The Insufficiencies of China’s Technological “Self-sufficiency”

This column was first published in L’Express on 15th October 2021

In the post-Covid world, the notion of control will derive more from flexibility in the way that value chains are reworked and integrated than in the building up of an unrealistic national sovereignty.

I am writing these lines from my quarantine hotel in Hong Kong where I am confined for three weeks, even though I have been vaccinated twice and have tested negative six times with the PCR test. This is an unprecedented experience, which, more than anything else, shows the inanity of the “zero-Covid” policy currently pursued by China alone. China is paying a high price: because of its failure to perfect the disruptive technology of messenger RNA, it has allowed the USA to become the powerhouse of world growth in 2021 and has seen the world financial markets growing increasingly nervous because of the slowdown in the growth of China’s GNP.

Contrary to its usual practices, Beijing does not seem to want to learn from its failure in the field of medical research. Ignoring the fact that BioNTech’s success was due to interdependency — the alliance between a Turkish émigré couple in Germany and the American giant Pfizer — Xi Jinping’s government is now promoting “technological self-sufficiency”, and attempting to force foreign companies either to set up completely local entities, or to reduce their contacts with the rest of the world to the absolute minimum by means of data control.

Obsessed by industrial property rights, China is forgetting the importance of soft skills

An out-of-date vision. This vision, inspired by the advances made by China in recent years by means of technology transfer, now seems out-of-date for two reasons. First of all, it refers to Chinese successes in industries that have economies of scale, where only volume counts, whereas the industries of the future — where China has to make up for the fact that it is lagging behind — are more like ecosystems: decarbonization, semi-conductors, industrial software, aeronautics, healthcare, finance… These are key sectors in which the notion of national sovereignty is pleasing to politicians but is in fact counter-productive. Industries feel that national control of the whole of the value chain is impossible; control can only be over its key stages, where the essential part of added value is concentrated. The most blatant example of this is the semi-conductor industry: the USA continues to have world leadership, whilst, in China, 250 billion in state grants are still having no effect whatsoever.

Secondly, China is continuing to focus its attention on industry, whereas it is the fact that it is trailing behind in the services sector that is putting the most strain on its productivity in comparison with the West. Obsessed by hardware and industrial property rights, it is forgetting the importance of soft skills, beginning with processes, which are still the key advantage of the West in technologies that have the highest added value. When the education of 5–18-year-olds was nationalized this summer, this merely strengthened fears that this relative weakness of China would be prolonged.

Building up national sovereignty is unrealistic in an interdependent world

The logistics sector, which contributes twice as much to GNP in China as it does the West, is symbolic of these inefficiencies, as was clearly shown during the Covid crisis: the successive closings of ports and entire regions transformed the headache of “just-in-time” supply to “just-in-case”, meaning that an alternative solution had to be found for each logistical step. A recent survey undertaken by a Western investment bank pointed out that 70% of finance directors of the large groups in China now envision relocating part of their operations to… South Korea, Japan and Taiwan. This is a real surprise and proof that China’s industrial upgrading may well be put into question.

A reversal in priorities. Therefore, we can see that, in the post-Covid world, the notion of control — a notion that the Chinese government is greatly attached to — will derive more from flexibility in the way that value chains are reworked and integrated — and which are, by their very nature, global — than in building up national sovereignty, which is unrealistic in a world that is largely interdependent.

The challenge for European businesses in China is therefore twofold. Firstly, it is about localizing their production incrementally without any significant technology transfer, taking their cue from what Airbus has been doing for 20 years. Secondly, they have to remind the Chinese — without Western “self-sufficiency” — that they have never before had such a great need of European technology in production. The whole of the population could already have been vaccinated effectively with the BioNtech vaccine, and it would only have cost a day’s worth of GDP!

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David Baverez

David Baverez

Business angel / demon. Based in Hong Kong since 2011. Columnist, author of “Paris-PekinExpress”, “Beijing Express” and “Génération Tonique”.