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Beijing updates 'Made in China 2025' for leaner, meaner times

China Identifies Seven Frontier Technologies And Shifts Focus In Research As It Gears Up For An Even More Bruising Fight With The US.

Visitors look at a display of a semiconductor device at Semicon China, a trade fair for semiconductor technology, in Shanghai, China, on March 17, 2021.PHOTO: REUTERS

Faster, better, cheaper. For years, this has been the maxim that has guided Chinese companies and manufacturers, who draw on foreign technology and ideas, imitate their products, but do it quicker, better and at a fraction of the cost.

It is a business model that has fuelled the rise of the world's second-largest economy, but now Beijing is bent on changing this.

The past few years of the Trump administration have made clear that this formula - and China's reliance on foreign technology - has left Beijing vulnerable.

And, in the wake of the tough tone the Biden administration took at a meeting in Alaska last week with Chinese officials, Beijing can expect no let-up in US pushback on the tech front.

"We do not seek conflict, but we welcome stiff competition," said National Security Adviser Jake Sullivan at the meeting.

This competition has already taken shape in efforts to cut off the supply of chips to Chinese technology companies, leveraging American dominance in the semiconductor sector and Chinese dependence on imported chips.

In China, this unwelcome situation - ka bo zi nan ti, which roughly translates as the "difficult problem of being caught in a stranglehold" - came up repeatedly during this month's annual lianghui or legislative meetings, during which lawmakers stressed the need for the country to spur indigenous innovation and attain technological self-sufficiency.

It was during the lianghui where Beijing unveiled its plan for China to become a scientific and technological powerhouse, capable of world-leading innovation, by 2035.

Its 14th Five Year Plan (14FYP), which covers China's development from 2021 to 2025, as well as longer-term goals till 2035, placed what experts said was an unprecedented emphasis on science, technology and the urgent need for China to innovate.

The 142-page document devoted considerable space to the subject, with seven chapters devoted to technology and innovation - three more than the 13th Five Year Plan (13FYP) - and a further four on digital development.

In it, Beijing promised to make "technological self-reliance and self-strengthening a strategic pillar of national development".

It also identified seven "frontier" technologies that China views as essential to its security and national development, namely: artificial intelligence (AI); quantum computing; semiconductors; neuroscience; genetics and biotechnology; advanced clinical medicine; as well as deep sea, deep space and polar exploration.

The elevation of technology and innovation as a national strategic priority is both a function of United States pressure as well as a recognition of the importance of technological prowess to China's long-term development. The net result: Expect the Sino-US battle for dominance in cutting edge technology to sharpen on multiple fronts in the coming years.

What's behind it

China's ambitions for tech supremacy are driven by fear and pride. The fear factor came to the fore when China's leaders saw how Huawei, its tech champion, was hobbled by US sanctions that cut the firm's access to critical components needed to manufacture its products.

Dr Yvette To, an expert in China's technological upgrading at the City University of Hong Kong, said US sanctions laid bare the vulnerabilities of China's industrial capabilities.

She said: "Chinese leaders were alerted to the reality that as Chinese industries become increasingly integrated into the global production network, they are also increasingly dependent on the external environment."

Besides the drive to reduce this dependence, the push to boost indigenous innovation is also an essential part of Beijing's "dual circulation" economic strategy, which places more emphasis on the domestic cycle of production and consumption.

"In order to raise economic productivity, to establish new types of industries - technology is core to all of this," said Associate Professor Gu Qingyang of the Lee Kuan Yew School of Public Policy in Singapore.

Beijing's intentions are, perhaps, best summed up by Chinese President Xi Jinping, who said in a 2018 speech that the only way China could guarantee its economic and military security was by mastering critical technologies.

"For China to prosper and be rejuvenated, it must vigorously develop science and technology and strive to become the world's main centre for science and the height of innovation," said Mr Xi in his speech, which was published on March 15 by the party's policy journal Qiushi.

The party journal often publishes old speeches by Chinese leaders to signal key policy directions.

How Beijing wants to do this

The 14FYP fleshes out how Beijing intends to achieve its goals. It is packed with plans, including the setting up of national laboratories and regional innovation hubs, encouraging the immigration of foreign scientists and laying the groundwork for 6G networks.

Notably, it will ramp up research and development spending by more than 7 per cent annually over the next five years, and increase the share spent on basic research to above 8 per cent, from about 6 per cent last year.

Preliminary figures from the central government show that Beijing spent 2.4 trillion yuan (S$495 billion) last year on research and development, of which 150 billion yuan went on basic research.

The emphasis on basic research - which is necessary for breakthroughs - is a significant and yet unsurprising shift given Beijing's drive for dominance in science and technology.

While the amount it intends to spend on such foundational science is still far behind other technological powers such as the US, South Korea and Japan, the increase is a signal that China is shifting gears to close the technological gap.

Mr Bert Hofman, director of the East Asian Institute at the National University of Singapore, said Beijing's past efforts to catch up have not borne fruit because its emphasis was on development and production - for instance, building wafer plants to produce semiconductor chips - "and not so much on the fundamental technologies underlying it, such as material science and lithography".

"Thus the gap in technology was not closed, even though China caught up in production. The emphasis on basic science is to aim for the lead in the next breakthrough in the field," he said.

The 14FYP also set a new target for high-value patents. It is a departure from the 13FYP, which did not specify that patents had to be "high-value", indicating that Beijing is setting its sights on more sophisticated innovation rather than being ahead in numbers alone.

Identifying the seven frontier technologies also shows that Beijing's ambition is not limited to just catching up in areas of traditional manufacturing, but to "leapfrog and advance in emerging and futuristic technologies", said Dr To.

Mastering technologies such as AI and quantum computing will also place Beijing at the forefront of new industries and give a boost to its military capabilities.

A different road map

To some, the 14FYP might seem like a rebrand of the "Made in China 2025" industrial policy that Beijing launched in 2015 - which set out goals for the country to dominate key industries.

The plan had caused nervousness in Washington and other Western capitals, which accused Beijing of achieving its goals through industrial espionage and unfair subsidies.

While experts point out that the Made in China plan has been subsumed into parts of the 14FYP, this latest road map is a plan for a different time.

Prof Gu pointed out that "Made in China 2025" had been formulated before the tech and trade war with the US, when the external environment was more favourable to China.

"The (previous plan) had made room for international cooperation… but the 14FYP stresses indigenous research and innovation - the strategic direction is completely different," he said.

The previous industrial policy also focused mainly on manufacturing, while the 14FYP's emphasis is on the core technologies behind advanced manufacturing technologies.

Put another way, the know-how that Beijing wants to develop is the same type of capabilities that allows Taiwanese, South Korean and Japanese chip foundries to produce the top-end semiconductors out of reach of Chinese manufacturers.

But the best-laid plans can go wrong, and while Beijing has made huge progress in areas such as 5G and AI, experts say it has a long road ahead.

Its own former minister of industry and information technology, Mr Miao Wei, called China a "third-tier" manufacturing nation during the lianghui and said it was three decades away from being a "great power" in manufacturing terms.

Zooming in on semiconductors, the essential components used in everything from autonomous cars to space rockets, Beijing is already behind its own targets under the "Made in China 2025" plan, which envisions the country producing 70 per cent of its chips domestically by 2025.

Last year, foreign and local firms operating in China produced just 15.9 per cent of the chips sold in the country, with Chinese firms accounting for barely 6 per cent of the domestic sales, according to market research firm IC Insights.

The challenges Beijing faces are vast - from attracting research talent into basic research, to ensuring its subsidies are targeted and effective.

Meanwhile, the competition is not standing still. US Senate Majority Leader Chuck Schumer has asked lawmakers to craft a Bill to counter China's technological rise, based on a proposal last year that aimed to spend US$100 billion (S$134.2 billion) to spur basic research in key areas.

The Biden administration is also unlikely to remove sanctions preventing Chinese firms from accessing American technology, and is expected to work with allies to exert pressure on China; the latter matters because in the field of semiconductors, the manufacturing chain is hugely complex - from design to the supply of raw wafers to chemicals and testing equipment. US allies - Japan, Taiwan and South Korea - are key players in this chain.

However, China is not without its own levers, such as its dominance in the processing of rare earths on which these economies depend for the manufacture of smartphones, electric vehicle motors and other high-tech products. This explains the recent moves by the Quad grouping - the US, Australia, Japan and India - to cooperate in establishing a supply chain independent of China.

As China strives to break free of its tech stranglehold and fights for tech supremacy, it will not simply be a clash of two titans. Rather, a complex series of chokeholds, pressure points and manoeuvres of varying degrees involving multiple sectors, industries and countries will be in play, in an arena in which clear victory is uncertain and likely unattainable.