US-China tech war: Beijing urged to pump money into innovation for clearer edge over top rival

Some US$295 billion in annual government funding for new tech and taxing use of foreign know-how among suggestions from Tsinghua economists
Tech rivalry with the US can have huge impact on global economy and must be handled carefully, Beijing forum hears

US-China tech war

Holly Chik

Published: 6:11pm, 15 May 2022

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China should boost funding for key innovative capabilities and ensure market share for local products as tech rivalry with the US deepens, leading Chinese economists suggested.

Ju Jiandong, a professor of finance at Tsinghua University, said the Chinese government should invest 2 trillion yuan (US$295 billion) annually in the next 10 years to boost local technology development and thereby spur GDP growth.

To break the monopoly of international technology on the Chinese market, companies could also be taxed extra if more than 70 per cent of their products depend on overseas technology, Ju told the Tsinghua PBCSF Chief Economists Forum in Beijing on Saturday.

“A smartphone producer in China should have at least 30 per cent of its devices made with Chinese chips. Or a punitive tax should be charged,” he said.

“We must secure a certain market share for local products to be competitive. We should ensure that foreign core technology has no more than 70 per cent of the Chinese market share, and Chinese technology must hold at least 30 per cent of the local market.”

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Ju noted that the trade war had seen the United States tend to clamp down on leading Chinese companies capable of challenging its technology monopoly, such as Huawei Technologies. This was aimed at maintaining the US’ hold on the global core technologies market and cutting off upgrade pathways for Chinese technologies, he explained.

China and the US have been locked in intense rivalry to lead the future of global technology, with Chinese ambitions for the digital economy and core technologies stoking US fears of losing its top spot.

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In January, China published a major plan to boost its global competitiveness in the digital economy before 2025, covering everything from communications to e-commerce.

The plan aims to improve basic research capabilities in “strategic areas” such as sensors, quantum information, communications, integrated circuits, key software, big data, artificial intelligence, blockchain and new materials.

Other aims are improved self-sufficiency in “basic hardware and software, core electronic components, key basic materials and production equipment” to improve supply chain security in key industries such as “5G, integrated circuits, new energy vehicles, artificial intelligence and the industrial internet”, according to the 14th five-year plan on the digital economy.

The plan also endorsed a target to have digital economy core industries’ output account for 10 per cent of the national GDP by 2025, from a 7.8 per cent share in 2020.

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Speaking at the same Beijing forum, the director of Tsinghua’s China Institute for Science and Technology Policy, Xue Lan, called for a dialogue mechanism to manage the US-China rivalry and prevent it from going to extremes.

Xue also said the two countries should clarify the boundaries of competition so as to limit negative impacts on the global economy and the international community, and step up collaboration on climate change and public health.

He said China lagged behind the US when it came to the number of top scientific papers published, and still fell short in key areas such as semiconductor production. The government also invested far from enough in basic research, with more than 80 per cent of funding coming from companies, Xue said.

“The tech competition between China and the US may become a critical factor in the global economic development. If handled well, it may contribute greatly to the international economy. Or else, there will be unpredictable consequences,” he warned.