Will Sino-US Trade Frictions Capsize China’s Technological Growth?

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Experts in China are confident that the country’s technological development won’t be undermined by escalating trade tensions with the US, which have recently culminated in a ban on transactions with Chinese telecoms giant ZTE.

The US Commerce Department has just launched a seven-year ban on the sale of products and services to ZTE, after the Chinese telecommunications equipment maker breached sanctions on sales to Iran.

The move arrives amidst escalating trade tensions between China and the US, with Beijing filing formal dispute proceedings at the World Trade Organization after the Trump administration mooted a 25% tariff on as much as USD$150 billion in Chinese imports.

ZTE has gone into crisis mode, suspending shares and replacing Shi Lirong with Zhao Xianming as president and chairman, prompting observers to examine the potential implications of worsening Sino-US trade tensions upon China’s technological development.

The importance to China of access to US technology was highlighted by recent efforts on the part of China’s Minister of Commerce Zhong Shan (钟山) to assuage trade frictions, during which he called for Washington to dial back restrictions on tech exports.

“I believe that trade competitiveness is fundamentally industrial competitiveness, and Sino-US trade imbalances are related to US controls on hi-tech exports to China,” said Zhong.

The Chinese government is now putting on a brave face with regard to the matter, touting the recent growth and accomplishments of the domestic tech sector.

Diao Shijing (刁石京), a senior official from the Ministry of Industry and Information Technology, said to China National Radio that the domestic chip sector is fast approaching leading world standards.

“We are already very closely approaching the world’s first ranks, especially when it comes to chip design and rapid expansion of industry scale,” said Diao. “Chips manufactured in China are used in everything from daily life to industrial spheres to future artificial intelligence and smart cars.”

Zhu Ninghua (祝宁华), vice-head of the Chinese Academy of Sciences Semi-conductor Institute, told CNR that China is at the international forefront when it comes to certain key technologies in the area of optoelectronic devices, and that this would help domestic industry to weather any trade embargoes on the part of the US.

“We’ve achieved breakthrough advances in key technologies in the area of high-end optoelectronic devices,” said Zhu. “These core chips include important chips used by ZTE that are subject to restrictions…key arrangements were made [for this] in the state’s research plans for the 12th and 13th Five Year Plans.

“With regard to the US embargo against ZTE, we should objectively analyse the R&D and production capability of China for optoelectronic devices.

“At present China possesses the essential conditions for the research and manufacture of high-end optoelectronic chips, whether it’s in terms of technological experience, capital investment, or key high-end personnel.”

Li Hongbin (李红滨), a professor at Peking University and a member of China’s broadband communications and new internet key expert team for the 13th Five Year Plan, further points out that trade tensions between the US and Japan did not impede the growth of the latter’s semi-conductor industry in the 1970’s.

“A technology embargo definitely cannot impede our development – this is definite,” said Li. “The state has already made many plans, including the ‘863’ and ‘973’ plans, as well as obtained many innovation accomplishments.”

Official data indicates that China’s tech sector posted growth of 13.4% growth in 2017, accounting for 12.7% of growth in industrial enterprises above designated size.

The value-added of China’s tech sector saw year-on-year growth of 11.9% in the first quarter of 2018, or 5.1 percentage points ahead of the reading for industrial enterprises above designated size.

 

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