Economy and Technology
Measuring China’s Technological Self-Reliance Drive
Wednesday, March 1, 2023
Assessments of China's efforts to promote indigenous innovation will be fruitless without clear metrics for technological self-sufficiency. Yet, indicators of indigenous innovation are more ambiguous than other scientific and technological indicators, which complicates such assessments. Indeed, clear-eyed evaluations of China's drive to reduce foreign dependence in information-technology domains are muddied by confusion over the definition of indigenous innovation and the widening "gray zone" between domestic and foreign companies.
China’s Struggle for Common Prosperity
Mary E. Gallagher
Wednesday, March 1, 2023
This article compares and contrasts Bo Xilai’s 2011 campaign for common prosperity in the city of Chongqing with the revival of the slogan by PRC leader Xi Jinping in 2021. While the goals of common prosperity as reducing inequality and equalizing services for rural and urban citizens are similar across the two campaigns, the 2011 campaign was more ambitious in policymaking and implementation. In 2021, Xi Jinping used common prosperity as a populist banner to crackdown on private companies and economic elites. However, policies to address redistribution and inequality were surprisingly sparse. Xi pushed a conservative agenda of “bootstrapped” common prosperity, emphasizing hard work, self-reliance, and a limited role for the government. In adopting Bo Xilai’s slogans but not his policies, Xi attempts to capitalize on a populist message without adopting redistributive policies that require increased taxation and a larger role for the central government in funding welfare gaps.
China’s Balance Sheet Challenge
Wednesday, March 1, 2023
After a decade of rapid credit growth, China is now much more indebted than countries at similar levels of economic development. The slowdown in the economy over the past year has increased pressure on overleveraged borrowers, posing risks for the financial system. China has three main options to address these problems: using the central government’s balance sheet, readjusting the fiscal balance sheet, or selling state assets. If instead Beijing chooses to simply muddle through, it faces the risk of a Japanese-style lost decade. Policymakers should embrace the debt challenge as an impetus to reform China’s fiscal system and adjust the role of government in the economy. These changes could once again set China on a path to more rapid growth. Doing so, however, would require a major shift in the Xi administration’s ideological approach to the economy
The Covid–19 Pandemic and China’s Economic Slowdown
Alicia Garcia Herrero
Thursday, September 1, 2022
The Chinese economy has been undergoing a structural slowdown during the past decade, due to aging, decelerating productivity, and lower returns on assets. The Covid-19 pandemic, coupled with China’s dynamic Zero-Covid policies, have worsened that trend, together with two other important factors, namely the demise of China’s real estate sector as well as the much more difficult external environment stemming from growing U.S.-China strategic rivalry and the war in Ukraine. China’s Covid experience started well but it is ending poorly. With much better economic performance in 2020 compared to the rest of the world, China managed to attract large amounts of capital while keeping its borders closed. However, doubling down on the Zero-Covid strategy with a much more contagious virus, while the rest of the world was opening, changed China’s fortunes for the worse. In fact, China is bound to grow barely half of what the government promised for 2022 (5.5 percent). Moving forward, as the Chinese government starts to show some signs of opening-up, the question remains whether a strong recovery should be expected. The answer is “no.” The factors behind China’s structural deceleration are still intact. In addition, Covid-related scarring effects are bound to hurt the Chinese economy in terms of human capital and innovation. Finally, the 20th Party Congress has made it crystal clear that the role of the state – and the party – in the economy is bound to increase. All in all, even if the Covid restrictions are lifted, China might see a temporary recovery but the structural deceleration will still lead to growth at around 2 percent by 2030. This implies that any convergence with the U.S. economy will not continue for long.
Controlling China’s Digital Ecosystem: Observations on Chinese Social Media
Wednesday, June 1, 2022
Nowhere is the effort to control the flow of digital information more extensive and sustained than it is in China. The Chinese Communist Party (CCP) uses a wide range of tools and strategies to achieve two related, but distinct, goals of digital information control: to shape public knowledge and to “guide” the public in the aftermath of sudden, unexpected events. Controlling social media is especially relevant to the second goal, and the CCP uses strategies of content removal (censorship) and content generation (propaganda) to pursue this aim. Recent studies of the Chinese internet and social media show that the CCP has adapted quickly to new digital communication technologies, though it is in sometimes unexpected ways, and CCP control of Chinese social media is integral to its efforts to shape public beliefs, attitudes, and behaviors.
Four Questions Regarding the Chinese Economy
Tuesday, March 1, 2022
China’s economy decelerated sharply toward the end of 2021 and at the start of the new year it was growing at about 4 percent. But some easing of monetary policy and real estate regulations could move it closer to 5 percent. With the all-important Party Congress scheduled for the end of the year, the leaders want steady growth but also stability. The main headwinds are in COVID, real estate, policies toward the private sector, and trade. The situation with the pandemic could become better (mRNAs boosters for the Chinese population) or worse (new variants resistant to Chinese vaccines). On the one hand, in real estate, too much tightening could lead to a collapse in prices that results in panic selling and weakened household wealth and confidence. On the other hand, Too much easing could reignite the bubble and lay a foundation for a larger financial crisis. The regulatory crackdown could reach new sectors or leave most of the private economy untouched. In trade, the risk is a re-acceleration of the U.S. trade war, and too weak of a global economy to make up for the re-acceleration by trade with other partners. All in all, it makes for a year of dangerous growth.
China’s Move to Greater Self Reliance
Wednesday, December 1, 2021
Reshaping the Chinese economy around the principle of self-reliance will be an extremely complex, highly uncertain, and multi-year process. The barriers to self-reliance, especially in the semi-conductor sector, are high. Still, the conflict with the United States is starting China off on a longer-term restructuring of the economy and innovation system. Success will not be measured by complete self-reliance, which is not a realistic goal. Rather, the goal will be one of degree— to restructure China’s domestic economic and technological systems and supply chains on Beijing’s own terms.
China's 2021 Data Security Law: Grand Data Strategy with Looming Implementation Challenges
Wednesday, December 1, 2021
China’s 2021 Data Security Law (DSL) presents a transformative vision of the country’s data management practices to intensify domestic oversight and expand international influence. However, the law’s limitations with respect to implementation present a challenge for both domestic regulators and multinational corporations. The law’s requirement that individual regions and industrial sectors determine their own data security enforcement measures sets up the potential for competition among agencies. At the same time, its international scope raises questions for domestically focused agencies charged with enforcement and multinational firms seeking to comply with the law. This article argues that understanding the law’s broader implications will require tracing the implementation practices of regions and industrial sectors based on a case study of the automotive sector.
What is Behind China’s Dual Circulation Strategy
Alicia García Herrero
Wednesday, September 1, 2021
Dual circulation may sound like a buzzword without much relevance, but it is not. It actually enshrines China’s long-standing ambition to become self-sufficient. Such an ambition was made known to the world in 2015 after the launch of China’s industrial policy masterplan, Made in China 2025, even though the world at the time was still in full engagement with China. Since Trump’s push for a trade and technology war against China, the Chinese leadership has been relying on a dual circulation strategy to support China’s growth. This basically means insulating the domestic market from the rest of the world by eliminating any bottlenecks, whether in terms of natural resources or technology, so as to vertically integrate its production and achieve self-reliance served by China’s huge domestic market. A relevant consequence for the world, though, is that China will no longer need to import high-end inputs, with obvious negative consequences for major exporters of technology, such as Germany, Japan, South Korea, and the U.S. As if this were not enough, the second aspect of dual circulation, boosting external demand, in a context of Western containment, will increase the importance of the Belt and Road Initiative (BRI) to ensure open markets in the emerging world. In essence, dual circulation is part of China’s masterplan to become self-reliant in terms of resources and technology but also in terms of demand through its huge market as well as through third markets available through the BRI.
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?
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
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?
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
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
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
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.
Seizing Core Technologies: China Responds to U.S. Technology Competition
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.
The Private Sector: Challenges and Opportunities During Xi’s Second Term
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?
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.