China Innovation Policy Series

Trends & Reports

 Trends & Reports

Smart Money on Chinese Advances in AI

Report No. 5

Few countries have embraced the vision of an AI-powered future as fervently as China. Unlike the United States, the Chinese government is dedicating significant resources and attention to AI development and creating a supportive policy environment to facilitate innovation and experimentation and proactively manage risk. However, numerous misconceptions and competing narratives around China’s innovation economy have made it difficult for U.S. policymakers to understand the AI ecosystem in China and its links to AI innovation in the United States. This report seeks to improve this understanding by examining China’s progress toward achieving its four strategic goals. We find that while China’s progress towards AI leadership remains uneven, its commitment to building domestic innovation capacity could allow the country to become a world-leading AI power in the coming decades. China’s progress in AI can complement and accelerate U.S. AI development, and policymakers should avoid responding to China’s advances with counterproductive policies that undermine the U.S. innovative capacity to little or no gain. Instead, the United States should focus on developing a positive agenda for driving its own AI development.

The public launch of the fifth report was held at CSIS on September 30, 2019. Click here for a complete video of the event.

The final report, Smart Money on Chinese Advances in AI, is available online. Click here or the report cover above to download the full report.

Learning the Superior Techniques of the Barbarians

Report No.4


While China has made immense investments in science and technology, and while these are producing results, it is still dependent on Western technology. This is particularly true for semiconductors. China’s dependence on foreign semiconductors has worried Beijing for decades. China suspects that Western semiconductors contain “backdoors,” intentional vulnerabilities that can be exploited for intelligence and military purposes. In 2016, President Xi Jinping said, “the fact that core technology is controlled by others is our greatest hidden danger.” Vice Premier Ma Kai said at the 2018 National People’s Congress, “We cannot be reliant on foreign chips.” China intends to end this dependence, but despite 40 years of investment and espionage, it is unable to make advanced semiconductors. Along the way, there have been embarrassing frauds and expensive failures.

The public launch of the fourth report was held at CSIS on February 28, 2019. Click here for a complete video of the event.

The final report, Learning the Superior Techniques of the Barbarians: China’s Pursuit of Semiconductor Independence, is available online. Click here or the report cover above to download the full report.

China’s Risky Drive into New-Energy Vehicles

Report No.3

China has made developing new-energy vehicles (NEV) a top priority. The hope is that NEVs will help the country transform from a follower to a technological leader in the automobile sector, reduce China’s dependence on imported oil, and improve the country’s overall air quality. To achieve these goals, China has employed an intensive, government-led effort to generate a steady supply of NEVs, batteries, and other key components, as well as promote consumer demand.

The results of these efforts are mixed. China has by far the world’s largest NEV market and boasts an eclectic mix of NEV makers. China’s battery makers have also improved the quality of their batteries. At the same time, the sector faces some immense challenges, such as insufficient domestic demand, lack of commercial profitability, potential overcapacity, inadequate product quality, and relocation, but not overall reduction, of pollution. The future of the Chinese NEV sector also depends on how some wild cards play out: efficacy of changes in government policy, development of quality and technology, availability of more commercially viable batteries, and progress of the mobility revolution are all key.

Given these developments, it would be a mistake to assume that just because China has a larger NEV sector currently than other global leaders in the sector, it is somehow leading a “race” that the United States must join to catch up or win. Unless the relative benefits of one kind of energy creation and storage technology become overwhelming, the United States should promote technology diversity and competition amongst the various options. In addition, promoting technology development will not result in technology deployment on a wide scale without additional incentives that generate both sustained supply and demand. Finally, given the size and significance of the Chinese market, the United States must hold China accountable to its existing commitments and promote greater commercial opportunities for US companies in their market. The health of the global auto industry is too important to allow it to be threatened by China’s potential market distortions.

The public launch of the third report was held at CSIS on February 21, 2018. Click here for a complete video of the event.

The final report, China’s Risky Drive into New-Energy Vehicles, is available online. Click here or the report cover above to download the full report.

Disruptors, Innovators, and Thieves: Assessing Innovation in China's Digital Economy

Report No.2

The Chinese leadership has made clear that the digital economy and information and communication technologies (ICT) now underpins the country’s economic development. Consensus is forming around two main points. The first is China’s internet companies are no longer mere “copycats” or clones of western companies. The second is that BATJ are making a strong push to expand to global markets. This report demonstrates that China’s internet companies are at once disruptive innovators, micro-innovators, and copycats. It also demonstrates that trends in China’s digital economy are increasingly shaping US and global companies, and vice versa. Lastly, this report reviews policy challenges to innovation in China.

The public launch of the second report was held at CSIS on January 8, 2018. Click here for a complete video of the event.

The final report, Disruptors, Innovators, and Thieves: Assessing Innovation in China's Digital Economy, is available online. Click here or the report cover above to download the full report.


The Fat Tech Dragon: Benchmarking China's Innovation Drive

Report No.1

The purpose of this report is to develop a baseline analysis of innovation in China by systematically examining national trends in China while placing the country in comparative perspective. The report presents data on innovation inputs, such as finance, as well as several types of innovation outputs, such as intellectual property and commercial performance. This study relies primarily on broad quantitative measures because they facilitate measuring trends over time and engaging in cross-national comparison. The numerical data are supplemented by interviews with business executives, industry analysts, investors, and government officials in the United States and in China.

Broadly speaking, whether one looks at China in isolation or puts the country in comparative perspective, China’s innovation performance has gradually improved over the last decade along a number of indicators, separating China from other major emerging economies. Yet China still has a substantial distance to travel before it approaches the level of innovation found in the world’s most advanced economies. Most importantly, the level of inputs China is mobilizing is not consistently and smoothly translating into successful technology innovation outputs. This low “metabolism” of inputs into successful high-tech advancement is why we characterize China as a “fat” high-tech dragon.

China is dedicating an unprecedented amount of funding to research and development (R&D). Old-school banks and new-school investment vehicles are all getting in on the action. No longer are funds just being tossed at large-scale white elephants. Commercial competitiveness is now a central part of the decision calculus. Although this is a definite improvement over the earlier financing system, China may have overcorrected. By avoiding spending on basic research and foundational technologies, income is being generated less as a result of novel technologies and more as a result of new applications or business models.

China’s embrace of intellectual property (IP) is highly positive when contrasted with the country’s original disdain for property rights of any sort and widespread violation of IP rights. However, the Chinese state is not entirely withdrawing, but is, in fact, strengthening its role in some regards. Moreover, China may now be a “large” IP country, but it is still a “weak” one. Whether one is discussing licensing and royalties, mergers and acquisitions, or dispute settlement, Chinese patents still have little commercial value.

China’s commercial success has outstripped its progress in technology innovation. Chinese companies are acquiring greater market share in high tech, particularly in the most commodified segments of sectors. The value-added contribution to manufacturing is growing in absolute terms, and domestic companies are contributing a growing share to China’s high-tech exports.

China’s high-tech drive may be characterized as “good-enough innovation.” From a negative perspective, China is investing a great deal of human capital and funding, but is still far from a leader in high tech. From a more positive perspective, China is achieving incremental progress by benefiting from its strong capacity in manufacturing, the accumulation and diffusion of tacit knowledge, and the opportunities provided by such a large market.

Regardless of the level of support they receive from their government, Chinese companies will face growing challenges in their interactions with multinational businesses and in overseas markets. Foreign governments and multinational businesses likewise need to decide how to strategically respond to China’s approach. They could take a firm stand in opposition, try to influence China’s approach at the margins, or go along with the strategy as best they can. In any case, if they are not careful, they could end up under the heavy foot of a fat tech dragon.

The public launch of the first report was held at CSIS on May 25, 2017. Click here for a complete video of the event.

The final report, The Fat Tech Dragon: Benchmarking China's Innovation Drive, is available online. Click here or the report cover above to download the full report.