On November 9, 2018, the Centre on Asia and Globalisation hosted a luncheon roundtable with Scott Kennedy, Deputy Director of the Freeman Chair in China Studies and Director of the Project on Chinese Business and Political Economy at the Centre for Strategic and International Studies (CSIS) on “China’s High-Tech Drive: Domestic Performance and Global Implications”.
Dr. Kennedy opened the roundtable with a presentation on Chinese industrial policy in general, in particular the Made in China 2025 (MIC2025) technology development plan – an initiative by Beijing to support domestic industries by aiming to expand their production capacities and domestic market share, and increasing access to better technology. In order to ensure the successful execution of this project, Beijing has reformed its government structure, and provided more funding for research and development (R&D), as well as supporting policy tools. The initiative, however, has drawn the attention of the Trump administration which, fixated by a zero-sum mentality, holds the opinion that its success would be detrimental to the US.
Dr. Kennedy analyzed the MIC2025 from an empirical perspective to measure its effectiveness and how it would affect different economic sectors. He pointed out that while it was true that China had been heavily funding R&D, and that the nation was indeed becoming more innovative, returns by venture capitalists in high-tech industries is similar to the likelihood of returns in traditional industries, meaning that high-tech investments are not so ground-breaking after all, but just optimizing on current technologies. Dr. Kennedy looked at the different industrial policy initiatives and divided them into “successes” and “failures”, and whether they would have wider “constructive” or “destructive” effects on global industries.
For example, Dr. Kennedy argued that China’s digital economy has been a success, where large digital companies such as WeChat, Ofo, and Taobao have emerged and thrived. At the same time, this form of digital economy has also brought forth constructive effects to the global digital economic sector since many other countries have also been inspired by this mode of economy, and created their own forms of digital economy modelled after China. On the other hand, other sectors like electric car manufacturing and solar energy industries, while thriving in China due to government support and discrimination against foreign suppliers, has been less beneficial to industries in other parts of the world. This is because generous government subsidies incentivise Chinese manufacturers in these industries to overproduce and market themselves at much lower prices. The likely result will be overcapacity and dumping abroad, which will likely damage the industry and global supply chain.
On the other hand, Dr. Kennedy remains skeptical about the future of China’s commercial aviation industry due to the large gap in aviation standards and technologies when compared to more advanced manufacturers such as Boeing and Airbus. Most importantly, because of their rigid organizational structure and difficulties with horizontal coordination, Chinese manufacturers are unable to overcome the technological bottleneck of aviation engines and meet the requirements of global regulators. This failure on the part of China, however, has a constructive effect since the entire global civilian aviation sector is currently quite healthy in terms of profitability and maintaining the highest standards in terms of performance and safety. However, we see that despite much funding being poured into the semiconductor sector, China’s semiconductor industry remains weak when compared to other overseas competitors. Yet, this is having a destructive effect on the entire sector because the large amount of funds from the government has distorted the market, distracting the world’s leading semiconductor companies from focusing on R&D and the next generation of technologies.
In conclusion, Kennedy argues that China has great ambitions and is mobilizing the entire party-state’s resources to achieve them. However, sometimes, the outcomes do not directly match ambitions and there are mixed results across industries, which have different effects to the entire sector across the globe. The top policy issue concerns for policymakers in China and elsewhere should be: expanding market access for foreign companies, reducing the likelihood of overcapacity, strengthening IP protection, and avoiding the abuse of data.
This event was covered by Xu Shengwei, Research Assistant at the Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy.