Nikolaos Asfouri | Getty Images Xi Jinping once said that China should “prioritize innovation” and be in “cutting-edge (of) cutting-edge technologies, cutting-edge engineering technologies and disruptive technologies.” Since that speech in 2017, Beijing has talked about technologies it wants to boost its capability in, ranging from artificial intelligence to 5G technology and semiconductors. Five years since Xi addressed the last National Congress of the Communist Party of China, the global reality for the world’s second-largest economy has been transformed. It comes amid an ongoing trade war with the US, challenges from Covid and a political shift at home that have hit some of Beijing’s goals. On Sunday, the 20th National Congress — held once every five years — will begin in Beijing. The high-level meeting is expected to pave the way for Xi to continue as head of the Communist Party for an unprecedented third five-year term. Xi will take stock of China’s achievements in science and technology, which have produced mixed results. “I agree it’s a mixed bag,” Charles Mok, a visiting scholar at the Global Digital Policy Incubator at Stanford University. He said China sets “high” goals as it aims to be the best, but “they are politically and ideologically limited in terms of strategies to achieve them.” Private tech companies are reeling under tighter regulations and a slowing economy. China is far from self-sufficient in semiconductors, a task made more difficult by recent US export controls. Censorship on the mainland has also been tightened. But China has made some remarkable advances in areas like 5G and space travel.
US-China tech war
“It appears that Xi underestimated the challenges China faced in overcoming its dependence on foreign, mainly American, companies…” Paul Triolo head of political technology, Albright Stonebridge
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Semiconductor self-sufficiency
Beijing has placed a strong emphasis on self-sufficiency in various areas of technology, but most notably in semiconductors. The push to boost China’s domestic chip industry was given a further boost as the trade war began. In its five-year development plan, the 14th of its kind, Beijing said it would make “self-reliance and self-improvement, science and technology a strategic pillar for national development.” One area he hoped to do so was in semiconductors. But a number of restrictions from the US have dealt a blow to those ambitions. “It appears that Xi underestimated the challenges China faced in overcoming its reliance on foreign, mostly American companies, in key ‘core’ or ‘hard’ technologies such as semiconductors,” said Paul Triolo, head of technology policy at the consulting firm Albright Stonebridge. he told CNBC. “It also failed to take into account growing US concern about semiconductors as fundamental to core technologies.” Looking ahead, the latest package of US controls will deal a huge blow to China’s technological ambitions. Paul Triolo head of political technology, Albright Stonebridge Things didn’t look as “bleak” for China’s semiconductors in 2017 as they do now, Triolo said. “In hindsight, Xi should have redoubled efforts to boost China’s domestic semiconductor manufacturing equipment sector, but even there, heavy reliance on inputs such as semiconductors has made it difficult for Chinese companies to reproduce all elements of these complex supply chains’. The Biden administration unveiled a series of restrictions last week aimed at cutting off China from key chips and manufacturing tools to make those semiconductors. Washington is seeking to halt the supply of chips for critical technology areas such as artificial intelligence and supercomputers. Analysts previously told CNBC that this would likely make it difficult for China’s domestic technology industry. That’s because part of the rules also require some foreign-made chips that use American tooling and software in the design and manufacturing process to obtain a license before being exported to China. Chinese domestic chipmakers and design firms still rely heavily on American tooling. Chipmakers – such as Taiwan’s TSMC, the world’s most advanced semiconductor maker – also depend on American technology. This means that any Chinese company that relies on TSMC can be cut off from supplying chips. Meanwhile, China does not have a domestic TSMC equivalent. China’s leading chipmaker SMIC is still generations behind TSMC in its technology. And with the latest US restrictions, it could make it difficult for SMIC to catch up. Thus, China is still far from self-sufficiency in semiconductors, even though Beijing is focusing heavily on it. “Looking ahead, the latest package of US controls will deal a huge blow to China’s technological ambitions because restrictions on semiconductors are evolving,” Triolo said. The curbs “will ripple across many related sectors and make it impossible for Chinese companies to compete in some areas, such as high-performance computing and AI-related applications such as autonomous vehicles, which rely on hardware advances to make progress.”
Technological suppression of China
An important feature of Xi’s past five years is how he has turned China into one of the world’s strictest regulatory regimes for technology. Over the past two years, China’s once freewheeling and fast-growing tech giants have come under intense scrutiny. It began in November 2020 when Ant Group’s $34.5 billion initial public offering, which would have been the world’s largest, was pulled by regulators. That sparked several months where regulators moved quickly to introduce a raft of regulations in areas from antitrust to data protection. In one of the first regulations of its kind globally, Beijing also passed a law regulating how tech companies can use recommendation algorithms, underscoring the sharp tightening that has taken place. Looking back at Xi’s 2017 speech, there were hints that regulation was coming. “We will provide more and better online content and implement a system for comprehensive Internet management to ensure a clean cyber space,” Xi said at the time. But the pace at which the regulations were passed and the scope of the rules alienated investors, and billions were wiped off the share prices of China’s biggest tech companies – including Alibaba and Tencent – in 2021 and 2022. They have yet to recover from these losses. Analysts pointed out that although there were reports of an internet cleanup, the rapid nature of the regulation that subsequently swept China was unlikely to have been foreseen – even by Xi himself. “While I believe that in 2017, Xi was completely focused on strengthening platform regulation, I highly doubt that the rapid-fire nature of his… [the regulation] it was pre-planned,” Kendra Schaefer, a partner at Trivium China, told CNBC. Five years ago, Xi said the government would “abolish regulations and practices that hinder the development of a unified market and fair competition, support the development of private enterprises, and stimulate the vitality of various market entities.” This is another commitment that seems to have gone unfulfilled. China’s tech giants are also seeing their slowest growth in history, partly due to tighter regulations. Part of the story, analysts say, is about Xi exerting more control over powerful tech companies that were seen as a threat to China’s ruling Communist Party. “It’s obvious they don’t support the growth of private enterprise,” Mock said. “In my view, they failed.” “Think they are putting the Party’s agenda and absolute control as the top priority… No one can be successful unless the Party can maintain its dominance and absolute control.”
China’s 5G successes in space
Despite the challenges, China has achieved success in the field of science and technology since 2017. Space exploration has been a key goal. In 2020, a Chinese mission to the moon ended with its spacecraft returning back to Earth with lunar samples, a first for the country. That same year, China completed its own satellite navigation system called Beidou, a rival to the government’s US-owned Global Positioning System (GPS). Last year, China landed an uncrewed spacecraft on Mars and is planning its first manned mission to the Red Planet in 2033. China has also been one of the world’s leading nations to deploy next-generation 5G mobile networks, which promise ultra-fast speeds and the ability to support new industries such as autonomous driving. In electric vehicles, China has also made progress. The country is the world’s largest electric car market and home to CATL, the world’s largest EV battery maker, which is looking to expand overseas.
What’s next for Xi’s technology policy?
The regulatory onslaught on the domestic tech sector, which has slowed in recent months, won’t go away entirely. Even if regulatory actions “move into a new phase” in Xi’s third term, companies like Alibaba and Tencent won’t necessarily see the breakneck growth speeds they’ve seen in the past, Mok said. “Even if they find their feet, it’s not the same ground. They’re not going to see that growth, because if China’s overall GDP and economic growth is like what people are talking about now for the next several years… then why should they even surpass the entire China market?” Mok said. No doubt technology will continue to be a key focus for Xi over the next five years, with an emphasis on self-sufficiency. China will likely continue to struggle for success in areas that Beijing considers “cutting edge” technologies, such as artificial intelligence and chips. But Xi’s job in tech is now much more difficult. “As the US continues to strengthen controls in other areas of technology and squeeze technology investment in China through outbound investment reviews, overall innovation…
