Economy and Technology

China’s Counter-Strategy to American Export Controls in Integrated Circuits

Douglas B. Fuller

Monday, March 1, 2021

This article examines China’s efforts to counter American sanctions against Huawei that in effect try to weaponize the silicon supply chain. While China has taken tentative steps to try to decouple from the American semiconductor industry, it faces three continuing challenges.  First, the areas of technological dependence that the Huawei Entity List sanctions highlighted, fabrication, capital equipment, and electronic design automation (EDA) software, are areas in which China has very weak capabilities.  Second, the wider the scope of the sanctions is, the more likely local and foreign firms will be willing to cooperate with Chinese efforts to create substitutes for controlled American technologies.  But the scope of the sanctions appears to be in stasis and may even narrow during the Biden administration. Finally, the progressive expansion of China’s silicon ambitions has elicited foreign industrial policies to counter China’s own policies. This expanding market outside of China will lessen the effectiveness of Chinese policy and at the same time make a certain level of controls over IC technology palatable to American partners as Chinese customers are replaced by others.

Will China Eliminate Poverty in 2020?

Terry Sicular

Tuesday, December 1, 2020

In 2015 China announced the ambitious target of eliminating poverty by 2020. Since then China has launched an all-out, campaign-style push to meet this goal, using a “Precision Poverty Alleviation” strategy that targets individual households and monitors their progress using a nationwide poverty database. Investments of financial and human resources in this program have been considerable. Although the poverty reduction target is ambitious, it is also pragmatic. It applies only to the rural population and it is based on a low poverty line. Funding for the program, while large in absolute terms, is a small percentage of government revenue. Thus, the target is achievable. Reaching the target, however, will not mean that China has won the war on poverty. Many households will remain vulnerable to poverty, and the government’s current definition of poverty does not adequately reflect what it means to be poor in China going forward.

From “China Inc.” to “CCP Inc.”:  A New Paradigm for Chinese State Capitalism

Jude Blanchette

Tuesday, December 1,  2020

CCP General Secretary Xi Jinping has overseen a significant transformation of China’s domestic economic system, undergirded by important new reforms that have drastically expanded the reach of the Chinese state into the economy and Chinese firms.  This has included the integration of CCP organizations into public and private firms, the regulatory shift of SASAC from “managing enterprises” to “managing capital,” and the role of government guidance funds in driving industrial policy. The overall change in China’s economic and regulatory structure – and the political control wielded by the CCP – combined with the Xi era blending of the public and private, and market and planning, is of such a proportion that it marks a new paradigm in China’s development trajectory.

China’s Economy Bounces Back, But to Which Growth Path?

David Dollar

Tuesday, September 1,  2020

Available open sources indicate that in their domestic handling of the COVID-19 virus, the central Chinese authorities generally followed, ultimately to good effect, established crisis management processes and procedures as well as post-SARS regulations for dealing with a health emergency.  A major exception to this record occurred with regard to the initial reporting on the virus by both local and central authorities, where the pre-existing network reporting system was not utilized early enough and both local and initial central expert teams sent to Wuhan failed to detect the seriousness of the outbreak.  Once the top leadership clearly recognized the gravity of the situation, it moved with at times ruthless efficiency to combat the virus.  Although Xi Jinping and other senior officials subsequently acknowledged that mistakes were made, the center only punished local officials, in an apparent attempt to deflect blame from the top, as was also the case during the SARS epidemic.  Available open sources provide no clear proof that the more extreme charge of a deliberate cover-up of a known deadly and highly contagious outbreak is accurate.  However, they do indicate that the Chinese system remains excessively bureaucratic and consensus-driven, often prizing political criteria over expert-based information and reflexively suppressing unauthorized communications. 

The Chinese Reassessment of Interdependence

Julian Gewirtz

Monday, June 1, 2020

This essay analyzes trends in Chinese views of U.S.-China interdependence from Xi Jinping’s rise to the COVID-19 pandemic. It shows how Xi Jinping put forward an expansive vision of national security that highlights the risks of interdependence, while also expanding China’s use of its leverage in interdependent relationships to coerce others. These efforts have intensified significantly due to the Trump administration’s coercive actions on trade and technology. Xi’s and Trump’s shifts also accelerated a reassessment of the risks and benefits of interdependence among a broader set of Chinese elites. Most significantly, many former officials and prominent thinkers appear to be newly convinced that longstanding forms of interdependence with the United States pose intolerable risks to China. This essay concludes by assessing the evolution of elite Chinese views of U.S.-China interdependence in the wake of the COVID-19 pandemic, which many see as a potential opportunity for China to reset its interdependence with other countries on more favorable terms for China.

Financial Liberalization in China: The Contradiction Between Opening and Guaranteed Outcomes

Victor Shih

Sunday, March 1, 2020

In recent months, the Chinese leadership has trumpeted the opening of its financial sectors, including President Xi Jinping’s expansive promise at the 2018 Bo’ao Forum.  However, because the government continues to place a heavy priority on financial stability and the funding of key government objectives, developing liquid and transparent markets have taken a back seat.  In fact, across the credit market, the bond market, and the stock market, financing debt roll-over in an orderly manner and minimizing volatility have led to an increasing degree of state intervention in these markets, rendering them increasingly illiquid and non-transparent.  For investors interested either in attractive pricing or greater transparency, the Chinese financial market continues to hold less profitable potentials than other emerging market economies.  Even with granting foreign institutions more licenses to operate in China, foreign participation in China’s financial market will continue to stagnate.      

The Relocation of Supply Chains from China and the Impact on the Chinese Economy

Shaomin Li

Sunday, December 1, 2019

The U.S.-China trade war has had a huge impact on the supply chains in China, accelerating their relocation that had already begun due to rising taxes, costs of labor, and other input factors. The exodus reported in the past year is only the tip of the iceberg, as more serious effects will not become apparent immediately. A major effect of the relocation on China is job losses, which may reach as many as 5 million in the coming years. Given the unlikeliness of a quick end to the trade war and the reluctance of the Chinese Communist Party (CCP) to make structural changes, the long-term prospects for supply chains in China are not promising because not only will existing firms gradually reduce their exposure to political and economic uncertainties, but also potential newcomers are likely to avoid China. Although the CCP rolled out some policies that may help alleviate the shock, it has yet to come up with specific policies to effectively address the problem.

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Seizing Core Technologies: China Responds to U.S. Technology Competition

Adam Segal

Saturday, June 1, 2019

Chinese analysts and policy makers have interpreted U.S. efforts to prevent the flow critical technologies through limits on investment, blocks on the operations of Huawei and other Chinese telecom companies in the U.S. and other markets, and new export control laws, as part of a strategy of containment designed to slow China’s rise as a science and technology power. In response, a newly emerging strategy consists of: a doubling down on indigenous innovation and developing “core technologies”; protection of supply chains; diversification of access to foreign technology; diplomatic efforts that stress the shared benefits of Chinese technology development; and continued cyber-enabled theft of intellectual property. Even though both sides are likely to lose the efficiencies that came from the globalization of innovation, such a strategy may also energize American and Chinese policy makers to mobilize even greater resources for scientific competition.

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CLM Insights Interview with Nicholas Lardy on his latest book:

 

The State Strikes Back: The End of Economic Reform in China?

(Peterson Institute for International Economics, 2019)

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CLM Insights Interview with George Magnus on his latest book:

 

Red Flags: Why Xi’s China is in Jeopardy

 

(Yale University Press, 2018)

 The Private Sector: Challenges and Opportunities During Xi’s Second Term

Yue Hou

Friday, March 1, 2019

The ongoing trade feud with the United States, combined with an internal economic slowdown and the party’s tightening grip on the economy, presented China’s private sector with unprecedented challenges as President Xi began his second term in 2018. Beijing has responded to the frustrated private sector with promises of substantial tax cuts and an expansion of credit, together with a pledge to further deepen structural reforms and to double down on spurring indigenous innovation. What will Xi’s second term mean for the private sector? Some worry that he will further roll back the market-oriented reforms; a more hopeful scenario is that the hostile international environment and the mounting domestic pressures will counteract any anti-market trends and provide the party’s reform-leaning politicians with a rare opportunity to push forward market reforms and to create a true level playing field for the private sector.

Cracks in China’s Statist Consensus?

Victor Shih

Saturday, December 1, 2018

In recent months, scholars in China have taken advantage of the trade tensions and the fortieth anniversary of reform and opening to voice their dissatisfaction with the status quo and to advocate major economic changes. Some very established figures, either directly or indirectly, criticized China’s political system. The main participants were economists who came of age in the 1980s, who perhaps saw this as their last chance before retirement to make a major push for reform. However, the reaction has ranged from lip service to policies that introduce even more distortion to the economy. Meanwhile, it is notable that the younger generation of economists and scholars has largely stayed out of the debate, which does not bode well for internal reform pressures in the future.