China may possess advanced technology but without other countries continuously supplying it, the communist giant could not compete with the United States or other post-industrial nations for long. Min-hua Chiang, a research fellow and economist with Heritage Foundation, reports this week that China is far more dependent on the United States than most people think. Its critical supply chain requires vast numbers of imported chips and capital equipment. That, in part, is one reason China is seeking to become more self-reliant. There is a push in Beijing to increase domestically produced, advanced technologies in the event that other states impose economic sanctions on China in the future. Second, despite China’s effective overseas industrial espionage network supplying stolen technology, it pays a high price for legally obtained technology from other advanced countries.
President Xi Jinping’s long-term, geopolitical ambitions threaten to isolate China from the world’s advanced economies. Xi wants to ensure the Chinese economy can fulfill demand should Beijing seek to force reunification of Taiwan or initiate a conflict in the South China Sea. His policy of self-reliance preceded the lessons China is learning from Russia’s war in Ukraine, although the conflict is serving to reinforce Xi’s message.
According to Chiang, China’s direct political confrontation with the United States has exposed its weakness in the solid technology hierarchy and its unbreakable dependence on the US. Its lack of technological superiority in key areas also serves as a constraint on Xi’s global plans. She notes that “China’s late start is the main reason for its inferior level of technology. The communist regime didn’t start actively promoting the industry’s development until the 1980s. Drawing lessons from the experiences of the East Asian Tigers—the four highly developed economies of Hong Kong, Singapore, South Korea, and Taiwan—China had stepped up its efforts by encouraging foreign direct investment in assembling products such as smartphones, laptops, computers, etc., in China.”
Its export-oriented economic development, based on using and assembling foreign countries’ capital equipment and industrial components, has trapped the country into technology reliance on foreign countries. The Economist’s Intelligence Unit points out that advanced foreign industrial goods is evidenced by its growing trade deficit in electrical machinery (including semiconductor chips) from $15 billion in 2001 to $217 billion in 2021. Jenny Leonard, of Bloomberg, reports that “Chinese orders for chip-manufacturing equipment from overseas suppliers rose 58% in 2021, making it the biggest market for those products for a second year running, according to data provided by industry body Semi.” This is evidence of China’s rush to stockpile equipment from the United States before any new US export restrictions came into effect.
China’s Ministry of Commerce admits that the United States is its biggest source of intellectual property. Data from its Bureau of Economic Analysis indicates that exports of US intellectual property tripled in the last decade. That is not accounting for any stolen or reverse-engineered technology it obtained. Chiang says that “ According to the US Bureau of Industry and Security, the number of license applications from China for purchasing ‘tangible items, software, and technology’ increased from 3,747 in 2020 to 5,923 in 2021. The total amounts paid for those applications increased from $106 billion to $545 billion. As a result, the licensing amounts per application went up from $28 million to $92 million. Although the cost of foreign technology has increased, and the length of time to obtain US licenses is longer, there are no major technological breakthroughs in China to counter its dependence on foreign technology. Slower technological advancement means slower economic growth, says Chiang. This is one area that threatens the legitimacy of the Chinese Communist Party and its hold on power. Without a strong global supply chain network, China could be faced with a long-term dependence on more advanced overseas technologies. Maintaining that gap could provide protection for Taiwan, the South China Sea, and other states threatened by China’s rapid rise to power. However, the Biden Administration and the US Department of Commerce appear unwilling to crack down on China to ensure it abides by the rule of the international norms-based trading system.
“If the Biden administration is serious about securing the semiconductor supply chain in the United States and allied and partner countries, it’s absurd to let the Chinese Communist Party buy up and stockpile the global supply of tools and equipment to make semiconductors,” says US House Representative Michael McCaul, a Republican from Texas. “At the center of the growing debate, the US Department of Commerce said it’s so far found nothing other than normal market forces at play,” according to Bloomberg News. Economists are watching closely this summer to see if China will increase orders during a period of global shortages. If the Biden Administration joins with Japan, the Netherlands, and some of its other allies, it could ward off China jumping to the front of line with offers of higher that market value on critical technology products. Such a policy also could forestall Chinese moves toward forced reunification with Taiwan.
Daria Novak served in the U.S. State Department
Photo: Bund area of Shanghai (Pixabay)