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Xi Jinping’s technology policy in focus

Chinese President Xi Jinping proposes a toast at the welcoming banquet for leaders attending the Belt and Road Forum at the Great Hall of the People in Beijing, China on April 26, 2019 .

Nicholas Asfori | Getty Images

Xi Jinping once declared that China should “prioritize innovation” and stand “at the forefront of frontier technology, modern engineering and disruptive technology.”

Since that speech in 2017, Beijing has talked about the technologies it hopes to boost its capabilities, from artificial intelligence to 5G technology and semiconductors.

Five years on from President Xi’s speech at the Communist Party of China’s last national convention, the global reality of the world’s second-largest economy has changed. It comes amid the ongoing trade war with the US, Covid challenges, and a shift in domestic political orientation that undermines some of Beijing’s goals.

On Sunday, the 20th National Congress, held once every five years, will begin in Beijing. The high-level meeting is expected to pave the way for Xi to maintain his five-year term as Communist Party leader for an unprecedented third term.

President Xi plans to appreciate China’s achievements in science and technology, which have yielded mixed results.

Charles Mok, Visiting Scholar at Stanford University’s Global Digital Policy Incubator, said:

Explaining the economic legacy of the Chinese Communist Party

He said China has set “high” goals to be the best, but is “politically and ideologically constrained when it comes to strategies to reach those goals.”

Private tech companies are struggling under tighter regulations and a slowing economy. China is far from self-sufficient in semiconductors due to recent U.S. export restrictions. Censorship on the mainland has also been tightened.

However, China has made impressive strides in areas such as 5G and space travel.

US-China tech war

“President Xi seems to have underestimated the challenges China faces in overcoming its dependence on foreign, primarily US companies…”

Paul Triolo

Albright Stonebridge, Technology Policy Leader

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Semiconductor self-sufficiency rate

Beijing has a strong focus on self-sufficiency in various technology areas, but especially in semiconductors. As the trade war began, the push to boost China’s domestic chip industry gained even more momentum.

In its 14th five-year development plan, it said Beijing would make “science and technology independence and self-improvement a strategic pillar of national development.”

One of the areas where I hoped it would come to fruition was semiconductors.

However, a number of US restrictions have undermined these ambitions.

“President Xi wants to overcome reliance on foreign, mostly U.S., firms in critical ‘core’ or ‘hard’ technologies such as semiconductors,” said Paul Triolo, head of technology policy at consulting firm Albright Stonebridge. I think I underestimated the challenges facing China because of this.” told CNBC.

“He also failed to explain the growing U.S. concerns about semiconductors as the foundation of a major technology.”

Looking ahead, the latest US regulatory package will deal a heavy blow to China’s technological ambitions.

Paul Triolo

Albright Stonebridge, Technology Policy Leader

Triolo said China’s semiconductor market wasn’t as “dark” in 2017 as it is now.

“In retrospect, President Xi Jinping should have doubled down on efforts to strengthen China’s domestic semiconductor manufacturing equipment sector, but even there, the heavy reliance on inputs such as semiconductors has made Chinese companies more complicated. It was difficult to recreate all the elements of a unique supply chain.”

The Biden administration last week announced a number of restrictions aimed at cutting China off from the primary chips and manufacturing tools used to make these semiconductors. Washington is cutting off supplies of chips for key technology areas such as artificial intelligence and supercomputing.

Analysts previously told CNBC that this would likely hamper China’s domestic tech industry.

This is because, in part, the rules also require that certain foreign-made chips that use U.S. tools and software in their design and manufacturing process be licensed before they can be exported to China.

Domestic Chinese semiconductor manufacturers and design firms still rely heavily on US tools.

Chip Makers — Like Taiwanese Companies TSMCEven the world’s most advanced semiconductor maker relies on US technology. That means Chinese companies that rely on TSMC could be cut off from the chip supply.

China, on the other hand, does not have a domestic equivalent of TSMC. China’s leading chip maker, SMIC, which is several generations behind TSMC in its technology. Also, recent US restrictions may make it harder for SMIC to catch up.

Therefore, the Chinese government is focusing on semiconductors, but it is still far from being self-sufficient in semiconductors.

“Looking ahead, the latest U.S. regulatory package will deal a heavy blow to China’s technological ambitions. It will make it impossible for Chinese companies to compete in some areas, such as applications, that rely on advances in hardware.”

Chinese tech crackdown

A hallmark of President Xi’s past five years is how he turned China into one of the world’s toughest tech regulatory regimes.

Over the past two years, China’s once bohemian and fast-growing tech giant has come under intense scrutiny.

It started in November 2020, when regulators withdrew the $34.5 billion initial public offering of what would have been the world’s largest Ant Group.

This has been the catalyst for months as regulators moved swiftly to introduce numerous regulations in areas ranging from antitrust to data protection.

Beijing, one of the world’s first regulations of its kind, also passed a law regulating how technology companies use recommendation algorithms, highlighting the heavy tightening.

Looking back at President Xi’s 2017 speech, there were hints of impending regulation.

“We will provide more and better online content and introduce an integrated Internet management system to ensure a clean cyberspace,” Xi said at the time.

But the pace at which regulations are passed and the extent of the rules have caught investors off guard, and stock prices of China’s biggest tech companies, including Alibaba and Tencent, lost billions of dollars in 2021 and 2022. have not recovered from the loss.

Analysts noted that even Xi Jinping himself hadn’t anticipated the swift nature of the restrictions that swept across China afterward, even with the mention of an internet cleanup.

“In 2017, I believe Xi was completely focused on tightening platform regulation, but the haste… [the regulation] It was planned in advance,” Kendra Schaefer, a partner at Trivium China consultancy, told CNBC.

Five years ago, Xi said the government would “eliminate regulations and practices that hinder the development of a unified market and fair competition, support the growth of private enterprises, and stimulate the vitality of various market actors.”

This is another promise that appears to be unfulfilled. Chinese tech giants are also seeing their slowest growth in history, partly due to tightening regulations. Part of the story, analysts say, has to do with Xi Jinping’s greater control over powerful tech companies that were seen as a threat to the ruling Chinese Communist Party.

“It is clear that they are not helping private companies grow,” Mok said. “In my view, they are not successful.”

“Consider that they have made the party’s agenda and total control their top priority…No one can succeed unless the party succeeds in maintaining its control and total control.”

China’s success from 5G to space

Despite the challenges, China has been successful in science and technology since 2017. Space exploration has become an important focus.

In 2020, China’s lunar mission ended with its spacecraft returning to Earth with lunar samples. That same year, China perfected its own satellite navigation system called Beidou, a rival to the US government-owned Global Positioning System (GPS).

Last year, China landed an unmanned spacecraft on Mars and is planning its first manned mission to Mars in 2033.

China is also one of the world’s leading countries deploying next-generation 5G mobile networks. This promises ultra-fast speeds and the ability to support new industries such as autonomous driving.

China is leading the way in electric vehicles. The country is the world’s largest market for electric vehicles and home to his CATL, the world’s largest EV battery manufacturer, which is looking to expand abroad.

What’s next for Xi’s tech policy?

The regulatory assault on the domestic tech sector, which has slowed in recent months, is not entirely gone.

Even if regulatory measures “move into a new phase” in Xi Jinping’s third term, companies such as Alibaba and Tencent won’t necessarily experience the breakneck growth rates seen in the past, Mok said. said.

“Even if they do step in, it’s not the same playing field. If China’s overall GDP and economic growth is what people are talking about right now in the next few years, why is that growth going to happen?” See? Are they even outperforming the entire Chinese market?” Mok said.

Undoubtedly, technology will remain a key focus for Xi over the next five years, with a focus on self-sufficiency. China is likely to continue striving for success in what Beijing sees as “frontier” technologies, such as artificial intelligence and chips.

But Mr. Xi’s job in the tech industry is now much more difficult.

“China’s overall innovation engine, hitherto driven by the private sector, has also lost momentum as the United States continues to tighten its control over other areas of technology and squeeze technology investment into China through foreign investment reviews. Governments will have to intervene more and more in funding,” Triolo said.

“This is not necessarily the recipe for success, except in the heavy sector of manufacturing, but not with advanced semiconductors, software and AI.”

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