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Why China Needs To Integrate Its National Strength With Global System – Analysis

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By He Jun*

In 2020, U.S.-China relations have been at a record low since the establishment of diplomatic relations between the two countries. Although China is unwilling to completely decouple from the United States, stimulated by the COVID-19 pandemic however, the United States has been continuously cutting ties between the two countries in trade, investment, financial markets, key industries, technology, and education. Among the measures taken by the United States are the suppression of Huawei’s 5G business globally, cutting off Huawei’s chip supply, forcing TikTok to sell its U.S. business, and imposing sanctions on several Chinese technological companies. This of course, has hit certain key Chinese technologies and products hard. From the perspective of China, this is not merely about commercial interests or technological restrictions, but also a strategic restraint on China’s long-term development.

Since the United States has identified China as a long-term strategic competitor, which is basically the equivalent to a "quasi-enemy" in the geopolitical field, the pressure on China's future development has increased drastically. In the face of such pressure, China began to adjust its development strategy, from the "international and domestic dual cycle" model that relied heavily on external markets and globalization in the past to an "inner circulation" model that mainly relied on its domestic market. Under such context, the principles of "independent innovation" and "self-reliance" have once again been given unprecedented significance and some views that expect technology to be bought under globalization have been criticized once more. What is certain is that seeking breakthroughs in some key industries and key areas with the “nationwide full-force" will become an important collective action for China in the future.

China does indeed have several success stories in this regard, for instance its early nuclear and space project “Two Bombs, One Satellite” in the 1960s, and the BeiDou Navigation Satellite System. In these strategically significant fields, despite severe external blockades, China still possesses the nationwide force and basically remains independent in developing its own strategic system projects.

So, under the technological "encirclement and suppression" initiated and pushed forward by the United States, can China once again reproduce similar results in the fields of the semiconductor industry? Researchers at ANBOUND think that this requires rational and objective analysis. 

While there certainly are success stories as cited above, it should also be noted that China has struggled for decades in more industrial fields and invested trillions of dollars without successfully mastering the core technologies, nor has it obtained the leading power of industrial development as well as having failed to form a controlled industrial system. Automobile manufacturing and the semiconductor industry are two typical examples of this.

Automobile manufacturing is typically not a "national security" industry. China adheres to the concept of "market for technology" in attracting foreign investment, and the German automobile industry takes the lead in the Chinese market. However, based on the actual results, while China's auto industry has supported a huge market, the original intention of "market for technology" has not been realized. Compared with the scale of China's automobile consumer market and industry, the country’s independent core technology is extremely disproportionate. So far, China's automobile industry still has a long way to go compared with those of more developed countries and advanced enterprises, in terms of its key components, core technologies, and design capabilities. This gap, one may say, is a generational one.

This is especially true in the semiconductor field. China's idea of developing the semiconductor industry is not something new. As China had already planned to develop the semiconductor industry with its national power as early as the 1980s. By the 1990s, with the support of the state, China's industrial actions in the field of large-scale integrated circuits continued to develop. In the past few decades, under the smooth development environment of globalization, China invested countless funds in the semiconductor industry (according to a rough estimation, this would be approximately more than one trillion yuan of capital investment), as well as a large amount of manpower, material resources and policies. But even with all these resources and efforts however, China still faces severe restrictions in the semiconductor industry. Judging from the case of Huawei’s chip supply cutoff, in the high-end areas of the semiconductor industry, the U.S. government can still easily restrain China.

The cases cited above, show both success and failure when such projects are done with nationwide strength. Why then are there the different results? ANBOUND’s researchers believe that there are different degrees of marketization and globalization depending on the industry, and the effects of "national strength" are completely different. “Two Bombs, One Satellite” and "BeiDou system" are both strategic industrial fields, and have much lower degree of marketization. There is in fact only one direct customer of these strategic industrial systems, namely the state itself. This means that the relevant industrial system is a closed one, and there is no need to consider cost or market competition. Therefore, although the related industries are complex and have extremely high technological content, these two examples are simple in terms of the industrial system, including the market.

It is however, a totally different story for the semiconductor industry. Although the main products of this industry are small chips, semiconductor chips involve market-oriented, open industrial systems. From chip infrastructure, IC design, chip manufacturing, packaging and testing, semiconductor equipment, key materials, etc., the semiconductor industry chain is the most globalized industry chain. This means that its success cannot be achieved by a single country alone, and any of its industrial goal can only be achieved through international cooperation. In this regard, it is more complicated to make semiconductor chips than engaging the aerospace systems, as it needs integrated and transnational strength.

In the era of anti-globalization and under geopolitical pressure, China might be inclined to think more about development strategies using its own national strength and independent innovation. From the perspective of public policy, this is completely understandable, and to a certain degree this is the right thing for China to do. However, China should not forget that many things can only be achieved through global cooperation. While China can achieve accomplishments on its own based on its national strength in certain industries, it cannot deny the power of global strength. In the era of deep globalization, it is necessary to have a rational understanding of the relationship between the two.

Final analysis conclusion:

The reality is that, while the Chinese central government placed its emphasis on the “inner circulation” during the year, it also did not abandon the notion of the "international and domestic dual cycle". In this regard, the national strength of China must be integrated with global strength as an effective public policy theory.

*Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.

The article Why China Needs To Integrate Its National Strength With Global System – Analysis appeared first on Eurasia Review.



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