Risks and rewards
Yanto Chandra says China must tackle its weaknesses to escape the ‘middle technology trap’
What do the outcomes from the “two sessions”, China’s highest political meetings, mean for the US-China science and technology rivalry? After all, this area is the new battleground and the defining point of US-China relations in the 21st century. Can the meetings help China escape the “middle technology trap” and leapfrog towards tech supremacy, if it is not already there?
Since the tech war launched by US president Donald Trump and amplified by his successor Joe Biden, China seems to have been in defence mode, launching limited counterstrikes.
The meetings’ strategic emphasis on artificial intelligence, biotech, new energy vehicles and space tech has somewhat surprised the nations that have dominated in these domains for decades. But this could be China’s answer to the industrial revolution it missed.
The planned 10 per cent jump in science and tech spending to 370.8 billion yuan (HK$403.9 billion) this year is the largest percentage increase for any major area of government spending, including the military, education and diplomacy. Some 98 billion yuan has been earmarked for basic research, up 13 per cent from last year.
The key message in this budget is the sense of crisis, determination and momentum-building. China realises it can no longer rely on being able to buy from the best suppliers in the tech supply chain but will have to master its own destiny.
One pillar of China’s industrial and technological success has been its policy of affordable innovation. This involves a focus on affordable goods and technologies that cater to the needs of untapped market segments or to latent demand (for example, the middle and lower middle classes in Western countries and the Global South), offering new options (such as more affordable mobile phones, cars and equipment) and slowly capturing the market share as the innovation component increases.
China’s affordable innovation is backed by state capitalism, the relatively low cost of land and low-wage labour. It mimics the basis of Japan’s post-war industrial success, which saw it rise as a global leader in electronics, toys and cars, before it became stalled by a decades-long recession.
China’s focus on affordability was not accidental. It was carefully orchestrated and then gradually overlaid with industrial upgrading, with a policy emphasis on quality innovation. As China’s engineers and scientists climbed up the innovation learning curve, they began to churn out high value-added, high-tech-value goods and services, from drones and electric vehicles (EVs) to spacecraft.
One possible consequence of this grandiose upgrade in science and technology, supported by the funding, is that China will further establish itself as a champion of indigenous innovation and establish more tech standards.
For example, China’s global success in EVs and the drone industry has created new standards for such technologies. Its popularisation of QR (quick response) codes and nonbank payment services such as WeChat Pay and Alipay have inspired the emergence of similar standards in other countries. Huawei Technologies is now a strong contender in advanced chips, according to Nvidia.
One factor of China’s success is its highly competitive domestic science and tech sector, which ensures only the best prevail and can go on to seek a global market.
But there are risks and headwinds. Externally, politics has taken a front seat in the US, and the US-China tension is affecting the flows of investment and trade, with so-called friendshoring and nearshoring as well as sanctions having an impact.
To address the internal risks, Chinese labour law needs to better protect tech workers from the “invisible overtime” culture common in the industry. The 996 work culture (9am to 9pm, six days a week) can dampen the joy of working in science and technology. China’s millennials and Generation Z prefer a more family-friendly work-life balance, and this, if well implemented, can support China’s population goals.
The low tolerance for risk in Chinese culture is another risk. In the United States, there is a bigger appetite, especially among the big tech companies, for high-risk science and technological opportunities that may not guarantee immediate returns, thus balancing “exploration” (the search for new possibilities with a long-term view) with “exploitation” (the optimising of existing possibilities with a short-term view).
Few big tech firms in China seem willing to pursue highly risky long-term science and technology opportunities. History suggests it is the pursuit of unpredictable opportunities that delivers major scientific breakthroughs and economic outcomes. This “high risk, high gain” culture has been key to US tech supremacy.
Another risk is in China’s execution of its science and technology funding. A big budget is promising but how that budget is distributed could become problematic if the funding only or mainly went to a few elite individuals or institutions.
Last but not least, China’s higher education has long favoured practical engineering at the expense of “basic” or pure science. This requires a fresh look.
How will this affect the rest of the world? For the Global South and most other economies including the G7, it would create a more democratised market for innovation where consumers, investors and governments have far greater options on what to procure in the global science and technology markets.
There will also be spillover effects on China’s Belt and Road Initiative, with higher-quality projects in various sectors backed by quality innovation, from highspeed railways to robots and aircraft.
It is hard to predict the outcome of the US-China science and technology rivalry. But there will be clear winners in the short to medium term. Money spent on science and technology development is never a waste.
Few big tech firms in China seem willing to pursue highly risky long-term science and technology opportunities