China’s Vast Blueprint for Tech Supremacy Over U.S.
China’s technology industry is a telling example of the country’s unusual approach to economic development, mixing government influence with private enterprise on a scale that no nation has ever attempted. Under President Xi Jinping, the Communist Party has rolled out several programs to nudge the economy away from the labor-intensive, low-margin industries that underpinned growth over the past two decades and to make China self-sufficient in critical technologies. Trillions of dollars will flow into companies, infrastructure and research parks under the plans, which are key to Xi’s effort to broaden wealth creation and create a more equal society. The risk is that his government ends up wasting money by investing in companies and sectors that fail to live up to their promise.
Here are some of the main programs that Xi’s lieutenants are overseeing:
To foster a tech industry that can compete with Silicon Valley, the government has been tracking down promising startups that are doing something innovative and unique in strategically important sectors. It then gives them a leg-up with tax breaks and financial incentives. The Ministry of Industry and Information Technology has named 4,762 little giants since 2019 and the government wants to identify 10,000 by 2025. The program took on new prominence after Beijing launched a sweeping crackdown on China’s giant tech companies including Alibaba Group Holding Ltd. and Tencent Holdings Ltd. and the billionaires who control them. The ‘little giant’ label has come to be seen as a form of official endorsement, and a possible protection from regulatory punishment.
Made in China 2025
The industrial plan released in 2015 identified 10 industries in which China aspired to become globally competitive by 2025 and globally dominant during this century. They included robotics, new-energy vehicles, biotechnology, aerospace, advanced rail equipment, new materials such as those used in screens and solar cells, software and information technology. It also wants to become the world’s primary innovation center for artificial intelligence by 2030 and to digitize 70% of the country’s large enterprises. The scale of ambition has stoked alarm among China’s economic rivals and fears that foreign businesses won’t be able to compete against Chinese companies that are backed by massive state investment and subsidies. It’s unclear how much progress China has made toward the goals, and some critics say 2025 is too ambitious a timeframe.
China is investing an estimated $1.4 trillion between 2020 and 2025 to roll out fifth-generation wireless technology and install a network of surveillance cameras and sensors. It’s building high-speed rail links and developing China’s industrial internet with billions of connected devices. Energy networks are being beefed up with ultra-high voltage power transmission and new-energy vehicle charging stations.
Meaning “information technology application innovation,” the plan aims to nurture home-grown alternatives to foreign information technologies, particularly in sensitive sectors such as banking and government. The country accelerated the process last year to allow more local firms to join the campaign, which some researchers say is on track to become a $125 billion market exclusively for Chinese tech firms by 2025. International Business Machines Corp., Microsoft Corp. and other overseas suppliers of computers, chipsets, software and cloud services could be impacted once China develops its own technologies.
The first country to introduce paper money, China’s now trying to be a pioneer in digital money. The central bank has created a virtual currency known as e-CNY to make payments cheaper and easier. Consumers and businesses download a so-called e-wallet on their mobile phone and fill it with virtual yuan from their account at a commercial bank. After trials in cities across the country since 2020, the government was planning to offer it to athletes and spectators at the Beijing Winter Olympics in February. While the Covid-19 pandemic and the need for social distancing lent impetus to the digital yuan, most Chinese still rely overwhelmingly on Alipay and WeChat Pay for their daily payments.
Cities like Beijing and Nanjing have established science parks where qualifying companies can get special treatment. Tax breaks and financial sweeteners are common. Municipalities can also cover the salaries of sought-after engineers. Venture firms can get reimbursed if they lose money on investments.