China’s Tech Policies and Development: Responding to Great-Power Competition
Roundtable in Asia Policy 19.1

China’s Tech Policies and Development
Responding to Great-Power Competition

Roundtable with Mingjiang Li, Xue Gong, Manoj Harjani, Yujia He, Shaleen Khanal, Binyi Yang, and Zhang Hongzhou
January 27, 2024

A battle for technological supremacy is underway, pitting the United States’ established dominance against China’s meteoric rise. This roundtable examines China’s strategic responses and efforts to compete in various tech sectors, including the metaverse, artificial intelligence, fintech, and semiconductors.

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Introduction
Mingjiang Li

Turning the Virtual into Reality: China’s Role in the Metaverse
Xue Gong

To Win the Great AI Race, China Turns to Southeast Asia
Hongzhou Zhang and Shaleen Khanal

Chinese Fintech Goes Global: Political Challenges and Business Strategies
Yujia He

The Institutional Challenge for China’s Semiconductor Chip Industry
Manoj Harjani

Subnational Powerhouses or Setbacks? The Roles of Chinese Local Governments in U.S.-China Technological Competition
Binyi Yang and Mingjiang Li

Introduction

Mingjiang Li

The past few years have seen a dramatic chill in U.S.-China relations, which have plummeted to arguably their lowest point in the more than 50 years following the Nixon-era rapprochement. This complex breakdown stems from a potent mix of factors. First and foremost, it relates to the strategic rivalry between the two major powers. China’s economic and military rise has challenged U.S. global dominance, sparking fears of a new cold war. Friction points such as the South China Sea, Taiwan, and China’s Belt and Road Initiative have intensified competition.

Second, the ideological clash between the two countries has become more salient. The United States and China have diverged sharply on human rights, censorship, and political values. U.S. criticism of Xinjiang, Hong Kong, and intellectual property theft has caused bitter resentment from China. Third, the Trump administration’s trade war, aimed at reducing the U.S. trade deficit, further strained economic ties. Tariffs and investment restrictions disrupted supply chains and fueled nationalist rhetoric on both sides. Fourth, the Covid-19 pandemic added fuel to the fire. Blame games over the virus’s origin and accusations of misinformation campaigns deepened distrust. And finally, domestic politics has had a significant negative impact on bilateral ties as well. Hard-liners in both countries have gained influence, pushing public opinion toward distrust and advocation of a firmer stance against the other.

The deterioration in bilateral relations is significant. Cooperation on global challenges such as climate change and nuclear proliferation is hampered. Increased military rivalry in the Indo-Pacific raises the risk of miscalculation and conflict. Economic interdependence, while still significant, faces hurdles.

The most significant and challenging hurdle in bilateral economic ties is technological competition. A battle for technological supremacy has already begun, pitting the United States’s established dominance against China’s meteoric rise. This “silicon showdown” transcends mere competition—it is set to shape future economies, military might, and global influence.

The United States, long the tech trailblazer, boasts established IT giants like Google, Apple, and Microsoft. They hold an advantage in cutting-edge fields like artificial intelligence (AI) and software development but face challenges in manufacturing and funding domestic research. China, meanwhile, roars with its Made in China 2025 ambition. By pouring billions into R&D and strategically acquiring foreign technology, it is rapidly closing the gap in AI, quantum computing, and green tech. China’s vast domestic market and state-driven approach allow for rapid prototyping and scaling.

The forefront battleground is semiconductors, which power everything from phones to weapons. U.S. sanctions block China’s access to high-end chips and advanced fabrication tools, but China has demonstrated strong resolve to develop alternatives and aims for chip self-sufficiency in the long run. The two powers are also engaged in fierce competition over 5G and the next generation of internet connectivity. China leads in infrastructure rollout, leveraging it for surveillance and economic control, while the United States is seeking allies to counter its expansion. Both Washington and Beijing are also keen to lead in AI, and each side is pouring resources into developing AI for military, economic, and social applications, raising concerns about ethical uses and weaponization.

The stakes are high—economic power, cybersecurity, and military leadership hang in the balance. The world is watching as the silicon titans clash, shaping the future of technology and beyond. Many analysts are particularly interested in China’s strategic responses to the tech rivalry with the United States. The five essays in this roundtable shed light on Beijing’s efforts to compete with the United States in various tech sectors.

Xue Gong’s essay discusses China’s strategic approach to the metaverse, exploring the country’s motivations, policies, and impact on global technological competition. Initially indifferent to metaverse technologies, the Chinese government’s stance shifted as the concept gained prominence. Beijing is now working to align metaverse technologies with national strategic goals to counter the United States in the ongoing technological competition. The metaverse, encompassing advanced technologies such as AI, blockchain, and virtual reality, is seen as an area where China can surpass the West.

The Chinese government distinguishes between sectors that align with national goals and those considered disorderly expansions of capitalism. Notably, cryptocurrency was banned in 2021 due to national security concerns. China aims to leverage the metaverse to enhance efficiency in sectors such as high-end manufacturing, aerospace, electric vehicles, and healthcare. The government is employing a comprehensive approach, combining regulatory measures, techno-nationalism, and an “all of nation” system involving state-owned enterprises, private companies, and research institutes. Despite cracking down on cryptocurrency, Beijing has shown much interest in the creation of new concepts like a sovereign digital currency (the e-CNY) and a state-led blockchain infrastructure (the Blockchain-Based Service Network). The government is also promoting global standards through economic diplomacy and international collaboration.

China faces significant challenges in developing its metaverse technologies, including difficulties integrating high-end infrastructure due to U.S. sanctions and the need for data localization hindering interoperability with other blockchains. Additionally, the success of China’s metaverse policy is contingent on domestic economic development, which is currently facing hurdles such as an economic slowdown and weakening investor confidence.

The next essay by Hongzhou Zhang and Shaleen Khanal follows on Gong’s analysis by focusing on AI. The essay explores the escalating rivalry between the United States and China in this tech sector and how China, facing restrictions from the United States, is strategically turning toward Southeast Asia to bolster its position in the global AI race. The authors highlight the rapid growth of China’s AI industry, which has registered over one million AI-related enterprises, driven by breakthroughs in technologies such as deep learning, computer vision, and big data.

China’s AI development gained significant momentum with the introduction of initiatives like the Made in China 2025 plan in 2015 and the New Generation AI Development Plan in 2017, which emphasize self-reliance and global leadership in AI by 2030. Recognizing these advancements, Washington responded with efforts to curb China’s access to top-tier AI technology, leading to increased tensions and a race for technological supremacy.

In response to U.S. restrictions, China has intensified domestic efforts by encouraging innovation in AI, increasing funding for research and development, and creating state-backed funds to invest in the semiconductor industry. Simultaneously, China has sought global partnerships to foster AI development, with Southeast Asia emerging as a key focus. The essay delves into China’s historical economic and geopolitical ties with the Association of Southeast Asian Nations (ASEAN) and explores how China is leveraging its relations with ASEAN countries for AI collaboration. The authors detail China’s engagement with Southeast Asia at various levels, including the establishment of the China-ASEAN (Huawei) Artificial Intelligence Innovation Center and the China-ASEAN AI Computing Center. The essay emphasizes China’s multifaceted approach involving corporate, subnational, and national endeavors to create a conducive environment for AI advancement in the region. Chinese tech giants like Huawei, Alibaba, and SenseTime are actively investing in Southeast Asian countries, establishing R&D centers, and engaging in research collaboration with local universities.

The next essay by Yujia He explores the internationalization of Chinese fintech and focuses on the political challenges and business strategies involved. Fintech (the application of digital technology to financial services) has evolved significantly due to advancements in technologies such as big data, blockchain, AI, and the Internet of Things. China has emerged as the largest fintech market, with services like mobile payment becoming ubiquitous. However, increased regulatory scrutiny, saturation in the domestic market, and limited growth opportunities led to a decline in fintech investments from 2019 to 2022. In response, Chinese fintech platforms sought global expansion, with Hong Kong, Southeast Asia, and other international financial centers being key destinations.

He highlights the political challenges faced by Chinese fintech players in their international expansion. Concerns include data privacy, the impact of geopolitical tensions on investments, U.S.-China tech competition affecting cloud computing and AI partnerships, and regulatory scrutiny over cryptocurrency-related activities. To navigate these challenges, the essay suggests potential business strategies for Chinese fintech players. These include adjusting investment networks, prioritizing jurisdictions with stable regulatory regimes, and exploring alternative funding sources. Flexibility and localization in business partnerships are emphasized, with a focus on engaging local institutions to address regulatory concerns. The essay recommends building legitimacy through stakeholder engagement, participation in industry associations, and investment in local capacity-building efforts.

The essay concludes by acknowledging the complexities of geopolitical and regulatory landscapes in international expansion for Chinese fintech. It suggests that Chinese firms may need to recalibrate strategies, including shifting investment networks, diversifying technology partnerships, and engaging in sustainable initiatives to build long-term legitimacy. The growing U.S.-China competition is expected to influence these strategies, but there is also the potential for collaboration between Chinese fintech and U.S. players in areas such as finance, technology, and education.

To help readers better understand the domestic context, Manoj Harjani’s essay discusses the institutional challenges facing China’s semiconductor chip industry and the factors contributing to its struggles in achieving advanced chip design and fabrication capabilities. While semiconductor chips have become crucial components in modern technology, only a few states have successfully developed the infrastructure for manufacturing them. Notably, China, despite its size and political will, has faced difficulties in mastering advanced chip technology, unlike other Asian industry players such as Japan, South Korea, and Taiwan.

The common explanation for China’s challenges in semiconductor development often points to its strategic rivalry with the United States, which controls essential intellectual property and technology. However, Harjani argues that this explanation is insufficient. Despite obstacles, the United States has not imposed a blanket ban on export licenses to Chinese firms in the chip industry. Moreover, China has actively pursued policies to spur indigenous innovation, particularly in chipmaking, backed by significant state-led investments such as the China Integrated Circuit Industry Investment Fund.

The essay proposes an alternative explanation for China’s struggles in this sector, focusing on its institutional setup, especially the extent of state versus private-sector involvement. It introduces the concept of “paper tigers,” referring to domestic firms targeted by the government’s industrial policies that may not live up to expectations. The state-dominated institutional setup in China’s chip industry, influenced by fragmented authoritarianism, leads to competing interests and an overallocation of resources to these paper tigers. This hinders the industry’s progress, particularly in advanced chip design and technology development. The conclusion hints at potential reconfigurations in the institutional setup to address these challenges.

To further unpack the domestic dynamics in China’s tech sector, Binyi Yang and I explore the intricate dynamics between Chinese local governments and the U.S.-China technological competition. A key focus is on the roles of Chinese local governments in supporting domestic innovation. Unlike the United States, where technology development involves federal agencies and private entrepreneurs, China’s approach engages local governments directly. Local entities provide support through subsidies, tax incentives, land offerings, and tailored loans. Economic decentralization empowers local governments with fiscal autonomy, enabling increased allocations for science and technology (S&T) development compared with what is provided by the central government.

Government guidance funds, initiated at various administrative levels, play a crucial role. These funds pursue financial returns and align with state industrial policy objectives, channeling private capital into strategic technology sectors. The essay discusses the role of political centralization in motivating local leaders, particularly those with science, tech, engineering, and math backgrounds, to compete in driving S&T development. Three case studies illustrate the diverse patterns adopted by local governments: promoting supply chain self-sufficiency, supporting sanctions-hit companies like Huawei, and reviving tech firms amid the retreat of global capital, exemplified by NIO and the Hefei government. The essay raises concerns about the potential consequences of excluding foreign players, which could lead to inefficiencies and trade tensions globally.

In its conclusion, the essay emphasizes fair and inclusive competition between the United States and China as a driving force for technological progress. It draws parallels with historical examples, highlighting the potential benefits of healthy competition while recognizing challenges and variations in the effectiveness of local government support for domestic industries. Overall, the complex interplay between local and central dynamics in China’s technological landscape carries implications for global competitiveness and trade relations.

All five essays suggest that as U.S. tech dominance faces China’s rapid ascent, Beijing has crafted a multipronged strategy to bridge the gap and establish itself as a technological powerhouse. China appears to be determined to further strive for self-reliance and indigenous innovation, to seize opportunities for strategic acquisitions and technology transfer, and to play a more significant role in global standard setting and alternative ecosystems. The essays collected in this roundtable also suggest that these Chinese initiatives are not without challenges. Internal inefficiencies, intellectual property concerns, and potential talent flight can hamper progress. Additionally, balancing global integration with self-reliance remains a delicate act, as excessive decoupling could hinder both the Chinese and global economies.

Nevertheless, China’s ambitious tech strategy presents a formidable challenge to U.S. dominance. Whether China can overcome its hurdles and achieve its technological aspirations remains to be seen, but its multipronged approach promises a fascinating, and potentially transformative, race to the top in the global tech landscape.


Mingjiang Li is Associate Professor and Provost’s Chair in International Relations at the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University (Singapore).

Xue Gong is an Assistant Professor at the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University (Singapore) and a Nonresident Scholar at Carnegie China. Her research interests include China’s economic statecraft, China’s overseas economic activities, and governance.

Manoj Harjani is a Research Fellow at the S. Rajaratnam School of International Studies (RSIS) at the Nanyang Technological University (Singapore).

Yujia He is an Assistant Professor at the Patterson School of Diplomacy and International Commerce at the University of Kentucky (United States).

Shaleen Khanal is a Postdoctoral Research Fellow at the Lee Kuan Yew School of Public Policy at the National University of Singapore (Singapore). His research focuses on governance of emerging technologies in the Asia-Pacific.

Binyi Yang is a PhD Candidate at the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University (Singapore).

Hongzhou Zhang is a Research Fellow with the China Programme at the S. Rajaratnam School of International Studies (RSIS) at the Nanyang Technological University (Singapore). His main research interests include regional and global resource conflicts and governance, game theory, discourse analysis, and emerging technologies.


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