What would Chinese tech ‘self-reliance’ mean to the world?

China has a five-year plan to become a self-reliant, global tech superpower. But is that even possible?
3 November 2020
  • China’s new five-year plan has an ambitious aim: to become a self-reliant, global tech superpower
  • Overall, the country’s 14th five-year plan aims to build an internal economic ecosystem less prone to external sanctions and turbulence

China unveiled its 14th five-year plan last week and its government has placed self-sufficiency in technology as a major pillar of the country’s economic development. The move marked a shift in priorities towards the need to reduce tech imports.

The drive to become self-reliant has come after ongoing acrimony between China and the US over technology transfers that have created plenty of losers during the past year — many US companies have lost out on business as a result of sanctions, while Chinese groups that have had to find alternative suppliers or, in the case of Huawei, rapidly stockpile the components they require. 

With a risk of widening restrictions looming or those currently in place, at least, not reversing, China sees an increasingly critical need to develop domestic capacity and reduce its dependence on foreign technology.

China’s minister of science and technology Wang Zhigang said at a press conference on Friday that his countrymen “need to improve our ability to create things independently because we cannot ask for or buy the core technologies from elsewhere.”

The statement comes amid the US elections and shows — no matter who becomes the next President — that China is ready to cut off its trade ties with the West after a long-drawn-out and frustrating geopolitical conflict. 

Chips are on the table

The recent policies suggest China is resorting to its unique “whole-nation system” to finance technology development, even though the efficiency and effectiveness of this system remain under debate.

Market watchers are in-between on whether China can achieve self-reliance in certain areas, especially on semiconductor chips, given the large gap between the industry in China and the US. China would have to make gigantic investments over a long period to catch up.

Since the start of 2019, Washington has used sanctions to cut Chinese companies out of US supply chains, denting the telecoms group Huawei, China’s supercomputer groups, and eight of the country’s leading artificial intelligence surveillance companies.  

The sanction was threatening for Huawei especially, as the chips form the backbone of the company’s tech capabilities in making telecom equipment, smartphones, and smart cities Huawei’s vulnerability to US technology restrictions highlighted China’s long-standing inability to build a globally competitive semiconductor manufacturer.

What’s in for the rest of us?

Some would assume the move as a lurch toward autarky — a China that seals itself off from the world and goes it alone. But this gets the idea of “self-reliance” all wrong as the term was born of necessity: Mao Zedong coined it in the context of a civil war with Chiang Kai-shek’s Nationalist armies that threatened to annihilate his peasant movement.

Once Mao took power, though, he was more than happy to accept Soviet help to build China’s industrial base — that is until the two communist giants split over ideology.  

Frankly speaking, for many countries, technology development nearly always requires piggybacking on international expertise.

Beijing may have been pursuing strategies that often tread a wavering line between increasing its engagement with the outside world and shutting it out, all in an effort to achieve technological autonomy, but it is now embracing international open-source, or free-to-use collaborations.  

In simple terms, China has been tapping overseas markets for talent, investing more in countries outside of the US. Despite the renewed focus on self-reliance, officials and industry experts said, China will continue to open up its domestic market to foreign businesses and pursue global cooperation in technological research and development.

That means greater collaboration with tech companies around the world who control many of the core technologies China needs to stand on its own two feet, including advanced semiconductors.

S&P surveyed 657 listed Chinese exporters in the electronics, semiconductors, cars, aerospace, and defense sectors. According to its report, close to half (49%) or 323 companies among China’s Tier 1 suppliers — that supply components directly to the original equipment manufacturer – have headquarters overseas.

The biggest proportion of these companies are headquartered in the Asia-Pacific region, excluding China, followed by Europe and the US.

Of the Tier 2 suppliers in China’s supply chain, 47% or 362 companies have overseas headquarters. Among them, 215 are from the Asia-Pacific region, while 84 are from the eurozone and 63 from the US. Tier 2 companies generate and supply Tier 1 with the components needed for the final products.

A closer look into China’s import basket by Harvard World Trade Atlas shows China’s biggest imports are electronics, industrial machinery, and information and communication services.

Ironically, the drive for Chinese “self-reliance” may end up encouraging larger collaborations with nations around the world, or in other words, inter-dependence.