[SCMP Column] China's tech challenge

August 11, 2018

When American Craig Chase recently flew into Nanjing to begin six weeks of experimental treatment for his incurable multiple myeloma cancer, he met with medical scepticism worldwide. To put it mildly, China does not count among the world’s leaders in medical research – still less in the new and challenging fields of biotech and cell therapy.

But his American doctors today concede all evidence of his supposedly incurable cancer has gone, and at the most recent gathering of the American Society of Clinical Oncology, world leaders in the biotech field first claimed disbelief, and then excitement.

But for anyone keen to see this breakthrough as evidence of miraculous progress in China’s high-tech sectors, the oncologists’ conclusions, reported in the Financial Times, were sobering: the company behind this remarkable breakthrough remains an exception. As one doctor noted, most medical researchers in China “are just Xeroxing what we are doing in the US.”

As the US tariff war against China has drawn keen attention to technological progress in China, and whether this amounts to a security challenge to the US, this little vignette provides important balance. It reminds me of the 1997 comment by Britain’s then-consul-general on the future of Hong Kong under Beijing’s sovereign rule. Asked for one word to describe his view, he replied: “Worry.” Asked what he would say if he had two words, he said: “Don’t worry.”

Over recent months, widely divergent views have been expressed about the scale of China’s technology challenge – fanned of course by the Trump administration’s vehement claims that China is jeopardising US national security by means of intellectual property theft, forced tech transfer, sly tech acquisitions, and systemic espionage by Chinese nationals in the US, ranging from students to researchers and business investors.

Fears have been further stirred by Xi Jinping’s Made in China 2025 industrial policy, even though most countries worldwide have such policies, and that China’s policy was closely modelled on Germany’s Industry 4.0 strategy. As Tom Holland has carefully recounted in the SCMP in recent weeks, superficial measures of China’s progress – like the output of science graduates (3m a year), the publication of research papers (430,000) and the total of patent applications (1.4m) – easily mislead people to unreasonably alarmist conclusions.

Many have been stirred by a widely-watched Chinese TV documentary called “Amazing China”, screened last spring, which talked in triumphal terms of China’s recent science and technology achievements, and by a Xinhua report that trumpeted China’s “four new great inventions” – high speed rail, electronic payments, bike sharing, and online shopping. The fact that that these “inventions” are distinctly derivative, unlikely to stir scientists working at the frontier of any truly innovative research areas, seemed to pass most commentators by.

Through all of this heat and emotion, two very important questions arise: to what extent is China indeed catching up with the technology leaders worldwide: and how should the rest of the world respond?

The brief answer? China is indeed catching up after impressive progress in recent decades, but may yet take many decades to reach the frontiers; and that our response should be measured if we are to avoid a massive technological divide that would harm us all. Much of China’s most exciting innovation is being driven by grinding necessities – appalling pollution and an associated health crisis, and raw material and energy shortages – and has so far hardly been noticed.

But as Liu Yadong, editor of the Science and Technology Daily, commented in June: “The large gap in science and technology between China and the developed countries should be common  knowledge.”

Certainly, a tariff war aimed at curbing China’s efforts to move towards the frontiers of technology can only backfire. Who can be surprised that Xi Jinping’s response was to insist that China “must grasp core technologies with our own hands.”

When the US threat to deny key semiconductors to ZTE almost brought one of China’s most massive high-tech companies to its knees, two insights were immediately clear: China is still highly vulnerable with many important technologies still well beyond its scientists’ reach; and the US threat to withhold key technologies has inevitably prompted China’s leaders to double down on their determination to reduce or eliminate these vulnerabilities.

A more rational and balanced assessment came from Robert Hannigan, former director of GCHQ, Britain’s technology intelligence agency. Noting that even though China is not yet at the technology frontiers, it already manufactures 90 per cent of the world’s IT hardware, he nowroteted: “The world economy is sitting on a global IT infrastructure manufactured in China… (so)… the real challenge for the west in this century is not that Chinese technology is ubiquitous, but rather that increasingly it is world leading.

“We must not cut ourselves off from the brilliance of Chinese technology, but we need a mature assessment of the risks.”

Already, China’s tech progress has challenged a long-held western view that no centralised command economy can be as innovative as one built on a vigorous, transparent and market-driven democracy. China’s success has not been that it spends lots of state money on innovation, but that it seems to have done so reasonably effectively. China’s challenge to the west is not that it has an industrial policy, but that its track record suggests it might actually succeed in achieving its ambitious goals.

As a Wall Street Journal editorial noted recently: “China’s technology sector is reaching a critical mass of expertise, talent and financial firepower that could realign the power structure of the global technology industry in the years ahead.”

It has moved beyond a point where it is a “technology leech” to a point where it must overcome the danger of being a “scientific Galapagos” - dominant at home, but unable to survive beyond its shores. Note that TenCent’s annual foreign sales are matched by Apple in just three days, and that the US earns royalties from technology sales overseas worth US$128bn a year – compared with China’s US$1bn.

China is poised to become a world leader in a number of important technologies. That ought to be a good thing. It is premature to be paranoid, and China’s progress will only become a national security challenge if we make it so.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own.

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