China lacks the technology industry to lead the world in global high-value exports. To strengthen its position, Beijing will have to double down on intellectual property theft, and America will be the primary target.
I note this in light of President Xi Jinping’s trip to Shenzhen on Wednesday. Celebrating the 40th anniversary of the Shenzhen Special Economic Zone, Xi called on the city’s residents to redouble their commitment to innovation. Just outside of Hong Kong, Shenzhen now represents Xi’s best hope for an innovation revolution. The need for that innovation is critical for two reasons. First, because the United States is now denying China access to high technology software and hardware. Second, because Hong Kong’s continued political instability means that the former British colony is likely to play a declining role in China’s “socialism with Chinese characteristics” economy.
Even as he hopes for a Joe Biden presidency that might smooth the harder edges of this U.S. crackdown, Xi seems to recognize that the good old days of U.S. appeasement have ended. Addressing the urgency of China’s challenge, Xi’s speech matched lofty rhetoric to a call for urgent dynamism. Shenzhen simply has to lead the nation forward in developing an independent base of technology, Xi said.
But while the Communist Party has ensured that all media reporting on Xi’s speech was favorable, the devil in the details will be harder to paper over.
After all, China lacks the three things that make the U.S. technology industry so successful: a vast research and development base, attractiveness to high-value foreign talent, and the credible rule of law. Put simply, technology innovators know that the U.S. has the technical baseline to facilitate their aspirations, reward their innovations, and protect their developments against competitor theft. China pales in comparison on each of these counts.
Predicated on the exploitation and theft of foreign technology, China has spent the past 10 years taking what others have built. But with China now experiencing a U.S. decoupling from its economy, its ability to play the old game has been restrained. A good example of the challenge, here, is the recent experience of Chinese telecommunications firm, Huawei. Once a rising competitor to Apple and Google, Huawei’s loss of access to U.S. proprietary software has meant that its phones are, well, not so good anymore. Consumers, quite literally, aren’t buying it.
That brings us back to intellectual property theft. A devout authoritarian on a mission to replace the U.S.-led liberal international order, Xi isn’t going to shy away from the challenge. This is a leader who truly believes that foreign technological developments belong to Beijing. In turn, Xi will have few qualms about doubling down on thievery. Indeed, Xi must engage in that thievery if he is to have any hope of maintaining China’s economic growth model and advancing its market share in the high-value technology sector.
The U.S. and its allies will therefore need to redouble their own commitment to deterring and, if necessary, punishing Xi.
