China doubles down on innovation, self-reliance to counter US rivalry

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By Karishma Vaswani

 

China is moving to the next phase of its rivalry with the US and signalling a renewed focus on self-reliance. Whether in innovation, industry or advanced technology, President Xi Jinping is betting this approach will ensure Beijing’s resilience amid intensifying competition. 

 

This isn’t just about the economy. It’s also about security. Beijing and Washington agreed in October to a one-year pause in trade hostilities, but instability will define their relationship for years to come. 

 

While this isn’t a new strategy, Xi is doubling down in the face of the trade war and a slowing domestic economy. October’s export figures showed an unexpected slump, highlighting the challenges Beijing faces. The party’s Fourth Plenum last month offered some clues about the president’s priorities. Held once every five years, the gathering is made up of the Communist Party’s inner circle and together with Xi, they set the course for party affairs and ideology.   

 

In the communiqué, officials elevated science and technology as the pillars of the next five-year plan, to be finalized in March. These aren’t empty slogans. Beijing sees President Donald Trump as an agent of chaos and is preparing for a more turbulent global economy, note Neil Thomas and Lobsang Tsering in a new paper for the Asia Society Policy Institute. 

 

China is using American pressure as a catalyst to accelerate domestic innovation, by pumping money into its local firms. It’s focusing on sectors such as aerospace, artificial intelligence, and quantum computing, and reducing dependence on foreign suppliers. Beijing isn’t alone in pursuing a strategy of self-reliance. India has a similar, if less successful, policy to encourage domestic manufacturing and reduce dependence on imports, as does the US.

 

The world’s second-largest economy has pushed ahead with military-civil fusion, gathering the most advanced civilian research from around the globe and using it to modernise its defence forces. This allows China to develop dual-use technologies, so that breakthroughs in AI, chips or supercomputing flow directly to the military. Under Xi, the PLA has transformed into a sophisticated force capable of operating well beyond China’s borders. 

 

Still, this plan faces challenges — and not just from Washington. The Chinese leader’s sweeping anti-corruption campaign and purges have hollowed out the ranks of the party’s inner circle and the military. Only 168 of the 205 Central Committee members showed up at the plenum, the lowest attendance for the session since the Cultural Revolution, according to Bloomberg’s tally. 

 

There’s no sign Xi’s power is slipping. The CCP reaffirmed its call to “unite more closely around the Central Committee with Comrade Xi Jinping at its core,” reflecting the leader’s continued dominance. But his legitimacy lies in being able to deliver continued economic prosperity to his citizens, and Trump’s trade war is making that difficult.  

 

Today, the US holds the upper hand because it controls the advanced technology China needs. But that edge will fade if Beijing builds an ecosystem it can genuinely rely on. The world has already seen what happens when the Communist Party decides it wants to succeed in a specific industry. Over the past decade, state-led heavy investment has made China a leader in green industries such as solar panels, batteries and electric vehicles. It’s looking to repeat that playbook in semiconductors, advanced machinery, biotechnology and quantum computing.

 

The implications are profound. America’s technological leverage would wane and global supply chains could tilt further toward China’s orbit.

 

To avoid that outcome, the US and its allies must act now by investing in alternative supply chains and networks of allies. Pushing ahead with the Promoting Resilient Supply Chains Act, which passed the Senate unanimously in June but is now facing delays, would be wise. External pressure on Beijing is useful, but Washington must also shore up its own industrial base. 

 

American companies that want to do business in China should also expect heavier state intervention, tighter trade and investment conditions, and a widening of export controls. Yet this moment also presents an opportunity. China’s system may look formidable, but it’s not invincible. It is facing deep structural issues, from a property slump and local government debt to demographic decline. 

 

Preparing for the worst-case scenario is the best way to outwit an opponent. Xi is building a China that relies on itself. The US needs to be ready for that.   (Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)