The Secret Tech Revolution in China threatens American Supremacy

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China was better recognized for its inexpensive labor than its advanced technical capabilities in 2007 when Apple began producing iPhones. The interior parts of the iPhone were imported from Germany, Japan, and the United States at the time since Chinese companies could not make practically any of them. The only labor-intensive part of China’s total contribution to the gadgets was putting these parts together at Foxconn’s factory in Shenzhen.

The situation significantly altered when the iPhone X was introduced in 2018. In addition to continuing to assemble most iPhones, Chinese manufacturers are responsible for making many intricate elements, like battery packs, charging modules, and acoustic components. These companies could make better items than their Asian and European rivals because they had mastered difficult technology. This tendency has only become more pronounced with the most recent iPhone generation. Currently, more than 25% of the value-added expenses of the gadget are attributed to Chinese I.T. companies.

While the iPhone is unique since it is one of the most complex pieces of hardware ever created and depends on a remarkable array of technology, its growing presence in China reflects a wider trend. Chinese companies now make the bulk of manufactured items using cutting-edge technology rather than just assembling components purchased elsewhere. China is now at the forefront of cutting-edge technology like artificial intelligence and quantum computing, in addition to dominating renewable energy equipment. These accomplishments cast doubt on the idea that science excellence automatically leads to business leadership. China has used its process knowledge to build up whole new industries to outcompete the United States in a growing number of critical technologies, despite its comparatively small contributions to ground-breaking research and scientific innovation.

The U.S. administration has worked to restrict Chinese access to essential Western technology and strengthen its heritage of scientific innovation in its rising competition with Beijing. As a result, the Biden administration placed extensive new limitations in 2022 on selling cutting-edge Western chip technology to Chinese companies while advancing American technology with the $280 billion CHIPS and Science Act. Together with the Inflation Reduction Act, that piece of law significantly contributes to the U.S. regaining some of its former dominance in the semiconductor and renewable energy industries. Yet, the consistently improving technical proficiency of Chinese businesses indicates that this strategy could neglect a more crucial problem: China’s ascent is not just the consequence of stealing from and imitating Western companies, nor has it relied on technological advancements. Advancements have significantly propelled China’s industrial capabilities, achievements made possible by the nation’s sizable and highly skilled manufacturing workforce. These advantages are already seen in China’s reaction to recent U.S. chip limitations. In the past, Chinese businesses preferred to steer clear of homegrown Chinese innovations in favor of purchasing the best, which was often American. Because Washington has made it impossible for them to do so, they are making more effort to develop a strong local chip sector.

The emergence of China as a significant technological force offers important lessons for the United States and its allies. Contrary to the West, China has built its technology industry on less spectacular tasks like enhancing industrial skills rather than dazzling research and cutting-edge science. Washington will need to concentrate on far more than ground-breaking research if it is serious about competing with China in the technology sector. In order to scale inventions and produce goods better and more effectively, it must also learn to use its labor the way China has. Manufacturing must be seen as an essential component of technological development rather than a simple afterthought to the more exciting activities of innovation and research and development if the United States is to restore its leadership position in developing technologies.

The widespread scepticism of China’s technological supremacy is understandable. For starters, the nation has produced few internationally renowned brands or multinational corporations. Unlike Japan and South Korea, China has not been able to create new consumer electronics categories like digital cameras or game consoles, nor has it been able to compete with Europe and the U.S. in the car and aviation industries. Instead, Chinese businesses have focused on producing goods that they can sell in poorer countries for less money. The relative scarcity of well-known Chinese companies has contributed to the Western perception of China as a production line rather than a center of creativity.

China continues to lag well behind the West in several important technologies. China’s chip industry has made several major advancements, such as creating sophisticated memory chips and mobile phone processors. Nevertheless, the Chinese companies behind TSMC, the Taiwanese company that is the world leader in sophisticated semiconductors, by at least five years in the production of logic chips, the processors found inside all digital gadgets. They need to be more capable of creating the specialized instruments needed to produce chips. Chinese companies heavily depend on imports from Japan, the U.S., and Europe for the crucial lithography machines needed to print patterns on silicon wafers and metrology equipment needed for quality control in a manufacturing process requiring hundreds of stages. Moreover, they have only begun the process of developing the software tools required to create the most cutting-edge processors.

In China’s aviation sector, a similar dynamic is present. Consider the Commercial Aircraft Company of China (COMAC), which is supported by an estimated $71 billion in public investment and is China’s response to Airbus and Boeing. It recently started to manufacture its first operating commercial airplane, fifteen years after its foundation. Chinese companies in the semiconductor and aviation sectors are painfully aware that the West continues to provide many of its essential components, including manufacturing tools and cutting-edge software tools for chip producers and the engine and avionics systems for COMAC planes, respectively. This dependence on Western technology makes new U.S. chip limitations potentially unstable for Chinese businesses.

China has acknowledged its shortcomings in scientific understanding even as it criticizes the West’s attitude to technological advancements. Science and technology will be one of the Chinese Communist Party’s main goals, according to Xi in his report to the 20th National Congress in October 2022. While it will take time for China to improve its research culture, it has been making significant advancements in fields like quantum communications and space exploration. China is particularly eager to boost local semiconductor research now that Huawei, a major Chinese telecommunications company, and SMIC, a Chinese chip manufacturer, have been refused access to American and European semiconductor technology. Washington’s new semiconductor limits have unintentionally increased Chinese spending in R & D and research.

The United States, in contrast, needs to acknowledge its lack of process understanding. Since both laws distribute significant amounts of government financing for innovative companies, the CHIPS Act and the Inflation Reduction Act that Congress passed in 2022 undoubtedly represent significant advancements in industrial policy. But, a disproportionate amount of American policy, including this law, is focused on expanding the boundaries of science rather than creating the process expertise and industrial ecosystems required to bring goods to market. As a result, Washington’s strategy for handling its escalating tech conflict with China runs the danger of repeating the errors it did in the solar sector, where U.S. experts laid the groundwork for a breakthrough technology only to have Chinese companies seize the lead in developing it. Consider the creation of electrolyzes, which are essential in generating green hydrogen and extracting hydrogen from water. China is positioned to dominate the green hydrogen market, just as it did with solar, by producing the most effective goods at a large scale.

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