US-China tech war: state-led economy crucial to meet challenges of American sanctions, says prominent economist

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China’s government will play a crucial role in the development of ‘chokehold technologies’, which America has weaponised, says economist Bai Chong-en

Combination of market forces and government direction to drive technology development important, but state-led approach could stifle innovation, Bai says

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China’s state-led economic model is at the heart of Beijing’s conflict with Washington. Photo: AFP

Karen Yeung

Published: 10:00pm, 23 Mar 2021Updated: 12:06am, 24 Mar 2021

China’s socialist economic model that mixes strong government direction and support within a market economy is the key to faster development and meeting technology challenges posed by US sanctions, according to Bai Chong-en, dean of the School of Economics and Management at Tsinghua University.

The government will play a crucial role in the development of “chokehold technologies”, areas of knowledge where the United States has weaponised its advantages by banning or sharply reducing the ability of American companies to supply key components and products to China, Bai said.

The private sector cannot be relied upon to supply the technology – most of which is only available in advanced economies – because of the extremely high costs and risks associated in developing such innovative products. This requires the state to step in, Bai said at a Credit Suisse sponsored conference in Hong Kong on Monday.

China’s state-led economic model is at the heart of Beijing’s conflict with Washington, which strongly opposes the idea of Communist Party-led, state-run market economics. Western nations have long complained Chinese state firms enjoy preferential treatment compared to international companies operating in the world’s second-largest economy.

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However, a state-run approach could lead to problems in innovation, an area where market forces typically performed better, said Bai, who is also a member of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), China’s main political consultative body.

Still, the combination of market forces and state direction to drive technology development was important, especially as China was catching up with advanced economies, he said.

“That is the secret to success, and what is special [about China],” Bai said. “You will not succeed every time, you may waste a lot of money in some sectors, but you just play the odds.”