The global semiconductors race is tightening, and China is racing to catch up

Australia was in thrall last week as the Albanese government splurged almost $400 billion on nuclear submarines that won’t arrive for decades. Meanwhile, the real battle continued to escalate between China and the West — over technology.

Unlike the submarines, whose long-dated arrival leaves a possibly deadly hole in Australia’s defences, the battle for technology supremacy is live and real today. And there is a link in the shape of Taiwan.

The focus on technology was squarely on display at the recent National People’s Congress (NPC), China’s annual rubber-stamp Parliament where leader Xi Jinping was handed, as expected, his third term in the largely ceremonial role as president.

Renewed focus

Under the biggest government revamp since 2018, a new Central Science and Technology Commission under the Communist Party will be established to oversee the revamped science ministry. According to state media, it will “enhance the CCP Central Committee’s centralised and unified leadership over the work of science and technology”.

In addition to this is a new National Data Administration, the aim of which is to coordinate sharing and development of data resources in an effort to balance supervision with the encouragement of the digital economy — which accounts for 17% of GDP, according to industry experts cited by business publication Caixin.

China has been aiming for self-reliance on technology for some time, but has failed to hit its initial and somewhat bold goals. Realising that it was lagging behind the US and other parts of the West, in 2015 the nation released its “Made in China 2025” policy blueprint, aimed at making it dominant in global high-tech manufacturing. 

“The program aims to use government subsidies, mobilise state-owned enterprises, and pursue intellectual property acquisition to catch up with — and then surpass — Western technological prowess in advanced industries,” the European Council for Foreign Relations noted.

High on the list of targets were electric cars and other new energy vehicles, next-generation IT and telecoms, advanced robotics, artificial intelligence, agricultural technology (vital for China to feed its 1.4 billion people), aerospace engineering bio-medicine, rail infrastructure and maritime engineering.

The program’s goal was for China to achieve 70% self-sufficiency in high-tech industries by 2025. A further goal was that by 2049 — now something of a landmark date for the country, being the 100th anniversary of the People’s Republic of China — it would reach full self-sufficiency. (Never mind that many of these goals would play havoc with international trade rules that China had agreed to when it joined the World Trade Organization in 2001.)

China has since made plenty of progress. The rapid technology upgrade of its military — especially in its navy and air force — is well known. It is also now the world’s leading market for the production of electric vehicles, which are increasingly on sale across the globe, including in Australia. It also leads the world in making the solar panels and wind turbines underpinning the drive for renewable energy.

The government’s reorganised focus on technology, as well as finance, however, points to an internal need to ramp up the country’s efforts in progressing its tech capabilities.

Catching up

The biggest spanner in the works is semiconductors, aka computer chips. The US has been at the forefront of the development of semiconductors since the 1950s, although it has ceded some ground to allies such as Japan, the Netherlands, and — here’s the kicker — Taiwan.

When US President Joe Biden placed heavy restrictions on selling chips to China last year, he forced the Chinese into a new phase of internal development while shoring up his allies. It has taken decades for leading nations to refine and develop the world’s foremost semiconductors, and China has relied on importing them for too long. Can it catch up?

While China searches for technology dominance, it has turned its back on the internet entrepreneurs that helped the nation lead the world in online sourcing, shopping and the use of applications — most especially WeChat for everything, everywhere, all at once. Its innovations in payments and using QR codes have been mimicked across South-East Asia — in comparison, Australia’s payment systems and money-transfer options look antiquated.

Leading businessmen have played a public role at the NPC since former general secretary Jiang Zemin knitted China’s fast-growing private sector into the ruling CCP in the 1990s. Yet this year, many of the men who built China’s major internet companies were off the lists of the NPC or the Chinese People’s Political Consultative Conference.

These include former feted luminaries such as Robin Li, CEO of Baidu, China’s first and still prominent online social media forum; Ma Huateng (also known as Pony Ma), CEO of Tencent Holdings owner of WeChat; and William Ding, chairman of Chinese email giant NetEase.

Xi appears to be in two minds about the private sector, which has provided the main growth engine behind the country’s resurgence in recent decades.

On one hand, he has sidelined — and in some cases jailed — prominent business people and entrepreneurs, especially in the past few years. On the other, he seems to understand the vital role that private business plays, albeit under the strict eye of the party-state. Every Chinese business has its own internal party organisation that reports back to the centre, perfecting the need for self-censorship.

In his closing speech to the NPC, Xi said: “The private sector is an important force for our party to govern in the long term. We always regard private enterprises and private entrepreneurs as people on our own side.”

Future moves

The global technology battle has moved into a new phase. Of course, it places ever more question marks over Australia’s decision to invest in long-dated hardware that may, in many ways, be obsolete by the time they arrive — unmanned underwater drones and the like are a fast-developing sector, as are potentially unmanned submarines. Indeed, some believe all traditional forms of warfare will be radically changed in coming decades.

For China, the biggest question that remains about its own ambitious technology goals is whether the country’s innovation of the past can thrive under the heavy hand of the CCP, and whether it can bear to let its private sector thrive once more.

The technology lessons from the last Cold War, where the USSR failed to keep up with computer chip development to its ultimate detriment, are there for all to see.