Chapter 4: Techno-nationalism and Techno-Industrial Policy
4.3 China’s Technology Policy under “Reform and Opening”
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weapons elite through the chaos of the Cultural Revolution, made this doctrine and its organizational complement an important legacy for China’s leaders as they moved to refocus the country’s goals on national economic growth.”149
4.3 China’s Technology Policy under “Reform and Opening”
Developments in the late 1970s suggested an acute awareness regarding the limitations of the existing economic structure in facilitating technological development. Under Deng and Hua, China embraced a newfound strategy for comprehensive modernization across four key sectors: industry, agriculture, military, and science and technology. Dubbed the “Four Modernizations,” the new program aspired for China to reach the status of a fully modernized socialist state by the year 2000. In doing so, China turned away from the autarky of the late Mao period, embracing the importation of foreign technologies, capital and technical expertise in a transformative way. The program set about empowering a more technocratic and modernized bureaucracy and welcoming some level of market competition and foreign direct investment (FDI) as a means of driving technological advancement and overall national development.150
However, in moving away from a centrally-planned economy oriented around a militant form of techno-nationalism, Chinese leadership proceeded cautiously and gradually in the early stages of the “reform and opening” period. Marketization, the selective cultivation of FDI and a general trend toward managed opening to the world didn’t represent an embrace of economic or political liberalism. Nor did it represent a full repudiation of techno-nationalist thinking rooted in concerns over national strength and sovereignty.
Rather, the impetus for reform stemmed from a desire to find a workable framework for preserving the wounded partly-state political monopoly by jump-starting the moribund economy through the injection of capital and new forms of technology. In this sense, tentative movement toward economic liberalization was
149 Feigenbaum, China’s Techno-Warriors, 68.
150 Richard Baum. China’s Four Modernizations: The New Technological Revolution. 1980.
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seen by many within the CCP ruling elite as necessary for the illiberal ends of preserving CCP hegemony and building up state power.151 By opening itself up to the outside world, Deng and his allies were not rejecting techno-nationalist end goals but farther pursuing them in accordance with a new strategy of foreign learning.
China’s framework under Mao stood in contrast to the more commercially driven techno-nationalism seen in Japan and South Korea; where private firms developed, acquired and integrated foreign sources of
technology with the end goals of building up internationally competitive export sectors and a stronger domestic technology base.152 The comparative success of rival East Asian states along China’s periphery provided an important “demonstration effect” for the CCP leadership eyeing a new approach while
simultaneously underscoring the extent of China’s technical backwardness.153 At the onset of Chinas reform and opening period, Japan - devastated in the aftermath of World War II - had already established itself as the second largest economy in the world.
Starved for capital and technology, China’s development strategy underwent profound structural change after Deng Xiaoping consolidated his position within the party leadership. With China’s geopolitical situation improved via rapprochement with the United States in the latter stages of the Mao-period, Deng possessed greater latitude for moving in the direction of de-militarization; shifting economic development away from its overwhelming focus on heavy industry and toward the civilian economy. The decision to undertake massive reforms is widely interpreted as a response to China’s relative backwardness as well as reflection of the fact that the existing approach – largely rooted in militant techno-nationalist principals of heavy defense-oriented development – failed to deliver desired development outcomes. With Deng undertaking extensive political and economic reforms, R&D declined significantly as an overall share of GDP. China moved away from the military-centric development model and toward greater marketization and FDI cultivation.154
151 Nathan and Scobell, China’s Search for Security
152 Cheung, The Economic-Security Nexus in Northeast Asia
153 Ibid
154 Naughton, 2007
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One primary manifestation of China’s newfound approach to technological acquisition during this period can be seen in its approach to Foreign Direct Investment (FDI). Whereas FDI did not serve as a key component of East Asian development in the Japanese or Korean context, China set up special economic zones along its coast in hopes of attracting foreign capital needed to create jobs and revitalize its domestic manufacturing base. By encouraging FDI flows, China compromised substantial degrees of its economic sovereignty in a manner distinct from its East Asian peers. China - situated outside the US security structure - didn’t enjoy the same level of privileged access to Western markets as its East Asian peers. This geopolitical reality played an important role in compelling a more open and accommodating approach to FDI as a means of securing foreign technology and investment.
That China - an ideological rival of the American-led trade and security bloc - opened itself up to trade and investment from abroad unnerved many within the country who felt that economic re-orientation both compromised Maoist ideology and created new security risks by increasing external dependency. Given the CCP’s aforementioned ideological and institutional legacies, it’s unlikely senior leadership saw “reform and opening” as a pathway to eventual political transition away from the socialist party-state model.155 Rather, it seems likely that reforms were undergirded by a pragmatic recognition; by allowing in foreign capital and expertise, China gained access to new forms of technology necessary for both national industrial
development and military strengthening. The justification for “reform and opening” was couched in the language of acquiring foreign sources of technology and building up national strength, not in embracing a normative liberal transformation.156
Internally, economic reform played out gradually and encompassed several core components. The most significant alternations in the approach to economic governance taken by the CCP in the reform era include:
a significant retrenchment of the state’s overall role in economic planning; the toleration and encouragement of private enterprise; the reform of state-owned enterprises; market determined pricing for an array of goods
155 Kroeber, 2016
156 Hughes, 2007
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and services; pro-market patterns of state intervention; and the adoption of a legal framework conducive to market processes.157 From the bottom-up, private sector led economic development, international
integration, and access to new forms of technology, principally ICT, brought about drastic changes in the nature of the broader Chinese society.
However, in spite of myriad change, aspects of China’s techno-nationalist orientation remained largely in place over the course of the early reform period. China’s reforms – while substantial – remained constrained by the ideological and institutional strictures of the pre-existing CCP-state system. Despite the emergence of a variety of heterogeneous and influential new political actors, historically embedded patterns of state control and central planning, particularly as they pertained to the role of the state in acquiring, developing and regulating politically strategic technology, remained largely in place and acted as breaks on further processes of market reform.
As Naughton and Segal point out, during the early stages of reform the government embraced marketization processes in low-tech, labor intensive areas of the economy while maintaining tight control over strategically important sectors of the economy. FDI, while encouraged in certain sectors, was initially channeled into specified enclaves where it could be more easily managed and controlled.158 In this regard, China’s economic nationalism during the time period can be described as “defensive” in nature; concerned with preserving sovereignty by walling off and protecting strategically important industries from external competition and/or control.159
Initiatives like the strategic “863 Plan” unveiled in 1986, and the more commercially oriented “Torch Plan”
unveiled in 1988, underscored continual reliance on central planning in shaping China’s S&T environment.
Feigenbaum construes such initiatives as evidence that “China remains wedded in many ways to “planned”
innovation from the top down” where, “ultimately, the end goal of strategic guidance plans such as 863 is to
157 A comprehensive analysis of China’s economic reforms can be found in Dali Yang, Remaking the Chinese Leviathan, 2004
158 Naughton and Segal, 2006
159 Zheng and Pan, 2013
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create an indigenous Chinese capability to innovate and manufacture.”160 While Deng pivoted techno-industrial policy away from the strict focus on weapons technology, he still hewed closely techno-nationalist ideas regarding the importance of the state in helping China close the technology gap with its foreign
competitors. State guidance and policy support in the high-tech arena remained essential for Chinese security and economic competitiveness.
Complicating liberalization efforts were voices amongst the “New Left,” who saw the intrusion of foreign MNCs into the Chinese market as eroding national sovereignty and threatening the development of China’s domestic industrial base. The 1990’s seesawed between bouts of market reform and renewed commitments to nationalistic protections as a means of insulating Chinese firms (and the broader national economy) from the instabilities of globalization. In summarizing the period, Zheng and Pan write that, “Chinese opening and integration into the global economy at this stage was characterized by a tug of war between economic
liberalism and economic nationalism…To be accepted by the international community, the Chinese state had made concessions by opening its door wider, but it managed to exchange market access for other benefits, especially high technologies of MNCs.”161
Concerns over China’s innovative abilities grew over in the late 1990s, culminating with the 1997 CAS report entitled “The Coming of the Knowledge Based Economy.”162 The report emphasized the need for China’s political leadership to invest more heavily in strengthening the national S&T ecosystem; linking economic and security competitiveness with high-tech innovation. The report drew keen interest from senior leadership within the CCP, most notably from President Jiang Zemin, who began utilizing the language of high-tech innovation in speeches and public statements setting out China’s future strategy.
In contrast to the rigidness of the Mao-era, the period from 1978 through 2000 demonstrated a high degree of adaptation and improvisation in China’s approach as it cast about in search of an optimal framework for
160 Feigenbaum, China’s Techno-Warriors
161 Zheng and Pan, 2013
162 James McGregor. “China’s Drive for ‘Indigenous Innovation’: A Web of Industrial Policies.” US Chamber of Commerce. 2010.
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technological upgrading. In spite of this, results were largely mixed. While China’s economy boomed, it largely failed to develop cutting edge firms or brands in core high tech industries. To wit, foreign MNCs largely monopolized China’s export of high-tech products and services; fueling growing concerns within China that globalization was potentially compromising national security by opening up new sources of foreign dependency.
Although core components of techno-industrial policy remained firmly in place, they co-existed with substantial changes in China’s technological ecosystem. In summarizing the trajectory of China’s technological development in the 1990s, Tai Ming Cheung and others report that:
China embraced key elements of techno-globalist thinking in the early 1990s by opening up the national economy to FDI and rolling back state dominance of the S&T system by allowing the participation of private and other non-state firms. This led to massive inflows of foreign investment into the medium and high-technology sectors by multinationals, and soaring imports of technology goods by foreign and Chinese firms throughout the 1990s. In addition, large numbers of entrepreneurial domestic and foreign joint venture new technology enterprises were established or spun off from the state sector and quickly emerged as major players in the domestic technology marketplace.163
While the China ceded sovereignty by embedding itself into global production networks, the state never bought into the normative principals undergirding liberal conceptions of globalization. The state retained significant scope for market intervention, walled off certain industries from foreign competition, actively promoted the buildup of a domestic S&T capability, and consistently held to a techno-nationalist worldview in which globalization represented an opportunity for China to harness the international economy as a way of gaining access to new forms of technology necessary for developing its economy and bolstering state
163 Tai Ming Cheung, Thomas Mahnken, Deborah Seligsohn, Kevin Pollpeter, Eric Anderson and Fan Yang Tai. “Planning for Innovation: Understanding China’s Plans for Technological, Energy, Industrial, and Defense Development.” 2016. University of California: IGCC. <
https://www.uscc.gov/sites/default/files/Research/Planning%20for%20Innovation-Understanding%20China%27s%20Plans%20for%20Tech%20Energy%20Industrial%20and%20Defense%20Development072816.
pdf>
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power and national security.
Decades after the conclusion of the Mao-era, the techno-nationalist legacy of China’s strategic military planners continued to exert a strong pull on policy orientation. Writing again in China’s Techno-Warriors, Feigenbaum states, “despite these dramatic changes, old ideas and behaviors persist. Indigenization remains the ultimate goal of economic integration with foreign partners; leaders in Beijing feign little interest in the liberal underpinnings of economic globalization”164
4.4 Techno-Industrial Policy Under Hu and Xi
A shift in the orientation of China’s overall techno-industrial policy approach became evident early on under the leadership of Hu Jintao and Wen Jiabao. According to Naughton and Ling, while technological
development had long been a central priority of Chinese leadership, “the new policy orientation displayed a much greater willingness to directly shape specific industrial sectors through government intervention.”165
This sentiment is reinforced by the “Planning for Innovation” report on Chinese technological development, which argues that, “while the state has gradually retreated from the direct management of the Chinese economy in the post-Mao reform era, the S&T sector stands out as being subject to more state planning that ever in its history.”166 Naughton points out the extent to which government promotion of technology has displaced traditional industrial policy levers, stating, “industrial policy has increasingly been subsumed into technology policy” where “promotion of high-technology industry is arguably the central economic
development policy of the Chinese government today.”167
Analyzing China’s approach to innovation, Scott Kennedy writes, “China’s leadership has identified creating
164 Feigenbaum, 2003.
165 Naughton and Ling, 2013
166 Tai Ming Cheung etc.al. “Planning for Innovation.”
167 Naughton, The Chinese Economy, 2007. 366.
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an innovation society as key to achieving sustainable growth over the coming decades and avoiding falling into the middle-income trap.” To do so it is “pursuing a techno-nationalist approach that supports domestic industry at the expense of foreign competitors.”168 This analysis is also shared by Roselyn Hsueh in her book China’s Regulatory State. According to Hsueh, while the Chinese state broadly moved toward relinquishing economic control across the board, in sectors deemed to be of strategic significance (such as telecoms) there’s been a general trend toward re-regulation. Writes Hsueh:
By pursuing a strategy of economic-wide market liberalization and sector-specific reregulation, China has managed to obtain technological know-how, foster domestic champions, and retain an upper hand over foreign forces even in a more liberal environment. By liberalizing market entry and strategically utilizing FDI at the sectoral and subsectoral level, the Chinese government has
modernized domestic infrastructure, maximized the domestic technology base, and promoted the competitiveness of domestic industry. At the same time, it has enhanced control of the most sensitive and strategic assets and restricted the business scope and market share of foreign companies in the most sensitive industrial sectors.169
4.5 The MLP and SEI
One key moment denoting the re-emergence of a more explicit form of Chinese techno-industrial policy was the 2006 release of “the National Medium and Long Term Plan for the Development of Science and
Technology” (MLP); a policy document broadly interpreted as codifying China's overall approach to future S&T development. The plan enshrined the primacy of “indigenous innovation,” setting out the end-goal of establishing China as a technology and innovation power.
168 Scott Kennedy. “The Fat Tech Dragon: Benchmarking China’s Innovation Drive.” CSIS. August 2017.
169 Roselyn Hsueh, China’s Regulatory State, 2011. 259.
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The impetus for the composition of the MLP began several years earlier under the direction of President Hu and Premier Wen; involving thousands of personnel with expertise in the fields of science, engineering, economics, military security and academia. The plan harkened back to earlier periods of extensive central planning, taking several years to complete and revealing deep fissures within China’s policy elite regarding the optimal strategy for technological development.170 Some involved in the drafting process argued in favor of perpetuating the existing development model based around attracting FDI and facilitating technology transfer, with others preferring a more proactive approach to cultivating domestic S&T capability.
Much of the analysis of the underlying rationale for China’s high-level strategic emphasis on “indigenous innovation” stresses the sense of frustration felt by high-level state officials over the extent of Chinese reliance on external sources of medium and high technology. While China enjoyed substantial rates of economic growth from the period of 1978-2008, it did not succeed in cultivating a national ecosystem conducive to technological innovation. Nor, for that matter, did it shed its dependency on externally-based sources of strategic technology. Naughton lays out the shortcomings of the Chinese technology model that emerged in the 1980s and 1990s:
Precisely because China’s specialized in the least technologically demanding stages of production, these linkages initially had few implications for technological development. Even when China was exporting finished goods that embodied high-technology components – such as laptop computers – the actual spillovers into indigenous technological capabilities were minimal. The global production networks involved in these high-tech commodities were largely closed, and Chinese domestic producers did not participate much, if at all.171
Chinese techno-industrial policy underwent a significant evolution since at least 1999, where many
170 Cheung etc. al. “Planning for Innovation.”
171 Naughton, 2007. 368
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ideologically rooted statist policies were discarded in favor of “enabling” policies better capable of aligning government and corporate actors around a common objective of promoting high-tech development. Under the leadership of Hu-Wen government, technological and scientific development became a core rational for mobilizing public support for state economic policy. The Hu-Wen emphasis on “scientific development”
placed a newfound emphasis on human capital development, the adoption of foreign trade and promotion strategies geared toward the end goal of promoting native high-tech production capability.
According to Arthur Kroeber, the “indigenous innovation” strategy adopted under Hu and Wen and primarily enshrined in the MLP laid out an array of policy tools for promoting domestic technology:
subsidies for high-tech R&D; the creation of domestic technical standards; public procurement policies promoting the acquisition of domestic technology; and increasingly onerous technology transfer conditions on foreign MNCs operating in the China market.172
In finished form, the MLP keyed in on 11 sectors and 8 fields of technology for prioritization. The plan
In finished form, the MLP keyed in on 11 sectors and 8 fields of technology for prioritization. The plan