How China Views It: Sino-American Technology Competition

Key Points

These two reports are based on research projects from the Hertog Foundation National Security & Sino-American Technology Competition fellowship, led by AEI Senior Fellow Dan Blumenthal.
The first report examines China’s strategic approach to technology competition and how the shortcomings of current US export control policies have allowed Chinese companies to exploit loopholes and other weaknesses in the system.
The second report identifies the theoretical roots of China’s systems confrontation doctrine and how the concept shapes the People’s Liberation Army’s views on the role of new technologies in warfare.

Introduction

In the fall of 2021, in partnership with the Hertog Foundation, I led a research fellowship called “National Security & Sino-American Technology Competition.” Fifteen emerging Asia strategists and technologists took part in a series of 18 evening seminars taught by top subject-matter experts on a wide range of topics, including artificial intelligence, cyberwarfare, semiconductors, biotechnology, and energy. I was fortunate to be able to draw on the expertise of my AEI colleagues—Mackenzie Eaglen, Sheena Chestnut Greitens, Kori Schake, and Derek Scissors—and leading researchers and practitioners, including Tarun Chhabra, senior director for technology and national security at the National Security Council; Lt. Gen. Jack Shanahan (ret.), former director of the Joint Artificial Intelligence Center; Michael Lauer, deputy director for extramural research at the National Institutes of Health; and James Mulvenon.

The fellows applied what they learned in the seminars to their own independent research project on US-China technology competition. The two reports that follow this foreword are from that exercise’s top papers and were presented at a policy salon dinner hosted by AEI. Some of the policy community’s top China and technology experts attended and took part in a lively and enriching discussion.

In the first report, Gregory Graff, a Department of Defense analyst, surveys US trade controls on dual-use technologies. Just a few years ago, this topic would have seemed overly technical and even unimportant. Now it is anything but. An analysis of US efforts to tighten export controls reveals much about China’s technology strategy. Even as China seeks to achieve self-reliance and encourage indigenous innovation, it is still highly dependent on technology transfers from the US.

To make this case, Graff cites a Peking University study on the implications for China of potential decoupling from the United States. The article on the study disappeared from circulation right after it was published, almost certainly because of its brutal honesty about China’s technological shortcomings. Graff writes:

Peking University’s Institute of International Strategic Studies concluded China would be at a greater disadvantage than the United States would from a mutual technology decoupling. . . . The article identifies that China lags in knowledge creation, financial investment, talent cultivation, some aspect of patents (though not total numbers), and overall dominance of international standards. Overall, its analysis views China as having made progress in some areas to catch up to the United States, but it says China continues to have obvious vulnerabilities and bottlenecks.

The article was clear-eyed about the US lead in most key measures of technological progress. Given its conclusions, it is little wonder that Chinese companies continue to seek technology from the US. But as Graff shows, US efforts to impede technology transfer are failing, with Chinese companies exploiting loopholes and other weaknesses in export controls.

Although both the US and China say they want decoupling, neither can bring itself to cut the relationship off—with the troubling result that Chinese military modernization is being driven, in part, by access to American technology. This dynamic is likely to persist, since the People’s Republic of China (PRC) will continue to seek technology from the United States.

The difficulty in even partial decoupling stems from the Sino-American technological relationship’s roots in Deng Xiaoping’s market-based economic reforms, which encouraged large-scale investment by multinationals in the Chinese economy. US technology policy was a pillar of the American grand strategy of engaging China. The US sought a strong partner against the Soviets during the Cold War and was mesmerized by Chinese success at economic development, hopeful that the introduction of markets into the Chinese economy would lead to political changes and strategic alignment. Undoing decades of this intensive commercial interaction and educational exchange is proving difficult.

One key takeaway from the Hertog fellowship is that the driving impetus behind US technology transfer to China was deliberate and purposeful. Much focus today is on US frustration with and concern about the growing challenge of China’s technological development, especially since China’s illicit programs of technology transfer are also so robust and effective. But it is worth remembering that the US decided to adjust its tech transfer policies only after decades of openness.

In any case, since Sino-American relations are highly competitive, with two strategic actors seeking to gain advantage, more scholarly and policy attention needs to be paid to China’s profound frustration about its continued dependencies on the US and its fears of being cut off from “core technologies.” Here is Xi Jinping on the topic:

Advanced technology is the sharp weapon of the modern state. An important reason that Western countries were able to hold sway over the world in modern times was that they held the advanced technology. You cannot buy the truly core technologies.¹

But despite such pronouncements and a determined strategy of self-reliance in core technology, the PRC is very much still buying those technologies from abroad. Take semiconductors: Nothing is more “core” than the integrated circuits that are the brains of all electronics, from personal computer CPUs to navigation systems for ballistic and cruise missiles. In 2021, microelectronics were China’s top import, even above oil²—and this is not for lack of trying to meet demand indigenously.

According to the Congressional Research Service, in June 2014, when the Chinese government published Guidelines to Promote National Integrated Circuit Industry Development, the PRC’s goal was to meet

70% of China’s semiconductor demand with domestic production by 2025. In 2019, China revised the goal upward, setting an objective of expanding its domestic production of semiconductors (including from foreign firms in China) to meet 80% of domestic demand by 2030, as part of its Made in China 2025 industrial strategy. . . . [But] IC Insights estimate that integrated circuits produced in China accounted for approximately 16% of China’s total market.³

For the foreseeable future, China will import semiconductors designed in the US and manufactured, in one of the most complex industrial processes in existence, in Taiwan and South Korea. China’s inputs into the process are further down the value chain. It is good at outsourced semiconductor assembly, packaging, and testing (OSAT), which is a lower value-added process. According to the Semiconductor Industry Association, China held 38 percent of the total OSAT market in 2020.⁴ To be sure, it is improving in complex manufacturing (fiercely competing with Taiwan Semiconductor Manufacturing Company) and artificial intelligence chip design (competing with American players). Still, China is far behind, and it will be an importer for some time to come.

As Graff’s report demonstrates, unless the US develops better export policies, harmonized with all major semiconductor players outside China, the US and its allies will continue to feed People’s Liberation Army (PLA) modernization. As Graff notes, with the advent of China’s Military-Civil Fusion program, which mobilized the civilian sector for military purposes, the sheer volume of Chinese companies working with the PLA is beyond the scope of the current US policy of listing “entities” of national security concern for special scrutiny in export license applications. There are simply too many such entities in China.

As Graff comprehensively covers the shortcomings of the US system meant to stem the tide of the PLA’s growth, Christian Curriden, a RAND Corporation defense analyst, provides a window into how the PLA views the role of new technologies in warfare. Curriden chronicles the PLA’s absorption and adaptation of a host of information technologies into what PLA leaders hope is a novel form of warfare.

However, Curriden shows that this supposedly novel concept, called “systems warfare,” has its roots in the American airpower theory tradition and the hopes of its advocates that strategic airpower could systemically paralyze an enemy, obviating the need for a protracted force-on-force clash. Ultimately, Curriden concludes that the PLA’s aspirations for systems warfare will likely fall short, as did those of American airpower enthusiasts. Nevertheless, Curriden finds that the ambition is clear:

The PLA has invested heavily in several new technologies that may prove just as decisive as military aviation, stealth, or precision-guided weapons. In particular, it hopes that the ability of artificial intelligence to gather and analyze large volumes of data may finally solve the long-standing problem of identifying and finding centers of gravity. Many of the PLA’s artificial intelligence–related purchases have been of systems meant to disrupt command systems and data links.

According to Curriden, PLA thinking about how new technology can help it cut off the US military’s head such that its body cannot function sound a lot like the

assertions of [Billy] Mitchell, [Hugh] Trenchard, [Col. John] Warden, and others in arguing that enemies can be characterized as a system of interconnected nodes, that such a system is dependent on a relatively small number of centers of gravity whose disruption can paralyze the whole, and that this disruption can be achieved with long-range effects, without the need for a Clausewitzian clash of armies.

Curriden’s report is of particular importance given how much PLA aspirations have driven China’s overall technology. Even during the high tide of Sino-American engagement after the Cold War, the Chinese Communist Party’s top leadership was increasingly appalled at how far ahead the US was technologically—and how that translated into military superiority. The PLA watched in fear as the US military dominated its opponents during the Iraq and Kosovo wars, with relatively little cost in blood or treasure. America had “won” the information revolution and leveraged its advantages into military power. The Gulf War was a window for Chinese leaders into a “frightening future where US high-technology weapons could be wielded against China’s outdated forces.”⁵ Unchecked global power combined with a technological edge made the US a formidable foe.

These insights informed Xi’s call to “catch up and surpass”⁶ the US and win what he sees as the next revolution in technological affairs:

A new technological and industrial revolution is brewing, a global revolution in military affairs is accelerating, and the pattern of international military competition is experiencing historic changes. The United States is the leader of the pack in this revolution in military affairs, and in many areas it holds the initiative, and it is also striving to gain new advantages in military technology.⁷

But Xi has also told his cadres that China has a chance to surpass the US in key aspects of what he sees as a new, fourth industrial revolution, driven by accelerations in computing power, artificial intelligence, and biotechnology.

As Xi argued in a 2018 speech, these technological changes could bring “earth-shaking changes” and an “important opportunity to promote leapfrog development,” allowing China to bypass legacy systems and overtake competitors.⁸ The question of whether we are indeed in a new technology revolution akin to the information revolutions is still open and debatable, but Xi believes we are and that China can “win” to the PLA’s benefit.

However, sober-minded US defense planners are less confident that these technological changes are actually changing the character of war. Another consistent theme of discussions during the Hertog fellowship was an appropriate techno-skepticism. For example, the US military is challenged by China because it has let all its capabilities to fight a peer competitor deteriorate. Possible technological lags are one element of this erosion.

The real problem is that the US does not have enough munitions, ships, bases, and intelligence, surveillance, and reconnaissance assets to stop the PLA from accomplishing its plans, and there is no technological fix for that. That requires adequate defense resourcing and diplomacy with allies to gain access to basing. These are decidedly low-tech endeavors.

Indeed, while technology competition is a key concern of policymakers in both countries, the ultimate geopolitical contest is unlikely to be decisively shaped by high-tech breakthroughs. Should the US decide to translate its still overwhelming economic wealth into diplomatic and military power in Asia, it is doubtful that China would succeed in its ambition of displacing the US as global leader.⁹ To be sure, China will continue to challenge the US across a range of important industries and technologies, many of which can be translated into military power.

But ultimately, any US strategy aiming to maintain its leading position in the world order must pose many different kinds of problems for China, and at the military level, it must create many different kinds of targets Beijing must destroy to prevail in a war. That requires more resources, from steel to concrete to artificial intelligence chips, thoughtfully deployed.

Read the full report.

Notes

1. Chris Buckley and Paul Mozur, “What Keeps Xi Jinping Awake at Night,” New York Times, May 11, 2018, https://www.nytimes.com/2018/05/11/world/asia/xi-jinping-china-national-security.html.

2. Wei Sheng, “China Spends More Importing Semiconductors Than Oil,” Technode, April 29, 2021, https://technode.com/2021/04/29/china-spends-more-importing-semiconductors-than-oil.

3. Karen M. Sutter, China’s New Semiconductor Policies: Issues for Congress, Congressional Research Service, April 20, 2021, https://www.everycrsreport.com/files/2021-04-20_R46767_2cd34407ee3ff126834038a7035fe41896fbe13b.pdf.

4. Semiconductor Industry Association, “Taking Stock of China’s Semiconductor Industry,” July 13, 2021, https://www.semiconductors.org.

5. Rush Doshi, The Long Game: China’s Grand Strategy to Displace American Order (New York: Oxford University Press, 2021), 73.

6. Julian Baird Gewirtz, “China’s Long March to Technological Supremacy,” Foreign Affairs, August 27, 2019, https://www.foreignaffairs.com/articles/china/2019-08-27/chinas-long-march-technological-supremacy.

7. Buckley and Mozur, “What Keeps Xi Jinping Awake at Night.”

8. Rush Doshi, “The United States, China, and the Contest for the Fourth Industrial Revolution,” testimony before the Subcommittee on Security, Committee on Commerce, Science, and Transportation, US Senate, July 30, 2020, https://www.commerce.senate.gov/services/files/6880BBA6-2AF0-4A43-8D32-6774E069B53E. Doshi references Xi Jinping’s speeches and writings. Qiushi, “Di Sici Gongyegeming shenmeyang? Xi Jinping Zheyang Miaohui Lantu,” [What Is the Fourth Industrial Revolution? Xi Jinping Described the Blueprint Like This!], July 27, 2018; and People’s Daily, “Xi Jinping Shunying Shidai Chaoliu, Shixian Gongtong Fazhan” [Xi Jinping: Follow the Trend of the Times and Achieve Common Development], July 26, 2018, http://cpc.people.com.cn/n1/2018/0726/c64094-30170246.html.

9. Contrary to conventional wisdom, the US may actually be pulling far ahead in actual national wealth, as the Federal Reserve counts it. National wealth is a better measure of a nation’s assets and resources than is gross domestic product, which measures the value of annual transactions. Derek Scissors, “Is the US Economy Pulling Away from China’s?,” AEIdeas, October 22, 2019, https://www.aei.org/foreign-and-defense-policy/is-the-us-economy-pulling-away-from-chinas.