How US-China rivalry over technology is a front for a geopolitical quest for supremacy

Cary Huang says American frustration with China’s domestic and foreign policy changes underlies the US-China trade dispute that has recently centred on the hi-tech sector

PUBLISHED : Tuesday, 03 July, 2018, 3:00pm
UPDATED : Tuesday, 03 July, 2018, 6:49pm

It is probably a war over trade. But it is also a battle over technology. As the US and China veer towards a full-blown trade war, US President Donald Trump singled out Beijing’s “Made in China 2025” plan as a major threat to US economic interests that violates global trade rules.

The ongoing trade dispute emerged from a US Section 301 investigation which claimed that China’s unfair trade practices and state-backed industrial policy contravene both US and international trade law.

The administration is also set to step up measures to ban Chinese companies from investing in US technology firms and to block tech exports to China.

The “Made in China 2025” initiative, which was first unveiled in 2015 by the Chinese cabinet, led by Premier Li Keqiang, seeks to turn the country from the world’s factory into a global technology leader. As an industrial development guideline, it sets its sights on 10 strategically and technologically important sectors, including information technology, biotech, robotics, aerospace and clean-energy vehicles.

The plan is not necessarily incompatible with World Trade Organisation rules or any international laws. It is similar to Germany’s Industry 4.0 Strategy, which was a direct inspiration for the Chinese plan.

Watch: What’s the beef with the ‘Made in China 2025’ strategy?

Why Made in China 2025 shouldn’t scare Donald Trump

But China’s political leadership is grooming the programme to produce national champions that can spearhead China’s dominance in the hi-tech sector, with the aim of eventually replacing foreign technology with domestic competitors. The State Council’s original notification on the programme included market share targets for China, such as to “realise guarantees of self-sufficiency” for 70 per cent of their “basic core components and important basic materials” by 2025. The programme has also been publicised as part of President Xi Jinping’s ambitious Chinese dream of “national rejuvenation”.

China’s leaders believe that a party-led and state-dominated economy is fundamental ... to the future growth of the world’s second-largest economy

At issue are the deep differences between China and the free economies, including the US, on macro management and the government’s role in the economy. Even after four decades of market reform, China still follows a model of state-directed capitalism, while the US – which played a key role in helping create the current global trading system – champions free markets and free trade, in which the government has a hands-off approach to business.

In sharp contrast, China’s leaders believe that a party-led and state-dominated economy is fundamental both to the future growth of the world’s second-largest economy and consolidation of Communist Party rule in the country. China has apparently ignored a backlash on its policies from its major trading partners and competitors.

It is not wrong for China to develop “indigenous innovation”, but the centrally planned programme includes measures, incentives and other forms of market protection to support domestic enterprises, which violate free market norms and possibly WTO rules. For instance, under the programme, Beijing intends to subsidise and provide loans worth around US$1.5 billion to domestic firms to pursue its objectives. The provincial authorities will provide another US$1.6 billion.

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A recent survey conducted by the European Union’s Chamber of Commerce in China suggested that many foreign firms believe that the China strategy is “tilting the playing field in favour of Chinese players”, as 43 per cent of 532 European firms operating in China stated that they “have seen increasing discrimination against them under the plan”.

The widespread fear among US policymakers is that China is not only seeking to compete commercially with US, but also aims to seek military and geopolitical supremacy. The fears are also a reaction to what the US sees as the disappointing trends in Chinese domestic and foreign policy in recent years: China’s moves away from marketisation, the strengthening of Maoist authoritarian rule at home, and the abandonment of its “peaceful rise” diplomacy, advocated by late leader Deng Xiaoping, in favour of assertive behaviour in regard to its territorial disputes with neighbours in the East China and South China seas, and with Taiwan.

Watch: China redeploys surface-to-air missile systems on South China Sea islands

Many foreign affairs observers now see what is emerging as an undeclared but intensifying war over technology superiority and domination, with both commercial and military applications, between the world’s chief political and economic adversaries. Washington now apparently sees the US-China competition on technology as an issue of economic and national security.

Thus, the US administration is pushing back against attempts to undermine its competitive advantage. It is also trying to inflict as much pain as possible on China in an effort to disrupt its attempts to usurp America’s hi-tech dominance.

Cary Huang is a senior writer at the Post