China puts supply chain security at forefront to avoid being ‘strangled’ by sanctions, analysts say

Recognising that the United States has ‘enormous leverage’ over China in the technology sector, Beijing is going all-in to build an indigenous, reliable supply chain

President Xi Jinping says central government will ‘enhance global value chain’s dependence on China’, with deterrence capabilities to curb supply cut-offs

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A computer chip and motherboard are displayed at Huawei’s headquarters in Shenzhen, Guangdong province. Photo: Reuters

Published: 6:30am, 10 Nov 2020Updated: 2:44pm, 10 Nov 2020

On multiple occasions, President Xi Jinping has used the phrase qia bozi, which translates to being strangled by an adversary, in describing China’s risks in the realm of technological competition.

That is because China’s inability to produce vital hi-tech components – from computer chips in mobile phones to aeroplane engines – puts the country at the mercy of strategic rivals. Washington’s targeting of tech powerhouse Huawei and telecoms giant ZTE with sanctions, for example, shows that reliance risks are too real to ignore.

This is the logic behind Beijing’s self-sufficiency drive – commonly referred to as dual circulation – and this thinking is a key philosophy underpinning the country’s 14th five-year plan for 2021-25 and its 2035 vision, according to analysts.

“China is determined to reduce the vulnerabilities that the US has exploited, and that means reducing its dependence on US technology,” Andrew Batson, an analyst with research firm Gavekal, wrote in a recent note about China’s 2035 strategy.

China is recognising that the United States has enormous leverage over China, Batson said, adding that the “US was willing to deploy that leverage for geopolitical goals, despite economic costs and industry opposition”.

This disparity is perhaps best exemplified in the development of semiconductors – a sector in which Beijing is going all-in.

China has poured hundreds of billions of yuan into research and development, and local authorities have been showering support on integrated chip makers and software enterprises, with inevitable consequences including overcapacity and excessive waste.