asiasociety.org Open in urlscan Pro
2620:12a:8001::3  Public Scan

Form analysis
2 forms found in the DOM

GET /australia/search/google

<form action="/australia/search/google" method="get" class="inline-form search-form" data-toggler=".mobile-search-visible" aria-expanded="false">
  <fieldset>
    <legend class="visually-hidden">Search</legend>
    <label for="search-field" class="visually-hidden">Search</label>
    <input type="search" name="keys" placeholder="" class="search-field">
  </fieldset>
</form>

GET /search/google

<form action="/search/google" method="get" class="inline-form search-form" id="search-main" data-toggler=".mobile-search-visible" aria-expanded="true">
  <fieldset>
    <legend class="visually-hidden">Search</legend>
    <label for="search-field" class="visually-hidden">Search</label>
    <input type="search" name="keys" placeholder="Search" class="search-field">
    <button class="search-submit">
      <span class="icon-search show-for-medium"></span>
      <span class="show-for-small-only button">Search </span>
    </button>
  </fieldset>
  <div id="mobile-hider" class="show-for-small hide-for-medium"></div>
</form>

Text Content

Skip to main content

Unsupported Browser Detected.
It seems the web browser you're using doesn't support some of the features of
this site. For the best experience, we recommend using a modern browser that
supports the features of this website. We recommend Google Chrome, Mozilla
Firefox, or Microsoft Edge

×
 * Back to asiasociety.org

 * Events
   * Upcoming Events
   * Past Events
   * Global Live Webcasts
   * Program Streams
 * Issues
   * Complex Asia
   * Trade Smarter
   * Living with China
   * Generation Asia
 * Analysis
   * Briefing MONTHLY
   * China Executive Briefing
   * Disruptive Asia
   * Southeast Asia and COVID-19 Project
   * Viet Nam Initiative
   * Australia and Korea: Middle Power Parallels
   * CEO Roundtables
   * Asia Taskforce
   * Webcast Videos
   * Explainers
   * Looking Ahead
 * Experts
   * Asia Society Policy Institute in Australia
   * Distinguished Fellowships
   * Scholar-In-Residence
   * Media Enquiries
 * News
 * Members and Partners
   * Become a Member
   * Our Members
   * Our Partners
 * Support Us
   * Support Asia Society Australia
   * Donate now
   * Planned giving
 * About
   * About Asia Society Australia
   * Our Strategic Plan
   * Our Programs
   * Our People
   * Our Board and Advisory Council
   * For the Media
   * Careers and Internships
   * Contact Us


Search Search
Australia
Search
Search Search Search

Australia
 * Events
   * Upcoming Events
   * Past Events
   * Global Live Webcasts
   * Program Streams
 * Issues
   * Complex Asia
   * Trade Smarter
   * Living with China
   * Generation Asia
 * Analysis
   * Briefing MONTHLY
   * China Executive Briefing
   * Disruptive Asia
   * Southeast Asia and COVID-19 Project
   * Viet Nam Initiative
   * Australia and Korea: Middle Power Parallels
   * CEO Roundtables
   * Asia Taskforce
   * Webcast Videos
   * Explainers
   * Looking Ahead
 * Experts
   * Asia Society Policy Institute in Australia
   * Distinguished Fellowships
   * Scholar-In-Residence
   * Media Enquiries
 * News
 * Members and Partners
   * Become a Member
   * Our Members
   * Our Partners
 * Support Us
   * Support Asia Society Australia
   * Donate now
   * Planned giving
 * About
   * About Asia Society Australia
   * Our Strategic Plan
   * Our Programs
   * Our People
   * Our Board and Advisory Council
   * For the Media
   * Careers and Internships
   * Contact Us

Sections +
×





CHINA’S QUEST FOR GREATER TECHNOLOGICAL SELF-RELIANCE


BY DR BATES GILL, SCHOLAR-IN-RESIDENCE, ASIA SOCIETY AUSTRALIA

Romsvetnik/Shutterstock
March 23rd, 2021


ANOTHER CHINA DREAM

China’s yearly National People’s Congress (NPC), which convened earlier this
month in Beijing, generated more attention than usual. Most of the headlines
focused on the confab’s imposition of additional electoral restrictions in Hong
Kong, a predictable but nonetheless dismal further deterioration in that city’s
political vitality.

But amidst the news about Hong Kong, economic growth targets for 2021, and
self-congratulation for weathering the COVID-19 pandemic, the NPC also approved
an ambitious economic agenda for the next 15 years. In particular, the assembled
delegates endorsed a sweeping strategy to achieve greater technological
self-reliance in the coming decades. This strategic framework—first set out in
earnest by China’s top leader Xi Jinping last year—is more than mere economic
tweaking. Rather, if successful, this strategy will have profound implications
for global economics and geopolitics, including for Australia.

But what is driving this pursuit of self-reliance, especially for China,
arguably the greatest beneficiary of breakneck globalisation of the past 25
years? In a nutshell, Xi and other comrades at the top of the Chinese Communist
Party (CCP) understand they face significant economic challenges. Some are
long-standing. Others have arisen more recently. But they demand attention if
the country is to continue ascending the developmental ladder, become a
high-income country, and achieve “national rejuvenation” in the next three
decades. In basic terms, these troubles involve productivity, innovation, and
de-coupling. 


UNCERTAINTIES AHEAD

In spite of its economic success, China may face greater economic uncertainty
today than at any time since Deng Xiaoping’s reform and opening in the
1980s. Not only is China’s pace of economic growth slowing, but the slowdown is
structural and not merely cyclical. Also importantly, the slowdown has similar
aspects to troubled transitions which other emerging economies failed to
navigate, threatening to stall China in the ranks of middle-income countries. 

At its heart, China’s economic challenge is to change the growth model it has so
heavily relied upon since the 1990s. China’s remarkable economic sprint relied
mostly on capital investments and export-led growth, fueled by the influx of
rural-to-urban, inexpensive surplus labor as well as imported technology to
increase efficiency  Investment in capital stock helped to build the foundations
of a modern, export-led, industrial economy: power plants, telecommunication
networks, highways, railways, airports, harbours, and massive urban centers.

However, continuing the pace of economic growth based on this model has become
more and more difficult with each passing year. China’s demographics are an
immutably big reason for this as China’s growing number of elderly will need to
be supported by a dwindling working-age population. China’s workforce population
peaked in 2012 and has been in decline since, contributing to increasing labor
costs. China’s aging population also foretells increasing long-term pressures on
China’s savings rate and capital formation, human capital formation, and its
welfare and pension systems as the country grows old before it grows rich. In
addition, capital investments have reached a saturation point. 

China’s future economic future needs to rely less on capital investment—which in
the past was less concerned with efficient use of capital—and much more on
extracting efficiencies and productivity from existing capital stock. That means
gaining greater outputs per worker and unit of capital through such measures as
technological innovation, allocating capital toward higher-yielding results, and
shifting towards a greater consumption-led growth model. 

However, according to the International Monetary Fund, China’s post-COVID-19
recovery relied very heavily on government financial support which only extended
the burden of poorly-performing, capital-intensive state-owned enterprises
(SOEs). On the whole, PRC SOEs operate about 20 per cent less productively than
their private counterparts. But, because of their social, political, and
economic significance within the Chinese system, SOEs still retain privileged
access to resources such as capital and land while putting a disproportionate
drag on the economy. State-sector reforms are much needed and should include the
closure of loss-making firms, stricter budgetary controls on SOEs, and allowing
the market to have a greater say in the allocation of resources. But for the
current PRC leadership this appears to be too politically risky—if anything,
state and Party intervention in the governance of SOEs and the private sector
has increased. 

Beijing needs to address these challenges in order to avoid what has been called
the “middle income trap.” This situation arises when a country reaches
middle-income levels, but then—owing to higher wage costs and diminishing
productivity gains—fails to progress to high-income status. China’s gross
national income (GNI) per capita now stands at about U.S.$11,000 which,
according to the World Bank, makes China an “upper middle-income” country and on
the cusp of reaching the lower rungs of the high-income ladder. However, as the
World Bank reports, of the 101 middle-income economies in 1960, only 13 advanced
to a high-income level by 2008.

In addition, it appears a successful transition to high-income status is highly
correlated to “institutional quality”: greater political openness, good
governance, and the rule of law. Of the 13 economies just noted, the vast
majority of them—including PRC neighbors Japan, Singapore, South Korea and
Taiwan—developed high-quality political and legal institutions while transiting
beyond the middle-income trap. For Xi Jinping, avoiding this trap is imperative
but it also carries economic and political risk. Nonetheless, one of China’s
most acclaimed economists, former Minister of Finance Lou Jiwei, declared in
2015 that the country has a 50-50 chance of remaining in middle-income limbo if
significant reforms were not taken.


THE INNOVATION IMPERATIVE

Given the structural impediments to growth facing the PRC economy, new sources
of productivity must be generated. But how?  In the past, technology acquisition
was an important pathway for introducing greater efficiencies within the PRC
economic model.  In general, there are three methods by which a country can
acquire technology—“transacting”, “taking”, and “making”—and China has used all
of them to spur productivity gains and greater innovation. For much of its
economic rise since the 1980s, China has relied on the first two methods. Only
recently has the country begun to achieve the third by developing a greater
capacity for home-grown technology development. “Transacting” and “taking” can
still make an important contribution to China’s economic development. However,
over the course of the Xi Jinping era, these well-worn pathways have become
increasingly strewn with obstacles and risk, particularly in the most advanced
technological fields. 

In response, industrial policy under Xi Jinping has intensified efforts to
leverage both the public and private sector in the cause of indigenous or
“independent innovation” (自主创新). According to the PRC State Council, this means
“starting from enhancing the national innovation capacity, strengthen original
innovation, re-innovation, and absorption of imported innovation.” As this
definition suggests, China already has significant “national innovation
capacity”, including within the state-owned sector. For example, CRRC Group, the
world’s largest producer of railway equipment, is best known for its development
of world-leading high-speed trains. Other companies in the private sector such
as Alibaba, have transformed the world of e-commerce by leapfrogging from cash
to cashless payment systems. Alibaba, Baidu, and other PRC firms are also active
in cutting-edge artificial intelligence research.

However, much of the intellectual property of what China has produced and
exported over the past several decades was not indigenously developed nor a
result of domestic investment. According to one of the leading analysts of the
PRC economy, Arthur Kroeber, beginning in the 1990s, about one-third of PRC
exports on average have been manufactured by foreign-invested companies (a
figure which topped out at nearly 60 per cent in 2005). For exports designated
as “high-tech”, the proportion owing to foreign firms is even higher—persisting
at around two-thirds even in 2020. As Xi Jinping declared to a high-profile
conference on cyber security in 2016:

> Our dependence on core technology is the biggest hidden trouble for us... 
> Heavy dependence on imported core technology is like building our house on top
> of someone else’s walls: No matter how big and how beautiful it is, it won’t
> remain standing during a storm.

Xi has good reasons for concern. China is far from technological
self-sufficiency and remains dependent on foreign technologies and
market-access, especially in certain foundational technologies, such as
semiconductors, which will be crucial to the development of other advanced
industrial sectors. China scholar Mathieu Duchâtel points out that the value of
PRC imports of semiconductors is higher than its total imports from the European
Union and more than its oil imports, and that the country only produces about 15
per cent of its domestic requirements. He writes, “The world’s largest consumer
market for semiconductor and integrated circuits depends on foreign suppliers
not only for finished processors and other chips, but also for critical
equipment and software at each stage of the value chain.” In this critical
sector and others, the intensifying and more protectionist technological
competition between China and other major economies—such as the United States,
Japan, and Germany—will complicate Beijing’s pursuit of greater productivity,
innovation, and self-sufficiency.

As a result, China’s pursuit of technological innovation—whether through foreign
acquisitions or home-grown efforts—faces a range of potential chokepoints both
at home and abroad. U.S.-China economic competition intensifies this challenge
as it moves beyond trade to encompass technology and financial markets. U.S.
actions have included the restriction of exports to key PRC technology firms,
banning investments in Chinese companies deemed to have links with the PLA,
delisting major PRC companies from U.S. stock exchanges, trying to compel the
sale of PRC companies to U.S. competitors, ordering the possibility of sanctions
against financial institutions doing business in Hong Kong, stemming the flow of
PRC scientists and technical experts seeking to work and study in the United
States, and stepping up scrutiny of PRC talent recruitment programs. If and as
other advanced economies take up similar measures, China’s access to foreign
technology, capital and expertise will be increasingly constrained, especially
in cutting-edge fields.


SPURRING INDIGENOUS INNOVATION: “MADE IN CHINA 2025” AND “DUAL CIRCULATION”

In response, Beijing must significantly increase investments in research and
development (R&D) to develop new technologies, including technologies that do
not yet exist or technologies that are inaccessible due to trade and investment
restrictions. In order to spur indigenous innovation, China has increased its
R&D spending—total expenditure on R&D grew by double-digits annually between
2016 and 2020—and it is now the world’s second largest investor in R&D, behind
the United States. However, on other indicators of R&D spending, China does not
fare as well. For example, as a percentage of GDP (2.19 per cent in 2018),
China’s R&D spending ranks behind countries such as Finland, Israel, Japan,
South Korea, Sweden, and the United States.  To climb up the charts, the NPC
endorsed increasing R&D investment at an annual rate of 7 per cent in order to
reach 3 per cent of GDP by 2025.

One of the most important undertakings under Xi to promote indigenous innovation
is known as “Made in China 2025” (中国制造 2025). Launched by the State Council in
2015, it aims to promote indigenous innovation and help transform China into a
science and technology innovation superpower by 2049. Specifically, it is an
effort to upgrade its manufacturing base through the integration of information
technology—in essence pulling together the strengths of the state-owned and
private sectors—to improve productivity, increase the indigenous content of
higher-end technology products, reduce reliance on foreign inputs, and position
China as a global leader in critical technologies of the future.

The Made in China 2025 strategy gives priority to ten high-technology sectors:

 * next generation information technology
 * high-end numerical control machinery and robotics
 * aerospace and aviation equipment
 * maritime engineering equipment and high-tech maritime vessel manufacturing
 * advanced rail equipment
 * energy-saving vehicles and new energy vehicles
 * electrical equipment
 * agricultural machinery and equipment
 * new materials
 * biopharmaceutical and high-performance medical devices.

Made in China 2025 set off alarm bells for governments and businesses around the
world. Of greatest concern is the plan’s associated objective of increasing the
proportion of PRC domestic content across the value chain—design, manufacturing
processes, technology and material inputs, and finished products—in the ten
prioritized industrial areas and their subsectors. While the PRC government has
not officially announced these targets, publications and analysis by Chinese
think tanks and foreign counterparts conclude they generally range between 40 to
80 per cent, depending on the sector, with the intention of achieving these
goals between 2020 and 2030. To do so will mean focusing the PRC’s considerable
legal, regulatory and fiscal resources to squeeze out foreign competition inside
China and position these industries for dominant roles in the international
marketplace in the coming decades. 

In this sense, Made in China 2025 is an offensive measure to drive innovation
and grab greater market share.  But for China, it is defensive as well.  Xi
Jinping noted that one reason to enhance the international leading position of
some industries is to “tighten international production chains’ dependence on
China, forming a powerful countermeasure and deterrent capability against
foreigners who would artificially cut of supply [to China].” Xi specifically
named high-speed rail, electric power equipment, new energy, and
telecommunication equipment as sectors where China already has advantages.

Owing to the international criticisms of Made in China 2025, the PRC government
has lowered the program’s profile since 2018. However, the overall strategy to
become more technologically self-reliant remains in place. Indeed, the strategy
has been reinforced by China’s experience in the wake of the COVID-19 pandemic
in 2020-2021 and the continuing deterioration in economic relations with the
United States over that period. In the midst of the global pandemic, Xi Jinping
doubled down on promoting self-sufficiency by advocating a “dual circulation”
(双循环) strategy—a framework he coined and endorsed last year.

In essence, the strategy further encourages the Chinese economy to rely on its
enormous internal market or “domestic circulation” (国内循环) rather than foreign
markets or “international circulation” (国际循环) which were the basis for the
country’s spectacular economic success in the past. The emphasis on greater
self-sufficiency gained even greater impetus as the United States took a number
of measures in 2020 and early-2021 to further restrict PRC access to U.S.
technologies and capital markets. As Premier Li Keqiang declared in his work
report to the NPC:

> We will give priority to domestic circulation, and work to build a strong
> domestic market and turn China into a trader of quality. We will leverage the
> flows of the domestic economy to make China a major magnet for global
> production factors and resources, thereby promoting positive interplay between
> domestic circulation and international circulation.

Endorsed by the NPC, the strategy’s key elements will include: increasing
technological independence and innovation, securing external supply chains, and
not only promoting greater reliance on China’s domestic demand, but also
facilitating it through improvements to internal efficiencies in production and
logistics. In short, the “dual circulation” strategy is intended to buffer China
from the risks of exposure to the international marketplace—especially in the
face of deteriorating U.S.-China relations—and place greater faith in its
domestic market to drive economic growth in the years ahead.


AUSTRALIAN INTERESTS

These developments are significant for Australia. The outlook for
Australia-China economic relations is already bleak. If, as declared at the NPC,
China will continue to slow its capital-intensive development model and expand
its consumption-led and green-growth plans, this would negatively affect
traditional Australian exports of iron ore and coal. 

Should China successfully transition in the coming decade to high-income status,
this could bode well for Australian exports catering to wealthier
Chinese—high-quality agricultural goods, education, tourism, health products,
lifestyle brands, and possibly fintech. But that assumes the present awful state
of bilateral relations dramatically improves and Chinese consumers are not lured
to other sources for those products—both highly unlikely prospects in the
near-term.

In addition, if China succeeds in its ambition to dominate markets in key
high-end technologies by 2030, this would likely squeeze certain Australian
high-tech aspirations in both Chinese and global markets. 

Moreover—in line with Xi’s ambition to achieve a greater economic “deterrent
capability” against foreigners—it could result in greater leverage against
Australia within some advanced technology sectors. As U.S.-China technological
competition intensifies, the fallout will wash over our shores.

Beijing’s drive for self-sufficiency may have even larger geopolitical
ambitions. Mindful that asserting its control over Taiwan by force would likely
result in massive economic retribution by the United States, Japan, Europe,
Australia, and others, China needs to build resilience to bear those costs. If a
more confident, “self-reliant” China moves against Taiwan, Australia’s security
and economic interests will not be immune.


LOOKING AHEAD

China is a large and well-resourced economy with numerous advantages and a
record of resilience and adaptability. Of the world’s major economies, it
emerged strongest from the COVID-19 pandemic. It will continue to make strides
in innovation, especially if the private sector is given a greater chance to
reach its potential. PRC advancements in e-commerce, high-speed rail, drone
technology, and artificial intelligence suggest promising possibilities for
indigenous innovation in the future. Along with 14 other Asia-Pacific partners,
China concluded the Regional Comprehensive Economic Partnership (RCEP) free
trade agreement at the end of 2020. Also in 2020, Beijing finalized negotiations
with the European Union on a bilateral Comprehensive Agreement on Investment and
the 10-country Association of Southeast Asian Nations (ASEAN) became China’s
largest trading partner, followed by the European Union, with the United States
coming in third. These developments may help offset some of challenges noted
above by enhancing China’s access to key foreign markets besides the United
States. China has even put in place its own regulations to punish
firms—including foreign firms—which comply with “unjustified” sanctions imposed
on China.

But in spite of these and other economic positives for China, persistent
structural obstacles remain in place and will frustrate progress in realizing Xi
Jinping’s economic ambitions.

Internally, the Chinese leadership will face increasing pressures to diminish
the role of the state and Party within the economy, permit a greater role for
the market, and introduce a legal and regulatory system that is more predictable
and bound by the rule of law.  But there is little sign that Xi and the
Party-state are prepared to take such steps, seeing instead too much social and
political risk in doing so. The past PRC growth model and approach to
globalization has been an economic success by and large, but has also empowered
the Party and Xi Jinping. Sticking with that model—or at least significant
elements of it—may bode well for the continuation of authoritarian rule, but
will come at an economic cost in the years to come.

Externally, Xi and the Chinese leadership face growing pushback around the world
to the country’s quest for technology acquisition and indigenous innovation. A
resulting bifurcation of the global economy, one which detaches elements of the
PRC economy from their most prized markets and supply chains, will have a
crippling effect on China’s growth and economic aspirations. Having set lofty
political expectations for China’s economic success in the coming decades,
Beijing faces the challenge of achieving increased productivity, greater
self-reliance, and heightened income levels even as its economic and
technological competition with other advanced countries continues to escalate.

Faced with these challenges, the announcements emanating from the Great Hall of
the People during the NPC signal a profound re-thinking in Beijing. The stakes
are high, not only for China but also for global economics and geopolitics for
years to come.

--------------------------------------------------------------------------------

Dr Bates Gill is professor of Asia-Pacific security studies at Macquarie
University, a Senior Associate Fellow with the Royal United Services Institute
(RUSI) in London, and inaugural Scholar-in-Residence with the Asia Society
Australia.

This essay draws from the author’s book on China’s foreign policy under Xi
Jinping, forthcoming in 2021 with Oxford University Press. Minor portions this
essay were published in the Lowy Interpreter as Endorsing “self-reliance”,
Beijing raises the geopolitical stakes on 9 March 2021, and the complete essay
was published in the Melbourne Asia Review on 23 March 2021.



--------------------------------------------------------------------------------

Asia Society Australia acknowledges the support of the Victorian Government.




RELATED ARTICLES

 * report
   
   CHINA EXECUTIVE BRIEF | CHINA'S TECH AMBITION AND THE HYDROGEN BET
   
   Nothing illustrates China's science and tech ambitions better than the human
   and financial resources amassed to develop hydrogen, an emerging green tech
   star.
 * article
   
   ENDORSING “SELF-RELIANCE”, BEIJING RAISES THE GEOPOLITICAL STAKES
   
   Beijing’s dual circulation strategy is set to shift the global order, writes
   Asia Society Australia Scholar-In-Residence and Macquarie University
   professor Dr Bates Gill.
 * report
   
   CHINA EXECUTIVE BRIEF | OPEN TO AUTARKY: CHINA’S COMING 5-YEAR PLAN
   
   Previewing China’s new five-year plan, which will inform the world on how
   China is going to achieve its ambition to become the leading world economy by
   mid-century.
 * series
   
   ADAPTION CHALLENGE: AUSTRALIA AND THE NEW GEO-ECONOMICS
   
   By James Bowen, Research Fellow at the Perth USAsia Centre
 * Switzerland
   
   SEMINAR: HOW TO UNDERSTAND CONTEMPORARY CHINA
   
   This intensive seminar featuring international and Swiss experts will provide
   you with the tools to analyze China’s rise and identify the opportunities
   that come with it.

PAGINATION

 * Current page 1
 * Page 2
 * Page 3
 * Page 4
 * Page 5
 * Next page Next
 * Last page Last




About
 * Mission & History
 * Our People
 * Become a Member
 * Career Opportunities
 * Corporate Involvement

visit us
 * Hong Kong
 * New York
 * Texas

global network
 * Australia
 * France
 * India
 * Japan
 * Korea
 * Northern California
 * Philippines
 * Southern California
 * Switzerland
 * Washington, DC

resources
 * Arts
 * Asia Blog
 * ChinaFile
 * Current Affairs
 * Education
 * For Kids
 * Policy
 * Video

shop
 * AsiaStore

initiatives
 * Arts & Museum Summit
 * Asia 21 Young Leaders
 * Asia Arts Game Changer Awards
 * Asia Game Changer Awards
 * Asia Society Museum: The Asia Arts & Museum Network
 * Asia Society Policy Institute
 * Asian Women Empowered
 * Center for Global Education
 * Center on U.S.-China Relations
 * China Learning Initiatives
 * Coal + Ice
 * Creative Voices of Muslim Asia
 * Global Cities Education Network
 * Global Talent Initiatives
 * U.S.-Asia Entertainment Summit
 * U.S.-China Dialogue
 * U.S.-China Museum Summit

Connect

Email Signup For the media
©2022 Asia Society | Privacy Statement | Accessibility | About AsiaSociety.org |
Terms & Conditions | Sitemap | Contact

Asia Society takes no institutional position on policy issues and has no
affiliation with any government.
The views expressed by Asia Society staff, fellows, experts, report authors,
program speakers, board members, and other affiliates are solely their own.
Learn more.

 

 

 * Visit Us
 * Hong Kong
 * New York
 * Texas
 * 
 * Global Network
 * Australia
 * France
 * India
 * Japan
 * Korea
 * Northern California
 * Philippines
 * Southern California
 * Switzerland
 * Washington, DC