China’s Technological Self-Reliance Ambitions: Updates from the Fifth Plenum

China’s Technological Self-Reliance Ambitions: Updates from the Fifth Plenum

[Article by Josh Bramble.]

Beijing has long focused on self-reliance in technological innovation as a goal to mitigate dependence on foreign firms. The Chinese Communist Party (CCP) Central Committee’s Fifth Plenum highlighted that this will continue to be a major priority for China over the next 15 years.

Since the 13th Five Year Plan in 2015, China has faced increasingly suspicious US policymakers who have pushed for measures to balance China’s rise, particularly in the technology sector. The US often cites intellectual property theft, economic espionage and, of course, national security concerns over Chinese technology firms such as ByteDance and Huawei. Among the most pressing concerns for US policymakers is China’s role in 5G infrastructure development.

The US effort to bring European allies on board with this position has convinced a number of states that a Huawei or ZTE-developed 5G infrastructure would provide China with an extensive network that could be used for surveillance purposes. Sweden is among the recent European states to exclude Huawei from its network development. Germany, Italy, and France have not gone so far as to ban Huawei, but have made clear they aim to focus on domestic industries and limit cooperation with Chinese firms.

Emerging markets, particularly those states that are more closely linked with China’s Belt and Road Initiative (BRI), are less likely to have the strong opposition that the US would prefer. Developing countries without a domestic firm in the 5G race have fewer affordable alternatives than advanced economies. Moreover, many states with limited internet access serve to benefit from Chinese investment, and they have indicated greater willingness to welcome Chinese firms.

Chinese Domestic Innovation

Amidst the steep decline in trust in Chinese telecommunications companies, China has unsurprisingly maintained its innocence. However, China realized early that it needs to become a leader in technological innovation in areas like 5G not through cooperation with foreign firms and imports, but by developing its own domestic industries. This is certainly not a new phenomenon: during the Cold War, the CCP took a similar approach to developing its nuclear program when tensions with the Soviet Union were high. Self-reliance has been a key component of CCP philosophy for years, and it is clear from the Fifth Plenum that China is doubling down on its ambitions to develop its domestic technology industry. While a substantial portion of China’s economic goals are typically outlined in the Five Year Plan, it is worth noting that innovation in the technology sector falls within longer-term objectives of technological breakthroughs by 2035.

Further fueled by US pressures, China has accelerated R&D in 5G, artificial intelligence, financial technology, and other areas of innovation. For years, China has made efforts to steer away from reliance on semiconductor imports and computer chips produced in the US, Europe, Taiwan, and Japan. When the US placed Huawei on the entity list and effectively blocked it from producing goods using chips made by the Taiwan Semiconductor Manufacturing Company (TSMC), it only increased the growing urgency of China’s quest for technological independence. Although innovation is likely still several years behind TSMC and other companies with cutting-edge technology, in summer 2020 the CCP introduced new policies that would facilitate tax incentives and financing for the domestic semiconductor industry. The Fifth Plenum reinforced the CCP’s desire to limit the effects of the US-China decoupling process.

The final version of the 14th Five Year Plan will be unveiled in 2021, and China’s ambitions for its technology sector may be outlined in greater detail. The CCP’s desire for self-reliance is evident in the plan’s emphasis on dual-circulation, in which economic growth is fueled by domestic production and consumption. The extent to which this is feasible remains to be seen, but Chinese technology firms are likely to be a major component of that goal. Domestic firms may receive preferential tax policies and government subsidies, but some may choose to continue to partner with foreign firms. Moreover, the success of dual-circulation in the technology sector may vary from province to province.

Cybersecurity Risks

Economic espionage remains a cybersecurity threat to companies developing similar technology. US efforts to stifle the expansion of Chinese companies like Huawei provide additional incentives for Chinese intelligence services to target foreign firms. This is particularly evident in the telecommunications sector, as China races against western competitors to develop the backbone of 5G infrastructure. In 2019, Chinese intelligence appeared to favor targeting firms in Southeast and Central Asia, indicative of broader geopolitical goals. China’s Digital Silk Road aims to connect other states through a network of digital infrastructure in BRI projects. The tech sector is among China’s top priorities, and IP theft is likely to continue to be a major concern for firms caught in the crosshairs of the CCP’s short and medium-term strategic interests.

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