Growing state financial support for hi-tech industries, backed by long-term development targets and a huge pool of engineers, could give China an edge over Silicon Valley within the decade, analysts say. Beijing has its sights set on establishing a world-leading tech industry to boost economic self-reliance and make the country more resilient to external pressure amid heightened rivalry with the United States. US CIA director William Burns has described technology as the “main arena for competition and rivalry with China” – and the world’s No 2 economy is already the biggest hi-tech manufacturer. “The tech industry in the US knows the US government cannot and will not spend enough to push it forward,” said Jeff Fieldhack, US-based research director for mobile devices with market analysis firm Counterpoint Research. China’s SMIC keeping a low profile after US warning over Russian sanctions China’s Finance Ministry said early this month that spending on science and technology totalled about US$51 billion last year. The country has increased tech-related funding to help counter action by Washington, including bans on some Chinese companies investing in American tech firms and the addition of Chinese tech giants, such as Huawei Technologies Co. , to export blacklists. Chinese provincial leaders, for example, vowed this year to further develop “future industries” such as the metaverse, blockchain and artificial intelligence, the state-run Xinhua News Agency reported last month. Xinhua said in January that construction of a powerful supercomputer would headline China’s hi-tech advances this year. China’s biggest semiconductor foundry, the partly government-owned Semiconductor Manufacturing International Corp (SMIC), set aside a record US$5 billion for capital expenditure this year, up from US$4.5 billion in 2021. It will be a difficult battle for US start-ups and Silicon Valley firms to fight against Chinese giants or state-backed enterprises Sean Su The investment could raise SMIC’s monthly capacity by 130,000 to 150,000 8-inch equivalent wafers – the engines behind a range of common consumer electronics. SMIC was among dozens of Chinese companies added to a trade blacklist in 2020 during ex-president Donald Trump’s trade war. “It will be a difficult battle for US start-ups and Silicon Valley firms to fight against Chinese giants or state-backed enterprises,” said Sean Su, an independent tech analyst in Taipei. “The reason is that the Chinese government is doing all imaginable to aid its own firms … giving Chinese firms a huge advantage.” Chinese companies already lead Silicon Valley in development of 5G wireless, artificial intelligence (AI) and mobile payment technologies, Su said. The country has especially large data pools to drive AI, said Mark Natkin, managing director of Beijing-based market research firm Marbridge Consulting. The Californian tech hub also lags China in talent skilled in basic science, technology, engineering and mathematics, according to Su. And more Chinese graduates are on the way, with Guangdong province set to open 11 new universities this year and Shenzhen planning to spend 150 billion yuan (US$23.74 billion) on 20 new institutions by 2025. Chinese authorities have shown a willingness to step up hiring of internationally renowned engineers, researchers and professors, too. Last September, President Xi Jinping said China will “exhaust all means” to recruit professionals from around the world to become a power in science and tech. “If the US does nothing, China will surely overtake the US,” Su said. Natikin said Chinese tech firms might “buy some of the most innovative minds from around the globe”. Networking giant Huawei Technologies Co, for instance, also said in September it would hire more foreign recruits , especially from the US, to stimulate overseas research and development. One of China’s strengths is its ability to formulate and implement long-term industrial development plans Mark Natkin “One of China’s strengths is its ability to formulate and implement long-term industrial development plans that, in a country like the US, might be undermined by the market’s demand for quicker profits or internecine fighting between political parties,” Natkin said. But the search for talent can come with risks. In Taiwan, a global tech hardware hub since the 1980s, which Beijing considers a renegade province, authorities raided the offices of two recruitment firms last year in connection with poaching local talent for a mainland chip maker. The Taiwan government went on to block employment ads from mainland China and tighten recruitment rules. The 14th five-year plan – from 2021 to 2025 – has put self-sufficiency in technology as a major pillar of China’s economic development. By 2035, “China’s economic and scientific strength will have jumped significantly and [it will] become a leading innovation-oriented country,” said Liu Pengyu, spokesperson for the Chinese Embassy in Washington. But China’s regulatory action on the internet sector that started in early 2021 threatens to hobble progress towards overtaking Silicon Valley, some analysts say. Crackdowns last year against internet service provider Tencent Holdings and ride-hailing firm Didi Chuxing among others dented some of China’s largest tech firms. Regulators had sought to disrupt monopolies, protect consumers, and curb exposure to offshore stock markets in the aftermath of the Sino-US trade dispute. “[China] has always struggled with software or soft tech, which is an area where Silicon Valley has excelled,” said Zennon Kapron, director of the financial industry research firm Kapronasia. “There is a myriad of reasons for this … the most salient is China’s tech crackdown, which has tended to focus on the soft tech players.” Action against “anticompetitive practices” come “at the risk of further hurting the development of soft tech”, Kapron said. “These dynamics are well understood by Silicon Valley … and until these dynamics change, Silicon Valley will continue to have a clear advantage, certainly in soft tech and potentially hard tech as well.” Silicon Valley, which is home to the likes of Google and Apple, has grown since the 1970s on a culture of innovation and a close relationship with top-rated universities like Stanford. Talent, suppliers and venture capital have moved into Silicon Valley as the number of firms – big and small – keeps growing. Valley tech firms normally raise money through private capital. China’s tech crackdown could taper off this year, letting home-grown internet giants thrive under new regulations. Stephen Pau, CIO of the Hefeng Family Office in Guangzhou, said the regulatory changes could even be positive by breaking up the monopoly environment. “In the longer term, we believe the regulatory changes will be positive for narrowing the wealth gap to achieve ‘common prosperity’ by redistributing capital from high capital return sectors such as the internet, private education, games or real estate to sectors with high social benefits such as clean energy, EVs or chips, and from large and dominant companies to small and medium enterprises.”