

Chinese President Xi Jinping proposing a toast at the welcoming banquet for leaders attending the Belt and Road Forum at the Great Hall of the People on April 26, 2019 in Beijing, China.

Nicholas Asfouri | fake images

Xi Jinping once declared, China should “prioritize innovation” and be at the “forefront (of) breakthrough technologies, modern engineering technologies, and disruptive technologies.”

Since that speech in 2017, Beijing has talked about the technologies it wants to increase its prowess in, ranging from artificial intelligence to 5G technology to semiconductors.

Five years after Xi’s speech at the last National Congress of the Communist Party of China, the global reality of the world’s second largest economy has been transformed. It comes amid an ongoing trade war with the US, challenges from Covid and a change in political direction at home that have affected some of Beijing’s goals.

On Sunday, the 20th National Congress, which takes place once every five years, will start in Beijing. The high-level meeting is expected pave the way for Xi to continue leading the Communist Party for an unprecedented third five-year term.

Xi will assess China’s achievements in science and technology, which have yielded mixed results.

“I agree that it’s a mixed bag,” Charles Mok, visiting scholar at Stanford University’s Global Digital Policy Incubator.

Explanation of the economic legacy of the Chinese Communist Party

He said China sets “lofty” goals to be the best, but “they are limited politically and ideologically in terms of the strategies to achieve them.”

Private tech companies are reeling under tighter regulation and a slowing economy. China is far from self-sufficient in semiconductors, a task made more difficult by recent US export controls. Censorship on the mainland has also tightened.

But China has made some notable progress in areas like 5G and space travel.

Technological war between the United States and China

“It would appear that Xi underestimated the challenges China faced in overcoming its dependence on foreign, mostly American, companies…”

paul triolo

technology policy leader, Albright Stonebridge

zero covid

Semiconductor self-sufficiency

Beijing put a lot of emphasis on self-sufficiency in various areas of technology, but especially in semiconductors. The push to boost China’s domestic chip industry got a further boost when the trade war started.

in his his five-year development plan, the 14th of its kindBeijing said it would make “self-reliance and self-improvement in science and technology a strategic pillar for national development.”

One area in which he hoped to do so was in semiconductors.

But a series of restrictions by the US have put a dent in those ambitions.

“It would appear that Xi underestimated the challenges China faced in overcoming its reliance on foreign, mostly American, companies in key ‘core’ or ‘hard’ technologies like semiconductors,” Paul Triolo, technology policy leader at Albright Stonebridge consultancy , he told CNBC.

“It also failed to take into account the growing concern in the United States with semiconductors as fundamental to key technologies.”

Looking ahead, the latest set of US controls will put a dent in China’s technological ambitions.

paul triolo

technology policy leader, Albright Stonebridge

Things didn’t look as “bleak” for China’s semiconductors in 2017 as they do now, Triolo said.

“Looking back, Xi should have redoubled efforts to boost China’s domestic semiconductor manufacturing equipment sector, but even there, a heavy reliance on inputs like semiconductors has made it difficult for Chinese companies to reproduce all the elements of those complex supply chains”.

The Biden administration unveiled a series of restrictions last week that aim to cut off China from key chips and manufacturing tools to make those semiconductors. Washington seeks to cut off the supply of chips for critical technology areas such as artificial intelligence and supercomputing.

Analysts previously told CNBC that this likely to hamper China’s domestic tech industry.

That’s because part of the rules also requires certain foreign-made chips that use US tools and software in the design and manufacturing process to obtain a license before exporting them to China.

Chinese domestic chipmakers and design firms still rely heavily on American tools.

Chipmakers, such as the Taiwanese firm TSMC, the world’s most advanced semiconductor maker, also rely on American technology. That means any Chinese company that relies on TSMC can be deprived of chip supplies.

Meanwhile, China has no domestic equivalent of TSMC. China’s leading chip maker, minimum salary, it is still generations behind TSMC in its technology. And with the latest US restrictions, SMIC might have a hard time catching up.

So China is still a long way from self-sufficiency in semiconductors, even though Beijing is putting a lot of focus on it.

“Looking ahead, the latest set of US controls will make a big dent in China’s technological ambitions, due to restrictions on semiconductor advances,” Triolo said. The restrictions “will spread across multiple associated sectors and make it impossible for Chinese companies to compete in some areas, such as high-performance computers and AI-related applications such as autonomous vehicles, which rely on hardware advances to progress.” .

China’s tech crackdown

Looking back at Xi’s 2017 speech, there were signs that regulation was on the way.

“We will provide more and better online content and establish a system for integrated Internet management to ensure clean cyberspace,” Xi said at the time.

But the pace at which regulations were passed and the scope of the rules took investors by surprise, with billions wiped from the share prices of China’s biggest tech companies, including Alibaba and Tencent, in 2021. and 2022. They have yet to recover from those losses.

Analysts noted that even though there were mentions of cleaning up the internet, the swift nature of the regulation that subsequently swept through China was unlikely to have been anticipated, even by Xi himself.

“While I think in 2017, Xi was absolutely focused on strengthening platform regulation, I highly doubt that the fast-paced nature of… [the regulation] it was pre-planned,” Kendra Schaefer, a partner at consultancy Trivium China, told CNBC.

Five years ago, Xi said the government would “remove regulations and practices that impede the development of a unified market and fair competition, support the growth of private enterprises, and stimulate the vitality of various market entities.”

This is another commitment that seems not to have been fulfilled. China’s tech giants are also posting the slowest growth in their history, in part due to tighter regulations. Part of the story, analysts say, is about Xi exerting more control over powerful tech companies that were perceived as a threat to China’s ruling Communist Party.

“It is obvious that they are not supporting the growth of private companies,” Mok said. “From my point of view, they have not been successful.”

“Think of the fact that you are putting the Party’s agenda and total control as the top priority… No one can be successful unless the Party manages to maintain its dominance and total control.”

China’s successes from 5G to space

Despite the challenges, China has been successful in science and technology since 2017. Space exploration has been a key focus.

In 2020, a Chinese lunar mission concluded with its spaceship returning to Earth with lunar samples, a first for the country. That same year, China completed its own satellite navigation system called Beidoua rival to the Global Positioning System (GPS) owned by the United States government.

Last year, China landed an unmanned spacecraft on Mars and is planning his first manned mission to the Red Planet in 2033.

China was also one of the world’s leading nations in roll out next-generation 5G mobile networksthat promise super-fast speeds and the ability to support new industries like autonomous driving.

In electric vehicles, China has also made progress. The country is the world’s largest electric car market and home to CATL, the world’s largest electric vehicle battery maker, which is looking to expand abroad.

What’s next for Xi’s tech policy?

The regulatory assault on the domestic tech sector, which has slowed in recent months, will not go away entirely.

Even if regulatory actions are “moving into a new phase” in Xi’s third term, companies like Alibaba and Tencent won’t necessarily see the breakneck growth speeds they’ve seen in the past, Mok said.

“Even if they stand up, it’s not the same ground. They won’t see that growth, because if China’s overall GDP and economy growth is like what people are talking about now for the next few years… then, why should I do it?” do they even outperform the entire Chinese market?” Mok said.

Technology will undoubtedly remain a key focus for Xi over the next five years, with a focus on self-sufficiency. China is likely to continue to strive to succeed in areas that Beijing considers “frontier” technologies, such as artificial intelligence and chips.

But Xi’s job in technology is now much more difficult.

“As the US continues to tighten controls in other areas of technology and squeeze tech investments into China through outbound investment reviews, the overall engine of innovation in China, hitherto driven by the private sector, will also start to fail, and the government has to step in more and more with funding,” Triolo said.

“This is not necessarily a recipe for success, except for heavy sector manufacturing, but not for advanced semiconductors, software and artificial intelligence.”

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