University of California Institute on Global Conflict and Cooperation

China’s uneven recovery from the pandemic and U.S.-imposed limits on the country’s access to technology could limit China’s ascent to become an economic peer to the United States. In this policy brief, Keun Lee, distinguished professor of economics at Seoul National University, analyzes recent economic data from the International Monetary Fund to reveal that while China’s rise to become a high-income country remains on course, the country remains far from rivaling the economic power of the United States.

China’s remarkable rise as an international technology and innovation powerhouse comes courtesy of domestic efforts to upgrade its scientific enterprise. In this brief, Cong Cao, a professor in innovation studies at Nottingham University Ningbo China, argues that the globalization of science has also played a significant role, fostering links between Chinese and international researchers, allowing Chinese students to study abroad, and attracting foreign direct investment to China’s research sector. However, as pressures in Western countries to decouple from China mount, the future of China’s science, technology, and innovation system faces strong headwinds.

As strategic rivalry between Beijing and Washington centers on new technologies, a trend towards decoupling and deglobalization is challenging the global links upon which China’s artificial intelligence (AI) sector has relied for a long time. This means that Beijing’s AI development strategy must contend with an erosion of global interdependencies. This policy brief from Rebecca Arcesati, a lead analyst at MERICS, examines three key elements of China’s response: an infrastructure megaproject for computing power, a “whole-of-nation” approach to developing AI foundation models, and efforts to forge connections with foreign innovation systems beyond the United States. None of these come without challenges.

Chinese President Xi Jinping has advocated for scientific and technological self-reliance amid increasing global tensions over emerging technologies. So far though, reforms to China’s innovation ecosystem have fallen short of the goal of developing domestic versions of many of the technologies at the center of U.S.-China competition. In this policy brief, Michael Laha, a Berlin-based analyst and former German Chancellor Fellow at MERICS, explores the Chinese Ministry of Education’s new program called “organized scientific research,” which seeks to address this shortcoming. In so doing, the ministry aims to channel research resources toward strategically relevant sectors—especially those susceptible to U.S. restrictions—while maintaining space for free scientific exploration.

China is creating an “accelerator state” through a multi-layered system to identify and fast track the growth of high-tech SMEs in strategic sectors. Certified high-tech SMEs enjoy unique advantages, most notably privileged access to public and private financing. In this policy brief, MERICS analyst Alexander Brown offers an analysis of the “Little Giants” program—a central feature of the accelerator state— that proves that selected firms are indeed benefiting from enhanced financing. The study also reveals flaws in its selection process. The implications for foreign actors are significant. The accelerator state aims to replace imports in key value chains, which poses a direct challenge to foreign firms. The blurred lines between state support and market forces in the scheme also make it more difficult for foreign governments to track distortionary practices and enforce fair competition.

In this policy brief, Antonia Hmaidi, Senior Analyst in the Science, Technology and Innovation Program at MERICS, analyzes Huawei, a company that is emerging as the leader of China’s national team in semiconductors, dominating chip manufacturing and seeking to integrate the country’s entire supply chain. Its ambitions stem from both its placement on the U.S. Entity List and strong government support at the national and local level. Internationally, Huawei is coy about these ambitions, hiding its supply chain involvement and often operating under a different company’s name. Meanwhile, Huawei’s experience is also encouraging other Chinese technology companies to support China’s quest for chip self-sufficiency, developing new hardware and software for that purpose. The clandestine nature of Huawei’s involvement—it is not known who serves what role in semiconductor production—makes it more difficult for Western companies and governments to assess China’s progress in technology, vet potential partners and customers, and conduct risk assessments.

In this policy brief, Anna L. Ahlers, founder and head of the Lise Meitner Research Group at the Max Planck Institute for the History of Science (MPIWG), analyzes the Chinese Communist Party, which seeks to permeate every aspect of China’s social and economic life—including the realm of science, technology, and innovation. Chinese leadership has heightened calls for technological self-reliance and boosting indigenous innovation, but still recognizes the importance of foreign expertise and international collaboration for China’s domestic scientific efforts. Contradictions in the party’s approach to domestic science abound, and despite a visible politicization of scientific institutions, no discernable impact on China’s scientific production can be seen—yet. The Communist Party’s attempts to grow its influence in domestic science institutions nevertheless pose long-term risks to the quality of the country’s scientific output.

China is centralizing its science and technology (S&T) sector while attempting to mitigate the costs of centralization. To this end, policymakers have designed “central-local joint action” mechanisms that balance the powers of central and local authorities. These mechanisms involve consultative processes led by the central government that aim to negotiate shared S&T investments in national priority areas with local authorities. In this policy brief, Siwen Xiao and Yaosheng Xu, research associates at IGCC, detail how these mechanisms are being implemented across three programs: the National Key Research and Development Program, the National Guidance Fund for Technology Transfer and Commercialization, and the National Centers of Technological Innovation. They also explore the challenges associated with recentralization and power balancing, which threaten to diminish China’s ambitious S&T goals to mere slogans, rather than unified and well-resourced national efforts.

In pursuit of technological development, China has created new organizations to promote innovation. In this brief, Marcus Conlé, an associate at the German Institute for Global and Area Studies (GIGA), examines New Research and Development Institutes (NRDIs), which are designed to foster knowledge transfer to industry. NRDIs were pioneered in Guangdong province in the 1990s, and have gained prominence in China’s national science, technology, and innovation policies since the 13th Five-Year Plan (2016-2020). NRDIs are defined by their market orientation and extremely flexible organizational form. They work by establishing “innovation platforms” with local governments and private knowledge actors to carry out research and development (R&D), commercialize scientific and technological achievements, incubate local technology industries, and cultivate high-end talent. NRDIs have been instrumental to regional development in Guangdong, and especially Shenzhen, where they have succeeded in attracting talent from outside the region. NRDIs have important policy implications for international competition for talent. Understanding NRDIs is crucial for other countries that want to improve their own inter-regional innovation resources and respond to the challenge of China’s drive to attract global talent and knowledge resources.

China’s technology and industrial policy programs have grown in scope and intensity since 2020, but the vocabulary used to describe them is vague and often misleading. This policy brief decodes seven essential terms and shows that they have concrete and complementary meanings. When understood in concert, they reveal the establishment of a large-scale, government-directed program of mission-oriented research, development, and application. Together these terms outline a substantial expansion of the Chinese government’s direct role in organizing economic activity, and hint at some of the limits of that expansion.