China has been gaining global market share in hi-tech industries at the expense of the United States, according to a new report, as the race for tech supremacy between the two countries heats up. Measured across key seven sectors, China’s share of the advanced technology market leapt from less than 4 per cent in 1995 to 21.5 per cent in 2018, said the Information Technology & Innovation Foundation (ITIF) on Wednesday. The sectors covered in the report include: IT and information services; computer, electronic and optical products; electrical equipment; machinery and equipment; motor vehicle equipment; other transport equipment; and pharmaceutical products. The US saw its market share in the seven sectors decline from 24 per cent in 1995 to 22.5 per cent in 2018, the Washington-based think tank said. In other words, the more ground China gained in these industries, the more the United States lost ITIF Removing IT and other information services, America’s relative share of advanced industry production globally fell by nearly 16 percentage points from 96.2 in 1995 to 80.4 per cent in 2018, according to the ITIF’s Hamilton Index of Advanced-Industry Performance. Beijing has funnelled huge amounts of money into developing its hi-tech industries to meet Western standards and loosen its dependence on imports , an issue that has gained more urgency amid attempts by Washington to contain China’s technological advancement. “We see this tug of war in the fact that there was a strong correlation between the change in the respective shares of global output that China and the United States held in advanced industries from 1995 to 2018,” said the report by ITIF, whose board includes representatives from US tech companies such as Meta, Amazon, Google and Intel. “In other words, the more ground China gained in these industries, the more the United States lost.” China’s strongest growth was in electrical equipment, where it controls more than a third of the global market. Dubbed the world’s workshop, the country also ranked first in car manufacturing in 2018 with 25 per cent of the international market, while the US had the lowest share among the economies profiled in the report. The world’s No 2 economy is also making strides in pharmaceutical production, ranking third behind the US and Germany, the report said. In one of the most competitive categories, China in 2018 surpassed the US to gain the biggest market share in computer, electronic and optical products, which includes semiconductors. It accounted for 25 per cent of the market, while the US at No 2 had about 23 per cent. Korea accounted for 11 per cent. China’s weakest sector was in the production of other transport equipment, but Beijing is seeking to change that by spending billions on a national aviation champion, the Commercial Aircraft Corporation of China (Comac), the ITIF report said. Chinese rival to B737 and A320 jets completes Shanghai flight test Comac is the developer of the C919 , a narrow body passenger jet to compete with Boeing’s 737 and Airbus’s A320. Robert D. Atkinson, president of ITIF and an author of the new index, said it was not too late for the US government to reconsider its policy settings, as there is a big difference between “producing potato chips and producing computer chips”. Increasing the share of advanced tech manufacturing in the US economy – which has been driven to China as a result of its “mercantilist policies” – would help economic and national security, especially in production of semiconductors and artificial intelligence, he said. The ITIF report said if Washington wanted advanced industries to constitute the same share of the US economy as the country did of global gross domestic product (GDP), output would have to expand by US$99 billion annually. To equal China, output would have to expand by 42 per cent, or US$679 billion annually. “Moving the United States from below the global average in advanced-industry production to at least 15 per cent above the global average would bring about a big change,” he said. “It would dramatically reduce America’s trade deficit. It would significantly weaken America’s dependence on China, while at the same time slowing China’s advance. “The reality is that the long-term economic cost of not having robust hi-tech manufacturing would be much higher than the cost of reconstituting it.” China’s industrial policy has long been a point of contention for the US and other Western nations. Washington has accused China of unfair trade practices, including intellectual property theft, forced technology transfer, a lack of market access for American companies and using state subsidies that create an uneven playing field for foreign firms. China, meanwhile, has accused the US of trying to restrict its rise as a global economic power. What are China’s industrial subsidies and why are they so controversial? China outspends every other country when it comes to supporting industrial policy, according to a separate study by the Centre for Strategic and International Studies (CSIS), a US think tank. In 2019, China is estimated to have spent at least 1.73 per cent of GDP to help its industries, said the report released last month. That is more than twice as much as South Korea, the second-largest spender. In dollar terms, China spends more than twice as much as the US, the study found. The research, funded by the US Department of State, defined industrial policy as any state intervention – whether explicit or implicit – that aims to reallocate resources to support certain firms or sectors to achieve one or more policy objectives. At least when it comes to policies, America could replicate German successes Robert D. Atkinson Atkinson said the US could take a leaf out of Germany’s book, which had seen its output in advanced industries as a proportion of GDP increase from 27 per cent more than the global average in 1995 to 74 per cent more in 2018, even though its share of global output declined in all seven industries in the Hamilton Index. As a share of its economy, Germany’s motor vehicle industry is three times the global average, and its machinery industry 2.5 times the global average. Germany trails the US in information services, but it still grew to more than 26 per cent of the global average in 2018. “Germany has long been a model of how to succeed in advanced manufacturing – from its vocational training programmes for workers to its collaborative model of research and development, with a clarity of purpose between industry and government. “So, at least when it comes to policies, America could replicate German successes. But to date it has chosen not to,” said Atkinson. However, if US policymakers continue to dither, the US could very well “reach a point of no return within this decade”, said Atkinson, where the country will have permanently lost competitive advantage in most advanced-industry sectors. “We only have to look at Russia to see what weakness in advanced production does to a country’s autonomy,” he said. The Hamilton Index aggregates data from the Organisation for Economic Co-operation and Development on value-added production in these seven advanced-industry sectors. The full data set covers 66 countries over the 24-year period.