TO: Technology Policy Strategists
FROM: Peter Engelke and Emily Weinstein
DATE: April 24, 2023
SUBJECT: Assessing China’s approach to technological competition with the United States
This past winter, the Scowcroft Center for Strategy and Security and the Global China Hub convened experts and officials in a private workshop to discuss how China views technological competition with the United States. Participants examined the state of China’s technological system, how the country is crafting its own strategies and policies for success in technological development, and how it has reacted to the Biden administration’s export control policies. This memo draws from insights gathered during the workshop to give policymakers a better understanding of how China sees this strategic competition and to help shape appropriate policies in response.
The United States and the People’s Republic of China are increasingly engaged in a strategic competition for superiority in key technologies, including semiconductors, artificial intelligence (AI), quantum computing, biotechnologies, and more. Leadership in both countries wants to ensure that its country enjoys a first-mover advantage in a competition driven by geopolitical and economic interests.
The purpose of this memo is to focus on how China views this competition with the United States and its allies and partners. China is treated as an important actor with its own perspectives on how it should engage in this space. The memo will assess China’s goals and strategies as they relate to this competition and offer recommendations for policymakers in the United States and elsewhere.
Beijing views technology as the “main arena” of competition and rivalry with the United States 1“Sino-US Strategic Competition in Technology: Analysis and Prospects,” US-China Perception Monitor, https://perma.cc/KPB8-5FH9.. Many high-level policies and strategy documents released during President Xi Jinping’s tenure have emphasized the role of technology across all aspects of society. Under Xi’s direction, China has intensified its efforts to achieve self-sufficiency in key technology sectors, particularly in the wake of recent US technology export controls. These efforts center on China’s ability to indigenously innovate and leapfrog the United States in its technological capabilities.
China’s goals are reflected in intertwined economic, geopolitical, and military contexts. For example, China’s Military-Civil Fusion (MCF) development strategy is a “holistic approach” that bolsters “the seamless flow of materials, technology, knowledge, talent, and financial resources between the military and commercial industrial complexes.”2Emily S. Weinstein, “Testimony before the U.S.-China Economic and Security Review Commission on ‘U.S. Investment in China’s Capital Markets and Military- Industrial Complex,’” U.S.-China Economic and Security Review Commission, March 19, 2021, 2-3, https://www.uscc.gov/sites/default/files/2021-03/Emily_Weinstein_Testimony.pdf. While MCF has been closely associated with Xi during his presidency, antecedents in Chinese policy can be found extending back to the early 1980s under Deng Xiaoping.3Elsa B. Kania and Lorand Laskai, “Myths and Realities of China’s Military-Civil Fusion Strategy,” Center for a New American Security, January 28, 2021, https://www.cnas.org/publications/reports/myths-and-realities-of-chinas-military-civil-fusion-strategy. MCF, therefore, appears to reflect a long-standing view within Chinese leadership that an integrated technology ecosystem that fuses military and economic pillars will improve China’s capacity to innovate and ultimately surpass other advanced nations, especially the United States. This emphasis on fusion, or integration across sectors and actors, can be found in other Chinese state documents. For example, its recently announced plan for “Building a Digital China” stresses creation of “a strongly coordinated integrated system that is horizontally and vertically linked” in the digital domain.4“Translation: ‘Plan for the Overall Layout of Building a Digital China,’” Digichina, March 3, 2023, https://digichina.stanford.edu/work/translation-plan-for-the-overall-layout-of-building-a-digital-china/?utm_source=substack&utm_medium=email.
Although many experts do not believe that China is a peer to the United States in terms of advanced technological production, there is no question that China has been closing the gap with the United States in many, if not most, areas. For instance, since the mid-2000s, China has consistently graduated more science, technology, engineering, and mathematics PhDs than the United States.5Remco Zwetsloot et al., Data Brief: China is Fast Outpacing U.S. STEM PhD Growth, Center for Security and Emerging Technology, August 2021, https://cset.georgetown.edu/publication/china-is-fast-outpacing-u-s-stem-phd-growth/. China has also been gaining in scientific research. Studies focused on measuring China’s progress in research generally conclude as much—over the past decade, for example, Chinese scientists have produced a growing share of the world’s top 5 percent AI publications.6Ashwin Acharya and Brian Dunn, Data Brief: Comparing U.S. and Chinese Contributions to High-Impact AI Research, Center for Security and Emerging Technology, January 2022, https://cset.georgetown.edu/publication/comparing-u-s-and-chinese-contributions-to-high-impact-ai-research/. (An important qualifier is that China’s rising academic output partially results from incentives within its system that encourage publication quantity, resulting in an explosion of often poor-quality and sometimes fraudulent papers authored by Chinese researchers.)7See, e.g., Eleanor Olcott, Clive Cookson, and Alan Smith, “China’s Fake Science Industry: How ‘Paper Mills’ Threaten Progress,” Financial Times, March 27, 2023, https://www.ft.com/content/32440f74-7804-4637-a662-6cdc8f3fba86.
These results suggest that in some areas at least, China has overtaken the United States. Dan Wang, a visiting scholar at Yale Law School’s Paul Tsai China Center, argued recently that China has surpassed the United States in a large array of technologically intensive industrial applications. This leadership position is the result of China having grounded much of its technology ecosystem in scaled manufacturing and the process knowledge that comes with it (that is, the know-how derived from learning by doing). This advantage is highly consequential, enabling China to dominate global trade in some lucrative and manufacturing-intensive fields such as electric vehicle (EV) batteries and renewable energy systems.8Dan Wang, “China’s Hidden Tech Revolution: How Beijing Threatens U.S. Dominance,” Foreign Affairs 102, no. 2 (March/April 2023), https://www.foreignaffairs.com/china/chinas-hidden-tech-revolution-how-beijing-threatens-us-dominance-dan-wang.
Not all experts, however, are convinced that China’s rapid technological ascent will continue at such a pace. Influential Peking University scholar Wang Jisi has argued that despite revolutionary breakthroughs in some key technologies and a narrowing gap between China and the United States in terms of technological capacity, the United States still maintains key global advantages over China, including its open education model and talent cultivation system.9Wang Jisi, “The coming technology picture,” China US Focus, February 7, 2023, https://www.chinausfocus.com/finance-economy/the-coming-technology-picture. Some within China argue that Beijing’s desire for self-sufficiency has made China’s situation worse. Yao Yang of Peking University, for example, recently argued that China has reacted too strongly to the US push for technology decoupling, resulting in an overemphasis on technological autonomy within China.10Thomas des Garets Geddes, “PKU Economist Yao Yang on US-China Tech War and China’s Economy,”Sinification, January 10, 2023, https://sinification.substack.com/p/pku-economist-yao-yang-on-us-china. Still others contend that China’s technology ecosystem is riven with contradictions that will doom it to second-tier status behind the United States. The lingering effects of the government’s 2020 crackdown on technology companies, for instance, stifled investment in Chinese tech companies and might harm both investors’ and entrepreneurs’ long-term interest in the country’s ecosystem.11See, e.g., Zen Soo, “Chill Pervades China’s Tech Firms Even as Crackdown Eases,” Associated Press, February 2, 2023, https://apnews.com/article/technology-science-china-government-business-930e13900317684c3e4124b799bcaab9. For a review of the crackdown’s central features, see Chang Che and Jeremy Goldkorn, “China’s ‘Big Tech Crackdown’: A Guide,” SupChina, August 2, 2021, https://supchina.com/2021/08/02/chinas-big-tech-crackdown-a-guide/.
China’s strategy for navigating technology competition with the United States remains in progress. Although there has been significant scientific and technological (S&T) progress by China over the past two decades, much of which aligns with goals laid out in policy documents from the early 2000s, geopolitical shifts have forced China, and other states, to be more reactive. Regarding semiconductors, for example, although China has been focused on chip development as a key part of its technology strategy for more than a decade, recently it has even more strongly endorsed the concept of self-sufficiency in semiconductor production, with limited results.12For an analysis of China’s attempt to endogenize chip production, see Elliot Ji, “Great Leap Nowhere: The Challenges of China’s Semiconductor Industry,” War on the Rocks, February 24, 2023, https://warontherocks.com/2023/02/great-leap-nowhere-the-challenges-of-chinas-semiconductor-industry/. This emphasis is almost certainly a result of the United States reducing or eliminating exports of high-end chips and chip manufacturing equipment to China.
The Financial Times columnist Edward Luce has written that, unlike the Soviet Union, China “is never likely to dissolve” and therefore the United States will have to “cope with a China that will always be there.”13Edward Luce, “China Is Right about US Containment,” Financial Times, March 8, 2023, https://www.ft.com/content/bc6685c1-6f17-4e9e-aaaa-922083c06e70. In other words, China is unlikely to collapse from the contradictions that beset the Soviet Union, at least not anytime soon. It is true that China’s economy is slowing, a possible sign that the country’s boom decades are finally over, yet the odds nonetheless remain high that China will continue to be a major power, in economic and geopolitical terms, for some time to come. Policymakers in the United States and elsewhere should heed this basic insight and develop their policies appropriately, including in the technological arena.
The fundamental strategic question facing policymakers is where the line should be drawn on technological decoupling with China. The bilateral trading relationship between the United States and China is massive; and despite years of rising tensions and punitive trading policies on both sides, it continues to grow, measuring a record $690 billion in 2022.14Doug Palmer, “What Cold War? U.S. Trade with China Hits New High,” Politico, February 7, 2023, https://www.politico.com/news/2023/02/07/trade-china-relations-economies-00081301. Decoupling, it turns out, is exceedingly difficult and against powerful economic interests within both countries. As just one example, Ford Motor Company in February 2023 announced a partnership with Contemporary Amperex Technology Co. Ltd. (CATL), a leading Chinese battery manufacturer, to build and operate an EV battery plant in Michigan. While both firms clearly believe the deal is worth pursuing, some government officials in both countries think otherwise, with elected officials in Washington protesting the deal and, ironically, officials in Beijing asking for a review to ensure that Ford cannot acquire CATL’s battery technology.15Seaton Huang, “Ford-CATL Partnership Illustrates the Challenge of Decoupling EV Supply Chains,” Council on Foreign Relations, March 7, 2023, https://www.cfr.org/blog/ford-catl-partnership-illustrates-challenge-decoupling-ev-supply-chains.
This last point underscores the strategic question facing China regarding how it approaches technological development and exchange. That question is parallel to the one facing strategists in the United States and those of its allies and partners. Although Chinese leadership sees technological ascendancy as key to China’s ability to surpass the United States in military and geopolitical terms, China also requires tech-based engagement with the outside world, especially the United States and its allies and partners, to ensure its prosperity. As has been shown by the Chinese government’s unwillingness to engage in a tit-for-tat skirmish with the United States on technology export controls, China appears to have settled into a compromise position wherein it continues to trade in tech-intensive goods and services to maintain access to foreign markets; engages in selective retaliation against individual countries, foreign firms, and persons as it deems necessary; crafts work-around strategies to evade US technology restrictions; brings cases against US trade policy at the World Trade Organization; and doubles down on its already heavy investment in its own tech-innovation ecosystem. 16Eleanor Olcott, Qianer Liu, and Demetri Sevastopulo, “Chinese AI Groups Use Cloud Services to Evade US Chip Export Controls,” Financial Times, March 8, 2023, https://www.ft.com/content/9706c917-6440-4fa9-b588-b18fbc1503b9; Arjun Kharpal, “China Brings WTO case Against U.S. and Its Sweeping Chip Export Curbs as Tech Tensions Escalate,” CNBC, December 13, 2022, https://www.cnbc.com/2022/12/13/china-brings-wto-case-against-us-chip-export-restrictions.html; Jeff Moon, “China’s Retaliation Playbook Can’t Meet the US Export Control Challenge,” The Hill, October 20, 2022, https://thehill.com/opinion/international/3697077-chinas-retaliation-playbook-cant-meet-the-us-export-control-challenge/. What China has not done is implement nuclear options, including wholesale bans of the biggest US companies from its gigantic domestic market.17“How the US Chip Export Controls Have Turned the Screws on China,” Financial Times, October 22, 2022, https://www.ft.com/content/bbbdc7dc-0566-4a05-a7b3-27afd82580f3.
Given that China’s dual interests mirror those of the United States and its allies and partners, there should be space for strategists to navigate a relationship with China that maintains trade in tech-based goods and services while protecting strategic scientific and technological assets and know-how. Doing so will require acceptance of some collaboration risk, whether that risk is incurred through joint scientific research and academic exchange, investments in or from Chinese firms, or trade in technologically based goods and services with China.
These observations yield three recommendations:
- On the protect side of the ledger, policymakers in the United States and elsewhere should deploy well-calibrated instruments that are necessary to guard only the most sensitive S&T assets possessed by the United States and its allies and partners. The downsides include the risk of policy overreach that adversely affects US innovation. History has shown that unilateral US technology controls are eventually ineffective and counterproductive, potentially causing loss of market share and revenue for US firms that are forced out of a market in which their competitors can continue operating.18Tim Hwang and Emily S. Weinstein write that “decoupling regimes are imperfect and frequently act as a hindrance, rather than an absolute bar, to a rival’s technological progress.… [T]he transition of a hard-to-access, cutting-edge technology to a widespread, commodified one over time means that the effectiveness of decoupling tactics declines dramatically over time.” See Hwang and Weinstein, Decoupling in Strategic Technologies: From Satellites to Artificial Intelligence, Center for Security and Emerging Technology, July 2022, 2, https://cset.georgetown.edu/publication/decoupling-in-strategic-technologies/.
Moreover, aggressive protect policies risk bringing on a destructive tit-for-tat response from China, wherein it responds in kind or worse, reducing or eliminating mutually beneficial exchange (see point two below), and creating a rift between the United States on the one hand and allies and partners on the other regarding what exactly constitutes strategic assets and how to protect them (see point three below).
Thus far, policies such as the October 2022 export controls on semiconductors and critical semiconductor machinery, implemented by the Biden administration, have not elicited the harshest policy responses from China. Although US allies and partners have not and almost certainly will not flout the Biden administration’s rules, they have strongly signaled their concern with aggressive unilateralism in this space.19See, e.g., analyses by Jon Bateman, “Biden Is Now All-in on Taking Out China,” Foreign Policy, October 12, 2022, https://foreignpolicy.com/2022/10/12/biden-china-semiconductor-chips-exports-decouple/, and Eric Levitz, “Biden’s New Cold War Against China Could Backfire,” New York Magazine, November 14, 2022, https://nymag.com/intelligencer/2022/11/biden-economic-war-china-chips-semiconductors-export-controls.html.
- It follows that policymakers should resist implementation of measures that prove destructive to the promote side of the ledger. As the Ford-CATL partnership demonstrates, despite increasing geopolitical tension between China and the United States, both countries still have much to gain from trade in technology. They also have much to lose. As the science journal Nature reported in 2022, the worsening bilateral relationship puts the countries’ robust scientific exchange (“the two nations are each other’s most important collaborative partners”) at risk of slowing or even atrophying.20James Mitchell Crow, “US–China Partnerships Bring Strength in Numbers to Big Science Projects,” Nature, March 9, 2022, https://www.nature.com/articles/d41586-022-00570-0. This argument highlights the fact that emerging technologies, even in strategically prioritized areas like AI or quantum computing, are at root scientific and engineering endeavors with many useful applications across sectors.
Policymakers therefore should craft processes that lead to nuanced guidelines regarding which types of exchanges with China are regulated or prohibited. Such processes should include sustained, structured input from the private sector, scientific and engineering institutions, and other affected parties. Their purpose should be to restrict only the most sensitive technologies and knowledge while allowing beneficial scientific and economic transactions. Doing so will have the least harmful impacts on promotion (that is, a country’s capacity to invent and commercialize tech-infused goods and services).
This work will be difficult. As a timely example, finding an appropriate regulatory line appears to be at the core of the White House’s internal debate over a proposed new outbound investment rule. Currently, there are few constraints on US private sector investment in China. If the rule is implemented, it will subject to US government screening some US private sector investments in some Chinese entities for some technologies. The debate within the White House appears to be over the scope of this rule, with administration officials publicly recognizing that an overly broad rule could produce a chilling effect on economically and scientifically desirable investment in China.21Christian C. Davis et al., “Biden Administration Plans for Outbound Investment Regulation Coming into Focus,” Akin Gump, March 13, 2023, 2-3, https://www.akingump.com/a/web/vDAJCgyS7szACyHF76GhNo/7yphd1/biden-administration-plans-for-outbound-investment-regulation-coming-into-focus.pdf; Rintaro Tobita, “U.S. Readies Targeted Screening for Investment in Chinese Tech,” Nikkei Asia, March 23, 2023, https://asia.nikkei.com/Politics/International-relations/U.S.-readies-targeted-screening-for-investment-in-Chinese-tech.
Finally, as we have previously written, it is imperative that US policymakers continue to strengthen America’s innovation ecosystem, which, although the world’s strongest, is now challenged by China.22Peter Engelke and Emily Weinstein, “Designing Domestic and Multilateral Strategies for Maintaining Technological Superiority,” Atlantic Council, November 15, 2022, https://www.atlanticcouncil.org/content-series/strategic-insights-memos/designing-domestic-and-multilateral-strategies-for-maintaining-technological-superiority/. Policymakers will need to keep their eyes on numerous factors to sustain the US system’s lead. Strengthening the nation’s research and development (R&D) system must be a priority. There are several interlocking factors at work, including a declining share of public investment (primarily federal) in R&D and the concentration of the private sector’s R&D investments in a few large tech firms. Policymakers will need to address issues including the roles of public versus private investment and how proposed antitrust legislation might affect private sector R&D investments.23For a review of R&D trends in the US and China, see Ashish Arora and Sharon Belenzon, American Innovation Under Threat: Restrictive Legislation and Global Competition, Innovation Frontier Project, November 2021, https://innovationfrontier.org/wp-content/uploads/2022/05/American-Innovation-Under-Threat-UPDATED-51622.pdf. Some recent policy developments in the US are encouraging. For example, recent federal legislation such as the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act (IIJA), and the CHIPS and Science Act (CHIPS) significantly upgrade support for workforce development, a key component of any high-functioning tech-innovation ecosystem.24For a summary, see “Workforce Development in the IIJA, CHIPS and IRA,” National Governors Association, February 8, 2023, https://www.nga.org/publications/workforce-development-in-the-iija-chips-and-ira/.
- While China has no allies that are global leaders in technology production, in contrast the United States can count almost all the world’s leading tech producers as allies and partners.25 Major indexes that rank countries by tech-driven innovation substantiate this proposition. As an example, the 2022 edition of the World Intellectual Property Organization’s (WIPO’s) gold-standard Global Innovation Index shows that nearly the entirety of the top 25 ranked countries are allies or partners of the United States. Although China has economic ties to all countries in the top 25, none can be counted as allies. (The index ranks the United States second and China 11th.) Russia, the first country on WIPO’s list that plausibly can be called an ally of China’s, is 47th. See World Intellectual Property Organization, Global Innovation Index 2022, 19, https://www.wipo.int/edocs/pubdocs/en/wipo-pub-2000-2022-en-main-report-global-innovation-index-2022-15th-edition.pdf. Because this situation is to the great and lasting strategic advantage of the United States, it is imperative that the country’s allies and partners do not perceive China-focused US technology policies as harmful to their interests.
That goal is easier to articulate than it is to attain. While the bulk of the world’s major technology producers might be America’s allies and partners, they have deep economic ties to China, as does the United States. Because their economic fortunes revolve greatly around exports of tech-infused goods and services to China, they must navigate between the American desire to restrict sensitive technology exports to China for security reasons and their own desire to keep exporting to China. Moreover, some allies and partners have perceived recent US domestic policies on the promote side of the ledger as threatening their own economic competitiveness vis-à-vis the United States.26Edward Alden, “Biden’s ‘America First’ Policies Threaten Rift with Europe,” Foreign Policy, December 5, 2022, https://foreignpolicy.com/2022/12/05/biden-ira-chips-act-america-first-europe-eu-cars-ev-economic-policy/.
These two concerns often meet in the same diplomatic setting. For example, the South Korean government has voiced concerns about both US export controls on chips to China—South Korean chip manufacturers are among the world’s most important, with significant business interests in China—and the IRA’s subsidies that might harm South Korean competitiveness (South Korea, along with other major EV manufacturers, contends that the IRA’s subsidies to encourage US EV production are discriminatory).27Jiyoung Song, “South Korea Plans Mega Chip-Making Base to Stay Ahead,” Wall Street Journal, March 15, 2023, https://www.wsj.com/articles/south-korea-plans-mega-chip-making-base-to-stay-ahead-b2bec41f. Such concerns strongly echo a high-profile row between the United States and the European Union regarding the IRA’s clean-tech subsidies, which EU officials are concerned will render Europe’s clean-tech industries uncompetitive.28See, e.g., the summary articulated in Peter Campbell, “Why Europe Is Struggling to Compete with the US on Green Subsidies,” Financial Times, March 10, 2023, https://www.ft.com/content/2bc8f6a2-99a1-437e-a382-72908448205d.
It should be stressed that China is not sitting still in this global competition for diplomatic influence. A recently announced Global Security Initiative, prefigured in a Xi speech in April 2022, includes appeals for tighter global cooperation in AI, biosecurity, and cybersecurity, among many other domains, all presumably under Chinese leadership.29“The Global Security Initiative Concept Paper,” Ministry of Foreign Affairs of the People’s Republic of China, February 21, 2023, https://www.fmprc.gov.cn/mfa_eng/wjbxw/202302/t20230221_11028348.html. For a critique, see Michael Schuman, “How China Wants to Replace the U.S. Order,” The Atlantic, July 13, 2022, https://www.theatlantic.com/international/archive/2022/07/china-xi-jinping-global-security-initiative/670504/. Such high-profile diplomatic overtures are complemented by numerous concrete instances of commercial diplomacy, wherein the Chinese state, state-owned enterprises, and private sector companies coordinate to ensure that Chinese companies succeed in foreign markets, of which there is substantial empirical evidence.30See Barry Naughton and Briana Boland, CCP Inc.: The Reshaping of China’s State Capitalist System, Center for Strategic and International Studies, January 31, 2023, 24-26, https://www.csis.org/analysis/ccp-inc-reshaping-chinas-state-capitalist-system.
The bottom line for policymakers in the United States, and for that matter among its allies and partners in the transatlantic and transpacific contexts, is that the scale and complexity of the diplomatic challenge arising from China’s robust and growing presence in the global technology race cannot be underestimated. The United States and its allies and partners will have to define areas of agreement among one another, create mechanisms to ensure that their preferences remain viable in the face of Chinese competition, and build stronger mechanisms to combat China’s well-coordinated commercial diplomacy in nonaligned countries.
Peter Engelke is Deputy Director and Senior Fellow for Foresight at the Scowcroft Center for Strategy and Security, and a Nonresident Senior Fellow at Global Energy Center.
Emily Weinstein is a Research Fellow at The Georgetown University Center for Security and Emerging Technology and a Nonresident Fellow at the Global China Hub.