The Biden administration has pursued an industrial strategy aimed at building manufacturing capacity at home and diversifying supply chains in areas such as clean energy, electric vehicles, semiconductors and high-performance computing. At the same time, it’s been limiting not just advanced chips but chip-making equipment and design software that can be exported to China. It has enlisted allied countries so that suppliers like ASML Holding NV in the Netherlands and Japan’s Nikon Corp. join its export controls. US National Security Adviser Jake Sullivan has said the US and its allies want to maintain “as large a lead as possible” to ensure that “technology that could tilt the military balance … is not used against us.”
2. Where does China stand technologically?
China has been rapidly evolving from an imitator to an innovator in advanced industries from supercomputers to EVs to smartphones, threatening US market share as well as national security, according to a report this year from the Information Technology & Innovation Foundation, a Washington-based think tank. It also dominates global processing of the critical minerals vital for things like solar panels and lithium batteries. China completed its own space station last year and is planning to build a lunar base. The US Defense Intelligence Agency said in March that China was in the lead in developing hypersonic weapons, which can fly fast and low and carry nuclear warheads. But its aspiration to become a true tech rival to the US faces deep challenges. Chief among them: the country doesn’t have control over its supply of the sophisticated semiconductors that are the brains of modern electronics. In 2021, Chinese companies spent more than $400 billion buying chips based largely on Western technology — more than the country spent on oil. Building domestic production capacity for advanced chips is extremely difficult, not only because of the cost but also the speed at which the technology evolves.
The Communist Party this year has pushed private capital to collaborate on government initiatives aimed at addressing areas of weakness, such as robotics, quantum computing and chips, rather than “softer” internet services. It created a central technology commission to enhance oversight and gave the Ministry of Science and Technology expanded powers to help drive fundamental innovation. The party also established a national agency to police and develop data as a strategic resource. Those policies all feed into what’s called the “whole nation” strategy. In March, then-Premier Li Keqiang described it as encouraging private capital to collaborate on major government initiatives aimed at addressing areas of weakness. For example, cities and state-owned telecommunications companies awarded contracts worth an estimated $1.4 trillion to private companies like Huawei Technologies Co. and Hangzhou Hikvision Digital Technology in 2020 to lay fifth-generation (5G) wireless networks, install cameras and sensors, and develop artificial intelligence software. The aim was to underpin autonomous driving, automated factories — and mass surveillance. China also has several programs that collectively are disbursing trillions of dollars:
So far the Chinese government’s hefty investments have borne little fruit, with state champions including Huawei, Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies Co. struggling to advance their products under the weight of progressively tighter US sanctions. A flurry of anti-corruption probes last year that targeted people connected to the state’s secretive investment vehicle, known as the Big Fund, was seen as reflecting official frustration. This year, China was said to be looking at alternative ways to boost industry, such as lowering the cost of materials. It’s unclear though whether Beijing is ready to ditch entirely the investment-heavy approach that worked so well in propelling its manufacturing sector over past decades. Yangtze, for example, has secured $1.9 billion in state capital to help it expand capacity, albeit for making less-advanced memory chips.
Signals have been decidedly mixed, as they usually are in China’s opaque system: newly appointed Premier Li Qiang voiced his “unwavering support” for the private sector, and the central bank announced it was exploring ways to support tech companies — just after China exerted further control over Alibaba by taking a so-called “golden share” in its media business unit. Meanwhile, China’s production of key electronics declined in the first quarter of 2023, a situation that is likely to worsen with the Biden administration’s curbs on cutting-edge chips. In April, Xi again exhorted companies to break technological barriers, saying innovation was key to realizing “high-level technological self-reliance.” That speech came shortly after China opened a new front in the battle by announcing a cybersecurity review of imports from the largest US maker of memory chips, Micron Technology Inc. In May the agency said the products have security risks and moved to ban them from critical infrastructure — in its first significant retaliation for US export controls.
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