The risks and rewards as China makes a big push for science and tech – South China Morning Post

The planned 10 per cent jump in science and tech spending to 370.8 billion yuan (US$51.5 billion) this year is the largest percentage increase for any major area of government spending, including the military, education and diplomacy. Some 98 billion yuan has been earmarked for basic research, up 13 per cent from last year.

The key message in this budget is the sense of crisis, determination and momentum-building. China realises it can no longer rely on being able to buy from the best suppliers in the global tech supply chain but will have to master its own destiny.

One pillar of China’s industrial and technological success has been its policy of affordable innovation. This involves a focus on affordable goods and technologies that cater to the needs of untapped market segments or to latent demand (for example, the middle and lower middle classes in Western countries and the Global South), offering new options (such as more affordable mobile phones, cars, computer chips and equipment) and slowly capturing the market share as the innovation component increases.


Chinese Premier Li Qiang delivers his first work report amid concerns about state of the economy

Chinese Premier Li Qiang delivers his first work report amid concerns about state of the economy

China’s affordable innovation is backed by state capitalism, the relatively low cost of land in China and abundant low-wage labour. It mimics the basis of Japan’s post-war industrial success, which saw it rise as a global leader in electronics, toys and cars, before it became stalled by a decades-long recession.

China’s focus on affordability was not accidental. It was carefully orchestrated and then gradually overlaid with industrial upgrading, with a policy emphasis on quality innovation. As China’s engineers and scientists climbed up the innovation learning curve, they began to churn out high value-added, high-tech-value goods and services, from drones and electric vehicles (EVs) to spacecraft.

One possible consequence of this grandiose upgrade in science and technology, supported by the funding, is that China will further establish itself as a champion of indigenous innovation and establish more tech standards.
For example, China’s global success in EVs and the drone industry has created new standards for such technologies. Its popularisation of QR (quick response) codes and nonbank payment services such as WeChat Pay and Alipay have inspired the emergence of similar standards in other countries. Huawei Technologies is now a strong contender in advanced chips, according to Nvidia.


‘Overtaking on a bend’: how China’s EV industry charged ahead to dominate the global market

‘Overtaking on a bend’: how China’s EV industry charged ahead to dominate the global market

One factor of China’s success is its highly competitive domestic science and tech sector, which ensures only the best prevail and can go on to seek a global market.

But there are risks and headwinds. Externally, politics has taken a front seat in the US, and the US-China tension is affecting the flows of investment and trade, with so-called friendshoring and nearshoring as well as sanctions having an impact.


Why China’s young, disgruntled workers identify with this pink cartoon beaver from South Korea

Why China’s young, disgruntled workers identify with this pink cartoon beaver from South Korea

The low tolerance for risk in Chinese culture is another risk. In the United States, there is a bigger appetite, especially among the big tech companies, for high-risk science and technological opportunities that may not guarantee immediate returns, thus balancing “exploration” (the search for new possibilities with a long-term view) with “exploitation” (the optimising of existing possibilities with a short-term view).

Few big tech firms in China seem willing to pursue highly risky long-term science and technology opportunities. History suggests it is the pursuit of unpredictable opportunities that delivers major scientific breakthroughs and economic outcomes. This “high risk, high gain” culture has been key to US tech supremacy over the past century.

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Another risk is in China’s execution of its science and technology funding. A big budget is promising but how that budget is distributed could become problematic if the funding only or mainly went to a few elite individuals or institutions.

Last but not least, China’s higher education has long favoured practical engineering at the expense of “basic” or pure science. This requires a fresh look.

How will this affect the rest of the world? For the Global South and most other economies including the G7, it would create a more democratised market for innovation where consumers, investors and governments have far greater options on what to procure in the global science and technology markets.

There will also be spillover effects on China’s Belt and Road Initiative, with higher-quality projects in various sectors backed by quality innovation, from high-speed railways to robots and aircraft.

It is hard to predict the outcome of the US-China science and technology rivalry. But there will be clear winners in the short to medium term. Money spent on science and technology development are never a waste.

Dr Yanto Chandra is an associate professor at the City University of Hong Kong


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