Will The US Make Or Break China's Technology Industry?

The U.S. is getting serious about restricting the flow of advanced technology to China for national security reasons.

Last October, the Biden Administration imposed new restrictions on exports of advanced semiconductors, computer gear, and software to China. More recently, Washington was joined by European allies and Japan in restricting their exports to China, stirring much controversy over the impact these restrictions will have on Beijing's bid to make the great leap forward from imitation to innovation.

Riccardo Cociani, Asia Pacific Principal Analyst at London-based Sibyline think tank, provides simple answers to complex questions.

Restrictions on U.S. exports of advanced technologies to China have a mixed impact on China's technology industry. On the one side, they could slow it, as Chinese corporations would have to develop their own. On the other side, they could force it to build breakthrough innovations. Which one is most likely to be the case in the end?

Put simply, both outcomes are likely to occur: the CHIPS and Science Act, among other export control and restrictions implemented by the U.S. on China, will undoubtedly hinder the technological progress of Chinese developers and manufacturers. By severely restricting access to critical technologies and related equipment, Chinese policymakers, researchers, and manufacturers will have to achieve breakthroughs on their own – at least relatively more. Such efforts align with China's pursuit of technological self-sufficiency and efforts to reduce economic reliance on foreign imports and investments.

Are there any signs that China is moving in this direction?

Recent changes during China's recent annual parliamentary plenary meeting known as the "Two Sessions" highlight this. The proposed restructuring of the Ministry of Science and Technology (MoST) seeks to improve the country's efficiency in achieving technological breakthroughs, which will help to overcome challenges posed by the US CHIPS and Science Act – and their perceived technological and geopolitical containment efforts by Washington and its allies – and to simultaneously achieve technological self-reliance.

MoST will offload specific responsibilities and redistribute them among other ministries, streamlining their decision-making and resource-allocation processes.

In addition, the changes also include the Chinese Communist Party (CCP) bolstering its influence and control over science and technology policies via the establishment of a new commission--the Central Commission on Science and Technology. The commission will likely be chaired by Xi Jinping, as issues related to semiconductors and technological advancement will probably be regarded as economic and national security matters.

How would that affect U.S.-China relations?

This move aligns with one of the key themes--expansion of the concept of national security--highlighted in the CCP's 20th Congress last October. Xi looks set to increment his influence on significant economic and security policies, which will further diminish policy transparency and likely adopt a more confrontational approach, especially vis-à-vis the U.S.

Notwithstanding the prominent US-led restrictions on advanced semiconductors and related technology, China may bolster its economic espionage/tradecraft to acquire foreign intellectual property (IP).

The creation of the new commission indicates an elevation of importance towards the science and tech sectors, which will likely become increasingly securitized by Beijing to protect its industry and competitive advantage. Hence, Beijing will seek to preserve both its national and economic security.

What are some critical challenges Xi Jinping will face in his third term?

The key challenges Xi Jinping will face during his convention-defying third consecutive term as a top Chinese leader include achieving previously set economic and technological development goals while maintaining political and economic stability. Such tasks will be challenging due to additional complexities and risks caused by U.S. protectionist trade policies and the political scrutiny that Xi's third term will attract.

Washington's trade restrictions and widening tech curbs will likely slow down, rather than outright destroy, China's technological development efforts. With strong party oversight on scientific and technological developments, Beijing will persevere with the "whole nation" strategy in its quest for self-reliance in critical sectors and technologies.