President Donald Trump meets with China’s President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019.
Kevin Lemarque | Reuters
The world’s second-largest economy is already showing some good progress in its push on homegrown industries such as artificial intelligence and chips.
“China is closing the technological gap with the United States, and though it may not match U.S. capabilities across the board, it will soon be one of the leading powers in technologies such as artificial intelligence (AI), robotics, energy storage, fifth-generation cellular networks (5G), quantum information systems, and possibly biotechnology,” U.S.-based think tank the Council on Foreign Relations (CFR) said in a recent report.
It comes as Beijing gears up to celebrate the 70th anniversary of the founding of the People’s Republic of China on October 1. With much fanfare expected, the event will see the Asian giant flaunt its military prowess in a parade in Beijing and President Xi Jinping talk up the nation’s progress
China’s digital footprint
A big part of the nation’s development has been technological.
China’s digital economy accounts for over 34% of the country’s gross domestic product. It’s also home to some of the largest technology companies in the world, including e-commerce giant Alibaba and tech conglomerate Tencent.
That’s thanks to an internet boom over the years. The number of internet users in China at the end of 2008 totaled 298 million — or just over 22% of the population at that time, according to official statistics from the China Internet Network Information Center (CNNIC). That number rose to 854 million at the end of June this year — or over 60% of the population.
Just over 99% of Chinese web-users access the internet on their mobile devices, according to official government statistics. In the U.S. just over 92% of internet users access it on mobile, separate statistics from eMarketer show.
That mobile focus in China has helped companies roll out products quickly and on a large scale.
And China’s rise is threatening America’s historically strong position in technology.
“We have a technology grip from the U.S. that is actually being torn apart by China at this point,” Eoin Murray, head of investment at Hermes Investment Management told CNBC’s “Squawk Box Europe” last week.
Copycat image changing
But the rise of China’s tech industry has been tarnished by allegations of intellectual property theft and claims that the country’s technology companies have been copycats.
Whether it is Chinese-designed phones that look similar to Apple’s iPhone, or Chinese search or e-commerce companies being compared to Silicon Valley’s Google or Amazon, China has for a long time carried the image of a tech follower.
But that image is changing.
“For years, Silicon Valley looked down on China tech and believed it was only copying. But today, there is awareness that China is innovating and getting ahead in certain tech arenas,” Rebecca Fannin, author of “Tech Titans of China,” told CNBC.
China threat to US tech
Over the past few years, Beijing has publicly stated its ambitions to develop critical future technology, such as artificial intelligence and the next-generation of super-fast mobile networks known as 5G.
Even before the U.S.-China trade war started, Beijing said in 2017 that it wanted to become a world leader in AI by 2030. Some of China’s biggest companies including Alibaba, Huawei, Tencent and Baidu, are all investing heavily in AI. Just last week, Alibaba followed Huawei’s footsteps and released its own AI chip.
Beijing has also said semiconductors will be a key area of the Made in China 2025 plan, a government initiative that aims to boost the production of higher-value products. China wants to make more of the chips it uses.
Meanwhile, Huawei, the world’s largest telecommunications equipment-maker, has secured more commercial 5G contracts than its rivals Nokia and Ericsson. 5G promises super-fast data speeds and the ability to support new technologies like autonomous vehicles.
Technology has been a key part of the ongoing U.S-China trade war with one company in particular, Huawei, being caught in the crosshairs.
The Chinese technology giant has been put on a U.S. blacklist known as the Entity List which restricts its access to American technology. But this has only sharpened its focus on trying to make more of the components and software it needs. The company has been releasing its own processors for smartphones and recently unveiled its own operating system, in a bid to become less reliant on the U.S.
Washington’s response to the rise of China’s tech industry has been about containment rather than trying to stay ahead, according to one expert.
“So far it has been primarily focused on slowing China down and preventing critical technologies from flowing to Beijing,” Adam Segal, one of the authors of CFR’s report, told CNBC. “While there is a growing recognition in Congress and in the White House that the U.S. needs to do more to accelerate innovation at home, the response so far has fallen short.”
Segal suggested the U.S. should restore federal funding for research and development to its historical average. This would mean increasing funding from 0.7% to 1.1% of gross domestic product (GDP) annually, or from $146 billion to about $230 billion at the 2018 exchange rate, according to Segal.
Fannin echoed some of Segal’s comments and said the U.S. needs a “national agenda” in key technology areas. She added that the current trade war won’t stop China’s rise.
“The US-China trade war is hurting both sides. China’s ambition is unstoppable to become a global leader in tech, trade war or not,” Fannin told CNBC.