China’s 14th Five-Year Plan aims to dramatically increase investment in research and development, setting a clear course for technological autonomy; in response to the Chinese Communist Party‘s challenge, the U.S. government may launch its strongest industrial policy since the Cold War, ensuring leadership in key technologies and attempting to free its supply chain from dependence on China. A “duel” is already underway, and how it will be won or lost is of great importance.
“The draft outline of the 14th Five-Year Plan proposes that by 2025, the value added of China’s “core industries of the digital economy” will increase from 7.8 percent of GDP in 2020 to 10 percent, and that the value added of “strategic emerging industries” will account for 10 percent of GDP. The value added of “strategic emerging industries” should exceed 17 percent of GDP by 2025.
The leadership of the Communist Party of China, in its recommendations for the 14th Five-Year Plan announced in November 2020, set the goal of “achieving major breakthroughs in key core technologies and entering the forefront of innovative countries” by 2035, and stated that it would target In the 14th Five-Year Plan, the goal of “achieving major breakthroughs in key core technologies and entering the forefront of innovative countries” by 2035 was set, and the goal was to target frontier fields such as artificial intelligence, quantum information, integrated circuits, Life and health, and brain science.
The strategic goal is clearly an important guideline for the CPC’s science and technology policy. Klon Kitchen, a fellow for science, technology and defense policy at the American Enterprise Institute (AEI), a Washington think tank, told Voice of America, “The CCP rightly recognizes that to effectively protect and pursue its interests globally, it needs to be the leader, if not the only leader, in several emerging technology industries …… Leadership in these industries will be essential if the CCP is to establish the kind of international influence they seek, and to leverage it.”
Facing the biggest threat since the Cold War? U.S. reintroduces industrial policy, spurred by China
In the face of the Chinese Communist Party’s ambition to become the world’s technological hegemon, the U.S., which has always advocated a free-market economy, is likely to take a step forward with government guidance rarely seen since the Cold War.
For a long Time, the term industrial policy has not been popular in the U.S. policy-making environment. The use of government power to intervene in the allocation of resources is seen as undue interference in the free market, and the investment of public funds in research falls into this category.
According to an analysis by the Institute for Foreign Relations (CFR), a U.S. think tank, the U.S. government generally only pursues certain industrial policies in response to crises and external threats, such as the Roosevelt New Deal in the 1930s, industrial mobilization during World War II, and the U.S.-Soviet space race during the Cold War.
According to Reva Goujon, executive director of strategic intelligence at Martin+Crumpton Group, an international strategic consulting and business development firm, as the Chinese Communist Party continues its policy of accelerated R&D investment in an attempt to outpace the United States, how the United States responds with industrial policy is more A turning point in policymaking that deserves more attention.
Speaking to Voice of America, Goujon said, “The Chinese Communist Party is spending heavily on its strategic technology goals, which naturally catalyzes the U.S. to increase R&D spending, enhance investment screening, and provide tax credits and other incentives to promote U.S. technology manufacturing and innovation.”
More importantly, she said, “We are seeing in the United States a shift surfacing – lawmakers and businesses alike are adapting to a new era of industrial policy and ‘big government,’ and they are increasingly recognizing that in the big power competition environment, market forces alone are not sufficient to protect national security interests.”
Upon assuming the presidency, Biden signed an executive order Feb. 24 designating federal departments to conduct a 100-day assessment of global supply chains and potential U.S. vulnerabilities in key industries, including manufacturing and advanced packaging supply chains in the semiconductor industry, high-capacity battery industry supply chains for products such as electric vehicles, key mineral and strategic materials supply chains, including rare earths, and pharmaceutical and active pharmaceutical The supply chain related to pharmaceutical and active pharmaceutical ingredients.
U.S. National Security Advisor Sullivan also recently stated that competition in these areas requires “incremental, bold public investment by the United States to keep us ahead of the curve.
At the same time, cross-party congressional leaders have announced they are working together to draft legislation that would provide hundreds of billions of dollars in funding to defeat the Chinese Communist Party in key industries.
An analysis of China’s 14th Five-Year Plan goals by the Congressional Research Service in January said that the CCP is prioritizing efforts to acquire foreign technology through unrestricted international access in order to develop planned priority strategic technologies, such as partnerships in open technology and basic research, establishing R&D centers overseas, and attracting foreign experts to work in China through talent acquisition programs.
The analysis suggests that the U.S. needs to be alert to China’s intentions to gain access to U.S. open-source technology and basic research, and consider whether to strengthen export controls and how to secure supply chains through trade policy and technology cooperation with allies and partners.
“The term ‘industrial policy’ carries a certain political weight,” said the American Enterprise Institute’s Cochin.
Cochin doesn’t think the U.S. is going to intervene in the economy on a large scale with a national effort like other countries do. But he said, “Sensible trade policy and coherent economic policy within the constraints of national security interests is something the U.S. will absolutely go to and can take advantage of.”
Gurung, an expert on strategic intelligence issues, stressed that the U.S. does not currently agree on how to use industrial policy.
She said, “There is general agreement among politicians on the need to compete more effectively with China, but there is less unity on strategy. For example, under what circumstances would export restrictions and academic exchange restrictions be counterproductive to the U.S. Culture of innovation, market competitiveness and talent attraction? Even reworking the Trump-era rules to focus restrictions less on general consumer applications and more on end-use and end-user screening will take time.”
There is still a gap between the U.S. and China in basic research
Some analysts believe that the top leadership of the Communist Party of China, despite trumpeting its achievements in areas such as new weapons and artificial intelligence, clearly recognizes that its scientific base in key “neck” technologies is limited by the United States.
In order to truly achieve “self-reliance and self-improvement” in science and technology, the Chinese Communist government has put basic research in a more important position in the 14th Five-Year Plan: the annual average growth of R&D expenditure of the whole society is more than 7%, and the proportion of basic research expenditure in R&D expenditure is The proportion of investment in basic research to R&D expenditure has been raised to more than 8%.
However, even though China plans to increase its investment in basic research year after year, the overall investment level is significantly different from that of the United States.
Communist Party officials say that China’s basic R&D investment will account for 6.16 percent of total R&D spending in 2020, or about 150.4 billion yuan ($23.1 billion), and project that this figure could reach 280 billion yuan ($43 billion) by 2025.
In comparison, the U.S. spent $97 billion on basic research in 2018, or about 17 percent of total U.S. R&D spending, according to a 2020 report by the National Science Foundation (NSF).
However, the U.S. government’s investment in science and technology R&D as a share of GDP has stagnated for years, drawing long-standing criticism from domestic science and technology policy analysts.
Strategic intelligence expert Gurung said, “The Chinese Communist Party’s intention to increase R&D investment is closely tied to the U.S.-China struggle for technological dominance. While total U.S. R&D spending has long exceeded that of China and the rest of the world, China’s R&D spending as a share of GDP has been rising on a steep curve since 1995, while U.S. federal R&D spending (as a share of GDP) has been declining and stagnating since the 1970s.”
In 2017, the federal government invested 0.6 percent of U.S. GDP in R&D, while the private sector invested 2 percent of U.S. GDP that year, according to the National Science Foundation.
China’s market attractiveness unabated but technology decoupling inevitable
China’s tech environment remains highly attractive to U.S. tech practitioners. A survey of U.S. tech industry practitioners released March 15 by technology media outlet Protocol found that 60 percent of respondents support closer cooperation with Chinese tech companies.
However, it seems imperative that the U.S. and Chinese tech supply chains decouple from each other. An assessment released last fall by the China Strategy Group, led by former Google CEO Eric Schmidt, said a return to the “status quo” in U.S.-China relations that existed before the Trump Administration “cannot and should not be a U.S. policy goal.
The report said the inherent trends in the U.S. and China will inevitably lead to some degree of technology industry separation, and while the process may be fraught with tension and disruption, it is in the U.S. national interest in the long run.
A key point to understand is that China itself is pursuing decoupling,” said Cochin of the American Enterprise Institute. China has ordered its own government departments and agencies to move away from using U.S. IT equipment and is also rapidly developing a domestic technology base in advanced semiconductors and other areas. So whatever the U.S. wants to choose to do, China will pursue a well-thought-out decoupling strategy, and the implications for the future are decisive.”
Cochin said that given China’s civil-military integration route, and the relationship between the Chinese government and its industry, the U.S. has realized that if the supply chain goes through China, “there will be an unacceptable risk of espionage and other supply chain disruptions.”
The U.S. goal is to mitigate unacceptable risks while maintaining as much cooperation (with China) as possible,” he said. What remains to be seen is how much cooperation is possible, which will largely be determined by the Chinese Communist Party and how it chooses to act.”
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