In recent years, the concept of ‘China-US technology competition’ has been widely discussed. Whether it is the American political sphere, academia, strategic circles, or the general public, all regard the China-US technology competition as an unquestionable reality. But is reality truly so?
Is there a state of technological competition between China and the United States?
Looking at it from the perspective of industrial competition, it is difficult to define China and the United States as being in a state of technological competition. The high-tech industries of both countries are at different levels of development, and their relationship is more complementary than competitive. On one hand, the United States has a leading edge in the global high-tech services industry, far surpassing China. According to data released by the U.S. National Science Board in 2022, the value-added by knowledge and technology-intensive services in the United States account for 37% of the global total, while China accounts for only about 11%. Although China’s share is on the rise, it is not at the expense of the United States. In the past decade, the U.S. share has actually increased by 7 percentage points. On the other hand, the foundation of China’s high-tech manufacturing industry is vertical specialization within the global value chain dominated by the United States. Since joining the World Trade Organization in 2001, China has seen significant expansion in high-tech manufacturing sectors such as computers, electronics, optical products, and electrical equipment. This results from China’s integration into the global value chain through processing trade. Currently, nearly 60% of China’s high-tech product exports are the result of processing trade, with a significant portion of components and intermediate goods imported from Japan, South Korea, ASEAN, and other regions. These components and intermediate goods often trace their origins back to U.S. technology and upstream products.
From the perspective of individual enterprises, China and the United States cannot be defined as being in a state of technological competition either. In recent years, Chinese companies have rapidly increased their research and development (R&D) investments. According to the European Commission’s “2022 EU Industrial R&D Investment Scoreboard,” in 2022, there were 678 Chinese companies among the top 2,500 global R&D investors, compared to 822 from the United States. However, even disregarding the differences in the business domains of Chinese and American companies, equal R&D investment does not necessarily equate to equal R&D output. Further analysis shows that among the true competitors of major U.S. high-tech companies like Boeing, Microsoft, Alphabet, Meta, Pfizer, Qualcomm, NVIDIA, and Intel, how many are mainland Chinese companies?
Some consider indicators such as research papers and patents as evidence of technological competition between China and the United States. China’s output of research papers and patents has indeed grown rapidly. According to the “2022 China Science and Technology Paper Statistics Report” released by the China Science and Technology Information Institute, from 2012 to 2022, China’s output of highly cited SCI papers increased fivefold, reaching 63.5% of that of the United States. From 2012 to 2020, China’s share of authorized triadic patents doubled, reaching 45.2% of that of the United States. However, the growth of Chinese research papers reflects China-U.S. scientific cooperation rather than technological competition. In the past decade, 20% to 30% of highly cited Chinese papers had American co-authors. In the case of patents, China still faces the challenge of a disconnect between technology and industry. Many patents are either difficult to commercialize or do not meet industry needs. According to a survey by the China National Intellectual Property Administration, in 2022, the implementation rate of invention patents was 59% for Chinese enterprises, 24% for research institutes, and only 17% for universities. The efforts to mend the loop between Chinese technology and industry also reflect the China-U.S. scientific cooperation relationship. According to data from the World Trade Organization, in 2021, China had a $34.94 billion deficit in intellectual property trade with the United States, while the United States had an $81.27 billion surplus. China paid 18.7% of its intellectual property usage fees to the United States. In 2017, before the U.S. abused export controls on China, this ratio reached 25.9%.
The Context of China-U.S. Technology Policies in the Context of ‘Competition’
Since competition is not the current state of China-U.S. technological development, the concept of ‘China-U.S. technology competition’ is a construct driven by political needs. While this concept has numerous flaws, its policy implications are profound. Due to the false premise of ‘China-U.S. technology competition,’ the United States has built a real policy framework for technological competition with China. This framework includes policy measures at three levels.
First, at the unilateral level, the United States is implementing massive subsidies for strategic technological innovation. In 2022, the United States passed the ‘2022 Chips and Science Act’ and the ‘Inflation Reduction Act,’ marking the beginning of its resurgence in strategic technological innovation subsidies under the banner of ‘China-U.S. technology competition.’ The ‘2022 Chips and Science Act’ has a total expenditure of $280 billion, which includes the authorization of a semiconductor fund with an allocation of $50 billion to build domestic semiconductor production capacity in the United States. It also authorizes the National Science Foundation to establish a new directorate called ‘The Directorate for Technology, Innovation, and Collaboration,’ focusing on advanced technology research in areas such as artificial intelligence, 6G, energy, and materials. The ‘Inflation Reduction Act’ has a total expenditure of $430 billion, with approximately $370 billion allocated to investments in new energy, mainly for subsidies to support the purchase of new energy vehicles. These policies all come with ‘anti-China’ clauses. The ‘Inflation Reduction Act’ requires that electric vehicles applying for subsidies should not use battery materials and critical minerals from China. The ‘2022 Chips and Science Act’ stipulates that companies receiving subsidies should not engage in significant transactions that substantially increase semiconductor production capacity in China within ten years. According to detailed rules issued by the U.S. Department of Commerce in March 2023, subsidy criteria have become more stringent, with clearer restrictions on the expansion and consumption of advanced process chips and mature process chips in ‘countries of concern.’ It also excludes joint research and technology licensing with ‘countries of concern.’
Second, at the bilateral level, export controls and investment restrictions on China are continually being escalated. As of June 2023, more than 600 Chinese companies have been added to the U.S. Department of Commerce’s ‘Entity List.’ These companies are primarily in fields such as 5G/6G, artificial intelligence, quantum computing, and photovoltaics. From 2019 to 2021, Chinese companies subject to review by the Committee on Foreign Investment in the United States (CFIUS) completed 105 investment transactions in the United States, accounting for 15% of the total (Zhang, et al., 2023). Meanwhile, the U.S. government is also pushing for the establishment of foreign investment review mechanisms that will prohibit or restrict U.S. companies from investing in China in areas such as semiconductors and artificial intelligence.
Third, at the multilateral level, efforts are being made to create a ‘small circle’ of technology containment against China. In 2021, the United States and the European Union established the U.S.-EU Trade and Technology Council (TTC) to collaborate on investment review, multilateral export controls, artificial intelligence technology, and other areas to address challenges posed by ‘non-market economies.’ In 2023, the United States enacted the ‘Indo-Pacific Economic Framework’ (IPEF) and reached agreements with 13 countries in the Indo-Pacific region to strengthen supply chains for critical materials such as chips and key minerals, aiming to reduce dependence on China.
These policies not only go against the principles of open innovation but also raise suspicions of violating multilateral rules. In November 2022, the Director-General of the World Trade Organization, Ngozi Okonjo-Iweala, stated that the U.S. subsidy policies could trigger a ‘race to the bottom’ in subsidies and increase the risk of trade friction among WTO members. In a formal meeting of the WTO, Goods Trade Council held in November 2022, the Chinese delegation pointed out that the ‘Inflation Reduction Act’ contains up to nine tax incentives conditional on production and sales in the United States or the North American region. Such discriminatory provisions are suspected of violating basic WTO principles such as most-favored-nation treatment and national treatment, and they may constitute prohibited import substitution subsidies and trade-related investment restrictions under WTO rules. These measures have already caused severe distortions in global trade and investment in related industries.
In December 2022, leaders from nine EU countries, including France, Italy, and Spain, held a meeting and expressed concerns that the ‘Inflation Reduction Act’ includes protectionist policies that would harm European industries and unfairly advantage American companies. They called on the European Commission to formulate a unified response. In the same month, China filed a complaint with the World Trade Organization against U.S. measures, including export controls on chips to China, arguing that these measures violate the principle of most-favored-nation treatment and other provisions, such as the elimination of quantitative restrictions.
As the United States’ technology policies towards China become increasingly aggressive, China’s defensive stance in its technology policy is strengthening. China is emphasizing technological self-reliance and technological security. On one hand, China continues to increase domestic technology investments, while on the other, it is trying to minimize the damage caused by disruptions in foreign technology supply chains. To avoid misunderstandings both internationally and domestically, the Chinese government repeatedly emphasizes that technological self-reliance does not mean ‘closed-door innovation,’ and technological security is not equivalent to ‘indigenous substitution.’ This practical choice is made by considering the realities and drawing from historical experiences—adhering to the principles of open innovation while reducing the risks of technological dependence. It’s worth noting that, unlike the U.S. misuse of ‘national security,’ China’s concept of ‘technological security’ is based on tangible evidence of real harm to Chinese companies and industries caused by U.S. technology suppression measures.
In summary, China’s response to U.S. technology competition policies is restrained and rational. On one hand, China continues to focus on its own technological development, without actively engaging in competition with the United States or harming American companies. On the other hand, China remains committed to its policy of open innovation. The 20th Party Congress report explicitly states, ‘We will expand international scientific and technological exchanges and cooperation, strengthen the construction of an internationalized research environment, and create an open and innovative ecosystem with global competitiveness.’ This indicates that the Chinese government has not been disrupted by the United States’ technological nationalism measures and is still striving to uphold the broader picture of mutually beneficial open innovation, safeguarding the globalization of innovation.
Where Is the Future Headed for ‘China-U.S. Technology Competition’?
In mid-2023, China and the United States began to restore high-level contacts, and bilateral relations showed signs of easing. The U.S. articulation of its policy towards China shifted from ‘decoupling and disruption’ to ‘de-risking.’ However, the future of China-U.S. technology relations still appears bleak. ‘De-risking’ is merely a change in rhetoric, with no substantial difference from ‘decoupling and disruption.’ The United States continues to add Chinese companies to its Entity List and further expands the areas of restrictions, enlisting third parties to implement joint restrictions. According to China’s customs data, in the first half of 2023, the total value of imported chips into China decreased by 22.4% year-on-year, far exceeding the overall import decrease of 0.1% for China.
In the long run, the U.S. obsession with ‘China-U.S. technology competition’ may evolve into a ‘self-fulfilling prophecy.’ On one hand, the escalating U.S. export controls on China will accelerate the localization of relevant technologies and industries in China. When the United States completely cuts off foreign supply channels, downstream manufacturers in China will be forced to turn to domestic sources, creating a great market for Chinese domestic component and intermediate goods suppliers. On the other hand, the continuous technological pressure from the United States on China has led to a sharp decline in the favorability of the American people among the Chinese population. This may lead China to abandon hope for complementary technological cooperation with the United States and turn towards technology policies with greater external influence.
The current U.S. technology competition policy towards China neither conforms to the laws of innovation nor the laws of the market. Consequently, it will not benefit the United States, nor will it be truly successful. Instead, it will fragment the global technology system, disrupt the global environment for innovation, and make the rest of the world pay the price together.
Related:
- Saudi and UAE’s Rising AI Goals Amid China-US Chip Race
- U.S. Shifts China Policy: What You Need to Know
- India Lifts Import Restrictions: Key Policy Shift
- Israel Palestine Conflict Impact on SK Semiconductors
- Micron Resolves Dispute with Fujian JHICC: Industry Impact
- Elevating Chinese Mobile Devices: Latest Baseband, RF Chips
- DIY PC Builds: How E-commerce Tricks You
- SK Hynix Promotes New Talent to Drive R&D Innovation
Disclaimer: This article is sourced from Science and Technology China, with the original author being Huang Ning. The content of the article represents the personal views of the original author. The translation/reproduction by YUNZE’s site is for the purpose of sharing and conveying different viewpoints. If there are any objections, please feel free to contact us!