Chapter 5: Case Studies
5.4 Conclusions
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5.4 Conclusions
As the three case studies demonstrate, the Chinese state is deeply committed to using a combination of state levers in promoting indigenous capabilities in all three arenas and has set ambitious policy targets for the medium to long term future. Extensive subsidization – at both the national and subnational level – suggests ambitious goals are being complemented with generous fiscal support. While subsidies, tax breaks, and funding for R&D remain the primary tools through which Chinese state actors help build up indigenous capabilities, a number of discriminatory policy tools are also employed – constituting the types of non-tariff barriers likely to continue drawing the ire of foreign MNCs and governments. In this sense, sector-specific policies mutually reinforce the broader techno-industrial policy system.
The rationale for doing so touches on both developmental and security imperatives; success or failure in harnessing the ongoing revolution in ICT - encompassing AI, IC and robotics – is an utmost imperative from the standpoint of the upper echelons of the CCP. Military modernization, structural transformation of the economy, and the management of social stability all closely intersect with the vibrancy of the overall national innovation system and the country’s technical prowess in key industries. The legacy of top-down planning, skepticism toward reliance on foreign technology, and substantial influence from national security bureaucracies and the PLA all comes across in understanding government policy in the three case studies.
However, what also comes across over the course of the case studies is a nuanced system of techno-industrial policy incorporating techno-nationalist end-goals (techno-sovereignty, techno-primacy) with techno-globalist means (harnessing an open form of economic globalization). Put differently: Chinese leaders aspire to develop leading edge independent capability in all three areas, seeing success or failure as a matter of regime survival. However, practicality, not a rigidly statist economic dogma, drives
techno-industrial policy.
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Nor is the China of today as overtly xenophobic, isolated, and security-obsessed as during the Cold War period. Rather, as its senior leadership makes clear, China seeks to benefit from the existing international economic order without fundamentally upending it. Techno-industrial policies evolve in response to new challenges and opportunities presented by different technologies, increasingly relying on market forces and support for private sector players in attaining techno-nationalist end-goals.
Furthermore, while the national government provides substantial volumes of funding and sets overall policy parameters, much of the policy direction is done at the local and provincial levels, making it harder to reach any generalized conclusions regarding patterns of state behavior in promoting indigenous technology. This national-subnational discrepancy is compounded by the fact that, at the national level, an increasingly diverse array of stake holders shape both the process of policy formation and policy implementation. The central government approach also shows significant variation by industry: as a clear example, ICs and AI are being approached differently; with the state promoting SOE “national champions” for IC production while leaning more heavily on private sector players like Baidu and Alibaba to drive AI.
As such, making any definitive statements about “China’s policy” toward a complex and multifaceted industry like robotics or AI is inherently fraught.
While those caveats are critically important, top-down industrial policy planning in accordance with techno-nationalist thinking remains salient in all three case studies. To that end, China aspires to reduce foreign reliance as a matter of long term strategy while simultaneously acknowledging the necessity of
interdependence as a stop-gap measure for developing indigenous capabilities through international competition and access to foreign technology, capital, and technical know-how. In areas like ICs and
automation, Chinese upgrading remains, for the foreseeable future, contingent on high levels of exposure to globalized production, trade and R&D networks. While China is quickly catching up, it remains a laggard in core aspects of both robotics and IC production.
In this sense, Chinese policy conforms with the “new” development models outlined in the literature review
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section: Endogenous Growth Theory, the New Economic Geography, and Strategic Trade Theory. Unlike liberal orthodoxy, the state is not seen as a brake on growth and innovation but rather as a critical protagonist in carrying out “big push” initiatives seen as enhancing national competitiveness through the development of key high-tech industries. Evidence in the case studies suggests China’s leadership wishes to use state power and market leverage as a means of harnessing the open international trade and investment system for its own ends.
While fears of unfair regulatory treatment and eventual displacement pervade foreign thinking about the landscape for MNCs operating in the Chinese domestic technology sector, there is strong reason to believe foreign MNCs will remain integral players on the mainland well into the future. The rationale for this
argument boils down to one of practicality: with an array of structural factors inhibiting domestic innovation, Chinese firms continually rely heavily on foreign-branded core components. In the highly globalized IC and robotics sectors, international collaboration is widely seen as essential to both innovation and commercial success. By abruptly closing itself off to the outside world, China would inflict substantial harm on its own economic fortunes and technological potential. Maintaining some degree of openness is also critical for attracting overseas research talent to the Chinese mainland.
Therefore, while foreign MNCs operating in key industrial sectors will continually complain n that their commercial objectives are being subordinated to broader political imperatives, they remain integral subordinates whose ongoing cooperation remains essential to China’s long term strategic development.
Furthermore, Chinese firms, limited by their own domestic constraints, see foreign acquisitions as essential to ensuring they can reach eventual parity with leading international firms. By driving foreign MNCs out of the Chinese market, China runs the risk of seeing its firms sanctioned and/or blocked from investing and selling into critically important foreign markets. Whereas in past decades, China “invited outside investors in,” to participate in building up China’s domestic economy, Chinese firms are becoming increasingly internationalized; relying on an open trading system to “go out” in pursuit of foreign technology, foreign
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talent, foreign brand names, and global market share.237 The case studies all underscore the extent to which China remains a stakeholder in globalization while simultaneously using state power in adapting it toward Chinese characteristics.
237 Zheng and Pan, 2013.
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Chapter 6: Conclusion
While techno-nationalist ideology remains deeply entrenched within the upper echelons of China’s political elite, the manner in which it manifests itself in the form of policy has evolved considerably over time and in response to both new opportunities and challenges. As Yongnian Zheng and Rongfang Pan see it, “unlike traditional forms of techno-nationalism, China pays attention to international commitments, cooperation with foreign partners, and public-private partnerships.”238 Chinese state behavior suggests an acute awareness of the short and medium-term benefits of interdependency. While the long term goal may be technological autonomy, it’s unlikely China will quickly reverse decades of beneficial integration with systems of international trade and investment.
Since beginning the process of “reform and opening” many decades ago, Chinese leadership has consistently demonstrated a high level of pragmatism, flexibility and adaptation in its approach toward promoting
technological development. China’s experience demonstrates that while convergence with western norms regarding free-market capitalism remains unlikely, the manner in which China practices its unique form of state capitalism is neither static nor captive to rigidly statist ideology. Processes of enhanced market competition, bureaucratic learning, growing R&D capacity, and a selective/managed embrace of economic globalization are all integral factors in accounting for China’s emergence as a major technology player.
Despite concerns over external dependency and a belief in the inherently competitive nature of nation-states along both economic and security lines, Chinese leadership is well aware of the benefits accruing from international collaboration, capital movement, foreign trade, and technology transfer. Using the power of the state to harness these benefits forms an essential component of China’s overall development story.
In many instances, the state happily discards inefficient practices, cultivates input from a growing array of stakeholders, and selectively embraces processes of marketization seen as necessary for facilitating domestic
238 Zheng and Pan, 2013
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competition and innovation. Seeing China’s technology landscape solely through the outdated prism of a statist/militant techno-nationalism blinds us to a vastly more nuanced reality. While techno-nationalist ideology plays an important role in guiding and informing the construction and implementation of public policy, powerful bottom-up actors - embodied through a diverse and expansive array of politically relevant stakeholders - co-exist with the diktats of top-down central planning.
Decades of robust interaction with the international economy has resulted in extensive “socialization” of China’s policy making process which, in many areas, seeks engagement with international norms, laws, and regimes governing trade and investment.239 Many of the seminal planning documents and public speeches outlining techno-industrial strategies for independent innovation also contain language suggesting the
ongoing need for international collaboration. In a somewhat contradictory manner, Chinese leadership seems to go to great lengths to outline both the need for technological independence and international
cooperation/harmonization.
The case of China’s development of strategic technology therefore conforms with the insights of Michael Mastanduno, David Lake, and G. John Ikenberry in their analysis of realist state behavior in the face of growing economic interdependency. Writing in 1989, they found the complex interdependence was presenting new challenges and imposing new constraints on state action. According to them, “the growing interaction of international and domestic politics complicates the task of state officials seeking to realize objectives in both realms…the realities of interdependence dictate that the ability of governments to pursue domestic economic policies is influence and constrained by developments in the international economy.”240
In the face of newfound challenges and opportunities, the Chinese state mobilizes resources in pursuit of technological advancement for reasons specific to the “national” (state) interest. While in many instances China honors international commitments and presents itself as a committed stakeholder in the existing
239 A comprehensive overview of this learning process can be found in Scott Kennedy’s Global Governance and China: The Dragon’s Learning Curve. 2017.
240 Michael Mastanduno, David Lake and G. John Ikenberry. “Toward a Realist Theory of State Action.” International Studies Quarterly, 1989.
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system of international economic order, the underlying motivation remains a state-centric realist one: using international interaction as a means to the end of national development and strength building. In this regard, Chinese behavior is broadly in keeping with its East Asian peers; it is a keen exponent of international trade and investment as a means for meeting decidedly national political objectives. When international obligation clashes with national imperatives, states pursue courses of action in keeping with their own domestic
priorities. States, driven by realist motivations, take advantage of the international system for their own benefit. In China, much as throughout the region, the boundary between the “national” and the
“international” remains highly salient in framing conceptions of economic activity.241
Technology has long been at the forefront of this tension between the international and the domestic. State actors make choices on policy and strategy while taking into account a comprehensive “national interest”
that differs from that of the private firm or the individual citizen. When technology intersects with matters of national security and national development, states will unsurprisingly take actions they see as furthering national objectives. Evidence of this can be seen in China; with its myriad restrictions and conditions on foreign MNCs operating in key sectors, coupled with an extensive history of substantial policy support for campaigns geared toward bolstering domestic innovation capacity. Evidence of this can be seen in Japan;
where a deep-seated techno-nationalism drove policy makers in the direction of limiting their dependence on foreign technology.242 Evidence of this can be seen in the United States; where Congress and the Executive branch impose restrictions (often to the consternation of domestic stakeholders) on the export of certain
technologies and screen the inbound flow of FDI in sectors seen as critical to the “national” interest.243
In that light, regime pragmatism and adaptation shouldn’t obscure the consistently techno-nationalist thrust of Chinese strategic thinking. Security challenges brought about by rising great-power competition with the United States, the ongoing specter of regional instability, and the potentially de-stabilizing effects of
globalization on China’s internal political stability, all reinforce a long-stated desire for sovereign control
241 Fallows, Looking at the Sun, 1994.
242 Derek Hall, “Japanese Spirit, Western Economics: The Continuing Salience of Economic Nationalism in Japan.” Economic Nationalism in a Globalizing World, 2005.
243 Simon, Techno-Security in the Age of Globalization, 1997.
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over strategically important technology. With the lines between external/internal and traditional/non-traditional security challenges blurring on account of newfound technologies, techno-nationalist policies prioritizing state prerogatives are evolving, not dissipating.
In one regard, Chinese regime attitudes toward technology share many core assumptions with other states throughout East Asia; principally a focus on the role of developing national technology as a means of
bolstering national competitiveness and security. This emphasis is deeply rooted in the history and culture of states throughout the region, where there is a strong tendency toward a “Listian” approach toward national economies, national production, and national technology. Throughout the region, the ideas and institutions synonymous with techno-nationalism have not faded away in the face of globalization; in this regard, China is not unique. However, given the nature of China’s authoritarian political structure and its position outside the US-led alliance system, Chinese strategic planners must incorporate a wider ranging of security concerns into questions of technological development than their peers in Seoul and Tokyo. China therefore blurs the lines between security, trade, and technology policies in fundamentally distinctive ways.
Roselyn Hsueh describes the blurring of the security and economic strategic value parameters as
such: “Chinese leaders and policymakers’ assessment of strategic value also provides critical information about the goals and means of the Chinese state. The subjective understanding becomes salient because the boundaries between the economic and political dimensions of strategic value blur. State goals of
technological advancement, infrastructure development, and competitive domestic sectors cannot be disconnected from the Chinese government’s concerns regarding internal political stability and external security.”244
Given developments over the past decade, there is little evidence suggesting this sentiment has meaningfully changed. Essential policy documents like MIC 2025 and the latest FYP underscore statements from senior officials within the Chinese government - most notably President Xi himself - signaling an intense fixation
244 Hsueh, China’s Regulatory State, 34.
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on using state power to move up the technological value chain and, ultimately, reduce reliance on foreign technology in sectors deemed critical to growth and military security. In this sense, globalization presents not so much an attractive liberal approach to structuring the relations between state, society, and market, but rather an opportunity for achieving fundamentally realist end-goals of developing the national economy and enhancing national strength vis-a-vis rival state actors. China’s leadership doesn't share certain core
ideological convictions about the liberal positive-sum nature of globalization. Nor, as a rising superpower, will it likely remain happy with its status of place in the existing international order.245
How China relates to processes of globalization, and the policy tools it deploys in managing its effects, are therefore fundamentally unique. As Zheng and Pan describe it, “the Chinese state managed to leverage domestic and international resources for economic and political gains oriented towards autonomy and independence. This was achieved mainly through innovation of alternative institutions to harness economic liberalization and globalization.”246 Given the nature of its political system and the logic underlying its consistently realist approach to grand strategy, it’s to be expected China will continually use the institutions of state in promoting indigenous innovation. The imperative placed on minimizing the extent of its external dependency on strategic technology for reasons of security, development and national prestige will not dissipate barring systemic change in its internal political structure. China will continue embracing aspects of techno-globalism and techno-pragmatism while retaining considerable scope for state action in accordance with core techno-nationalist tenets.
Given this state of affairs, foreign companies operating in China today face a dilemma best summarized by long-time China consultant James McGregor:
The indigenous innovation drive is forcing foreign technology companies to anguish over balancing today’s profits with tomorrow’s survival. With its extraordinary infrastructure plans and
continent-
245 Mearsheimer, Can China Rise Peacefully?, 2014
246 Zheng and Pan, 100
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sized consumer market that has just begun to really develop, China is a market no multinational can ignore. But the price of admission is getting more expensive by the day as China opens its policy toolbox to ensure that foreign technology allowed into China is accessible for “co-innovation” and
“re-innovation” by Chinese companies.247
Studying China’s top-down technology strategy indicates that it is not engaging in a gradual process of conforming with Western norms regarding the relationship between state and market. Events over the past decade bear out that normative convergence was unlikely given the worldview and governing structure of Chinese elite-level politics. China’s emergence as an economic, technological and military superpower must be situated in a domestic political context of an increasingly insecure one-party regime increasingly of both the internal and external challenges to the perpetuation of its political monopoly.
As the Harvard Business Review points out, China and the US, by virtue of their substantially different approaches to economic rule-making, are “structurally prone to economic conflict.”248 Given the inherent difficulties in successfully managing any period of great power transition, coupled with rising levels of distrust between the two central protagonists, the scope for conflict over trade and technology is likely to grow for the foreseeable future.
In spite of this, foreign companies and governments possess important sources of leverage. As the case studies make clear, Chinese firms are reliant on overseas acquisitions and overseas markets to develop indigenous capacity. Government efforts at facilitating M&A activity in areas like robotics and ICs suggest an awareness of this ongoing need. China’s current stage of technological development – characterized as the “going out” stage – relies on the consent of foreign firms and foreign governments. Rising protectionism in key markets like Western Europe and North America runs the risk of severely impairing China’s
In spite of this, foreign companies and governments possess important sources of leverage. As the case studies make clear, Chinese firms are reliant on overseas acquisitions and overseas markets to develop indigenous capacity. Government efforts at facilitating M&A activity in areas like robotics and ICs suggest an awareness of this ongoing need. China’s current stage of technological development – characterized as the “going out” stage – relies on the consent of foreign firms and foreign governments. Rising protectionism in key markets like Western Europe and North America runs the risk of severely impairing China’s