China doubles its bet on technology – 04/01/2021 – Tatiana Prazeres

Fabulous volumes of resources have already been invested in semiconductor development and, despite this, China remains heavily dependent on the import of these inputs.

Years of frustrated expectations are troubling the Chinese government. Not only because it shows the difficulty of turning wishes into reality, but also because it places China in a technologically vulnerable position.

Of the total semiconductors it consumes, China produces only 30% and imports the rest, in a proportion that for years has insisted not to change.

China depends on chips to produce other goods, export and innovate. Chinese automakers, for example, import 90 percent of the semiconductors they need.

The United States saw an opportunity in China’s fragility. They have taken steps to restrict their semiconductor exports to China. They went further and created difficulties for foreign companies, even outside the United States, to sell equipment and software for the production of chips in China.

Although on a smaller scale, similar stories are repeated in other technologies. The list of Chinese companies banned from doing business with American companies is long. As a result, China’s access to certain strategic inputs is limited.

What is the consequence on the other side of the world? The Chinese investor state is increasing its appetite for risk. Beijing is starting to act like a “venture capitalist” – as Arthur Kroeber argued in a webinar hosted by Cebri and the Brazil-China Business Council this week.

Of course, investments in industrial policy, technology and even self-sufficiency are not new to China. However, Beijing has now more than doubled the bet.

What is new is the audacity in the way of investing, the volume of resources involved in the company and the strategic coherence of the State’s intervention, according to Kroeber.

Beijing is mobilizing significant investment in technology-intensive sectors, especially for several early-stage projects – risky, but potentially promising.

As is typical of the “venture capital” model, not all bets will turn out to be correct. But, of course, the idea is that there are enough winners to make up for investments that will inevitably fail.

However, success is not guaranteed. The difficulties normally associated with industrial policy are also present in China. There is room for waste, favoritism, distortion and corruption.

When Beijing established new incentives for semiconductor development last year, companies of all kinds were ready to claim the benefits. The government had to act to prevent abuse. He defined three “no’s”. Companies without experience, technology and human capital in the region should not venture there – not with public resources.

While state interventionism has its risks, the logic of the state-market relationship in China has always been different. The public sector is seen primarily as part of the solution and not as the problem of the economy.

Phrases like China Inc. and state capitalism, for example, represent the effort to capture the essence of this hybrid model – and which is also changing. But while the rest of the world points out the contradictions, the Chinese see the synergies in the relationship.

In the current circumstances, China’s technological dependence and the country’s difficult international environment contribute to the audacity of the investor state. It is no coincidence that the newly adopted five-year plan prioritizes technological self-sufficiency.

If it were a private investor, today’s China would have a bold profile. The risk is high, but so can the return. It is the directions of technological, economic and geopolitical competition that are at stake. With deeper pockets than in the past, Beijing is ready to pay to see.

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