By Robert D. Atkinson
In the Greek myth about swift-footed Atalanta, the daughter of the king who must marry anyone who beats her in a race, her challenger, Hippomenes, dropped three golden apples during the race because he knew that Atalanta would have to stop to pick them up, and it was only in this way that he could win the race.
We need to think similarly about China. For if U.S.-allied technology leaders do not find ways to slow China down (while at the same time speeding ourselves up), Beijing will almost surely win the race for global innovation advantage.
Just look at how much progress China has made. In a 2019 report, the Information Technology and Innovation Foundation looked at where China was vis-a-vis the United States on a host of key technology indicators in 2017 compared to in 2007. On all of them, Beijing was catching up with, if not surpassing, America. On government R&D as a share of GDP, China went from 80 percent of U.S. levels to 120 percent. On membership in the top 2,500 companies for global R&D expenditures, it went from 2 percent of the number of U.S. companies to 57 percent. On computer science and engineering degrees, it went from 63 percent of U.S. figures to 144 percent. On robots per worker, China went from 10 percent of U.S. numbers to 50 percent.
Those who say that China cannot catch up to the United States, or other leaders, do not understand the process of technological development. In 1980, almost no one would have said that Korea could become the global leader in DRAM (dynamic random access memory) chips, because it had no production, while the United States had 72 percent of the world market. Today, because of supportive policies and innovative companies (SK Hynix and Samsung), Korean companies have around 75 percent of the world market. There is no reason China can't make similar progress in this field and other technologies. Indeed, in technologies like telecom equipment, solar panels, batteries and high-speed rail, it already has.
Some will argue that U.S.-allied nations don't have a right to try to slow China down. After all, they argue, China is a developing nation, and just like the Asian Tigers and others, it deserves the right to develop, especially technologically. Of course it does, but not through systemic "innovation mercantilist" practices, including forced technology transfer in exchange for market access, rampant intellectual property theft, discrimination against foreign companies, international standards manipulation and massive government subsidies for technology firms. Winning the race fairly is one thing, but winning it through cheating is quite another. And China's state capitalism is expressly designed to win by such cheating.
Others will argue that even if the U.S. and its allied nations have a moral right to slow down China, they don't have the means; China will keep doing what it is doing. They are right in one way: the Trump administration's efforts showed clearly that it is virtually impossible to dissuade Beijing from abandoning its predatory form of state capitalism. President Xi and the State Council are too committed to it because they see it as central to China becoming the dominant global power.
But while allies cannot change China's strategy and tactics, they can "throw apples" that will slow China down, at least a bit. What should they do? They can start by working more closely together to limit China's access to key technologies through tougher export controls. The difficulties now facing telecom equipment giant Huawei show that this strategy can work. Countries can also amend antitrust rules to allow companies in similar industries to collaborate to agree not to transfer technology to China as a condition of market access. As it stands now, China uses its massive and growing market as a lure to play companies off against each other and transfer valuable technology.
They can also limit Chinese foreign direct investment, especially the acquisition of companies in domestically advanced industries. The U.S. Congress took important steps in doing so several years ago when it passed the Foreign Investment Risk Review Modernization Act (FIRRMA), as did the EU when it passed similar, albeit weaker rules.
More boldly, allied nations can work together to identify Chinese products that benefit unfairly from Chinese innovation mercantilist practices and limit imports of these products. For example, any Chinese company that can be shown to benefit from intellectual property theft ― as was the case with China's DRAM company, Fujian Jinhua ― should not be allowed market access. In the case of Fujian it was export controls that crippled the company, but in other cases, it is market access limits that can be used. The same principle of denying market access should be applied to companies that gained advantages because of forced technology transfer or massive subsidies. All countries engage in some industry subsidies, but when those subsidies are so large that they dwarf what most nations do, they should be actionable under domestic trade law.
Slowing China down is critical in part because it will give leading technology companies in U.S.-allied nations time to adjust and invest in the next generation of technology to maintain their lead over China. Many nations will be tempted to free-ride off nations like the United States, who have shown their willingness to "throw golden apples," to slow China down, but that will be a mistake. China knows how to play nations off against each other, and only joint action will suffice.
Finally, none of this is to say that allied nations should also not take stronger steps to enable our ability to "run faster," through more effective and generous domestic technology strategies, ideally coordinated with allies. But winning the race will require both slowing China down and speeding allies up.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.
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We need to think similarly about China. For if U.S.-allied technology leaders do not find ways to slow China down (while at the same time speeding ourselves up), Beijing will almost surely win the race for global innovation advantage.
Just look at how much progress China has made. In a 2019 report, the Information Technology and Innovation Foundation looked at where China was vis-a-vis the United States on a host of key technology indicators in 2017 compared to in 2007. On all of them, Beijing was catching up with, if not surpassing, America. On government R&D as a share of GDP, China went from 80 percent of U.S. levels to 120 percent. On membership in the top 2,500 companies for global R&D expenditures, it went from 2 percent of the number of U.S. companies to 57 percent. On computer science and engineering degrees, it went from 63 percent of U.S. figures to 144 percent. On robots per worker, China went from 10 percent of U.S. numbers to 50 percent.
Those who say that China cannot catch up to the United States, or other leaders, do not understand the process of technological development. In 1980, almost no one would have said that Korea could become the global leader in DRAM (dynamic random access memory) chips, because it had no production, while the United States had 72 percent of the world market. Today, because of supportive policies and innovative companies (SK Hynix and Samsung), Korean companies have around 75 percent of the world market. There is no reason China can't make similar progress in this field and other technologies. Indeed, in technologies like telecom equipment, solar panels, batteries and high-speed rail, it already has.
Some will argue that U.S.-allied nations don't have a right to try to slow China down. After all, they argue, China is a developing nation, and just like the Asian Tigers and others, it deserves the right to develop, especially technologically. Of course it does, but not through systemic "innovation mercantilist" practices, including forced technology transfer in exchange for market access, rampant intellectual property theft, discrimination against foreign companies, international standards manipulation and massive government subsidies for technology firms. Winning the race fairly is one thing, but winning it through cheating is quite another. And China's state capitalism is expressly designed to win by such cheating.
Others will argue that even if the U.S. and its allied nations have a moral right to slow down China, they don't have the means; China will keep doing what it is doing. They are right in one way: the Trump administration's efforts showed clearly that it is virtually impossible to dissuade Beijing from abandoning its predatory form of state capitalism. President Xi and the State Council are too committed to it because they see it as central to China becoming the dominant global power.
But while allies cannot change China's strategy and tactics, they can "throw apples" that will slow China down, at least a bit. What should they do? They can start by working more closely together to limit China's access to key technologies through tougher export controls. The difficulties now facing telecom equipment giant Huawei show that this strategy can work. Countries can also amend antitrust rules to allow companies in similar industries to collaborate to agree not to transfer technology to China as a condition of market access. As it stands now, China uses its massive and growing market as a lure to play companies off against each other and transfer valuable technology.
They can also limit Chinese foreign direct investment, especially the acquisition of companies in domestically advanced industries. The U.S. Congress took important steps in doing so several years ago when it passed the Foreign Investment Risk Review Modernization Act (FIRRMA), as did the EU when it passed similar, albeit weaker rules.
More boldly, allied nations can work together to identify Chinese products that benefit unfairly from Chinese innovation mercantilist practices and limit imports of these products. For example, any Chinese company that can be shown to benefit from intellectual property theft ― as was the case with China's DRAM company, Fujian Jinhua ― should not be allowed market access. In the case of Fujian it was export controls that crippled the company, but in other cases, it is market access limits that can be used. The same principle of denying market access should be applied to companies that gained advantages because of forced technology transfer or massive subsidies. All countries engage in some industry subsidies, but when those subsidies are so large that they dwarf what most nations do, they should be actionable under domestic trade law.
Slowing China down is critical in part because it will give leading technology companies in U.S.-allied nations time to adjust and invest in the next generation of technology to maintain their lead over China. Many nations will be tempted to free-ride off nations like the United States, who have shown their willingness to "throw golden apples," to slow China down, but that will be a mistake. China knows how to play nations off against each other, and only joint action will suffice.
Finally, none of this is to say that allied nations should also not take stronger steps to enable our ability to "run faster," through more effective and generous domestic technology strategies, ideally coordinated with allies. But winning the race will require both slowing China down and speeding allies up.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.
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