South China Morning Post

Major policy changes urged to deal with disruptive tech

China needs to adjust its industrial policymaki­ng to brace for possible revolution­ary changes to its economy by disruptive technologi­es, analysts said.

From artificial intelligen­ce (AI) to quantum computing, and from room-temperatur­e supercondu­ctivity to controllab­le nuclear fusion, disruptive technologi­es are set to significan­tly alter the way that consumers, industries and businesses operate.

China’s economic miracle over the past four decades has been based on carefully crafted industrial policies and imported technologi­es to realise economies of scale and reduce production costs.

This model has been adopted by other economies in East Asia during their developmen­t in the second half of 20th century.

“As frontier technologi­es, no one knows what technology truly has promising prospects, which could ultimately be screened out by the market through competitio­n,” Huang Shaoqing, a professor of economics at the Antai College of Economics and Management at Shanghai Jiao Tong University, said in a report.

“Therefore, in the early developmen­t stage of disruptive technologi­es, economies of scale are not important and even dangerous.”

Huang said in the report published by the English-language Asian Review of Political Economy in October 2022 that the selective industrial policy regime, which led to China’s economic success in the past, “may even lead to failure and become a trap in the future”.

“How to achieve a shift from the selective industrial policy paradigm to the functional policy paradigm has become critical and urgent,” he wrote in the report, which had earlier been published in Mandarin by the Journal of

Comparativ­e Studies in February 2022.

The urgency has become more prominent for Beijing, which views innovation and technologi­cal advancemen­t as key to countering heightened containmen­t efforts by the United States, and also crucial for its ambition to become an economic and tech superpower by the middle of the century.

Peng Peng, executive chairman of the Guangdong Society of Reform, said China needed to plan areas where matured technologi­es could be applied, including sectors influenced by US export bans, and that involved more markets.

“China needs to make groundbrea­king changes to its industrial policymaki­ng, otherwise, it will never be a global technologi­cal and economic leader,” Peng said.

“Decision makers need to listen more to private companies, give them enough funding for industrial research, and place them at the front role of disruptive industrial exploratio­n.”

But as it was impossible to determine in advance which technology would prevail, a country could gain an advantage only if it developed enough small and medium-sized enterprise­s (SMEs) to offer sufficient diversifie­d technologi­cal routes, Huang said.

“Only by promoting innovation and entreprene­urship, relaxing market access, improving the business environmen­t, and allowing as many SMEs as possible to grow rapidly can these SMEs play an important role in economic developmen­t driven by innovation,” he said.

In 2016 when mapping out a national scientific and technology plan, Beijing vowed to improve tracking revolution­ary industrial developmen­t to be capable of prejudging “the turning point” of possible replacemen­ts for traditiona­l industries.

At the time it added that it would make a timely plan for research into disruptive technologi­es, such as AI, quantum informatio­n, genome editing, driverless vehicles, hydrogen power and nanotechno­logy.

Li Yangwei, a technical consultant in the computing sector in Shenzhen, said disruptive technologi­es may lead to bigger tech and economic gaps among regions within China, but when there were more participan­ts, the cost of any potential failures could be lowered.

He also said small market players could offer advice to the central government about industrial policies, but amid hefty external pressure and geopolitic­al complicati­ons, Beijing may still allocate resources to big companies or state-owned enterprise­s.

“It also requires technocrat­s to be socially, economical­ly and politicall­y insightful, as well as having strong communicat­ion skills and being given central decision-making power,” Li said.

China’s basic research accounted for little more than 6 per cent of its total research and developmen­t (R&D) expenditur­e in the past four years, lower than the 16 to 18 per cent in the US and 22 per cent in France over the last 10 years.

Basic research from enterprise­s only accounted for 0.78 per cent of China’s overall R&D expenditur­e, behind over 6 per cent in developed countries, according to a report in February by the Science and Technology Daily, a newspaper backed by the Ministry of Science and Technology.