China’s Liu He says foreign hostility spurring nation’s push for hi-tech independence

Frank Tang
·3-min read

Foreign efforts to contain Chinese technology development have invigorated the country’s determination to tackle weak links in the economy and accelerate the shift towards innovation driven growth, Chinese Vice-Premier Liu He has said.

Liu, the top economic adviser to President Xi Jinping and the lead negotiator in trade war talks with the United States, did not name a foreign power his address to Beijing’s Financial Street Forum on Wednesday, but attributed disruptions in Chinese supply chains to the coronavirus pandemic and “other factors”.

“Now, the bad things are turning into good ones,” he said. “China’s business and technology communities are working hard to improve their capacity for innovation, trying to solve bottlenecks and promote industrial upgrades.”

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Liu’s comments come amid escalating tension between China and the US, including the designation on Wednesday of six more Chinese media organisations as foreign agents.

Washington has placed dozens of Chinese companies on a blacklist that bars American businesses from trading with them without a special license, as the two countries clash over the origin of the coronavirus pandemic, Hong Kong, alleged human rights abuses in Xinjiang province and national security concerns.

Most notably, Huawei Technologies, a leading Chinese 5G telecommunication company and phone maker, was cut off from American semiconductors in mid-September.

In response, Beijing May rolled out its “dual circulation” economic strategy in May, which aims to boost production of core technology like semiconductors at home and reduce reliance on foreign sources. The strategy seeks to marshal the entire nation to meet the goals, a process previously used in developing the atomic bomb, missiles and the space programme.

Additional support for science and technology is likely to be outlined at next week’s Fifth Plenum, during which China’s Communist Party leaders will discuss the next five-year plan for the period 2021-25, as well as the government’s 2035 vision.

China will secure its place in global supply chains despite efforts to reverse globalisation and decouple the US and Chinese economies, Liu said.

At the same time, China will introduce more competition and raise standards in the financial sector, including in banking, insurance, securities and asset management, he said.

“Strengthening international cooperation is vital under the current situation,” Liu said.

Despite China’s relative technological weakness, Beijing is well positioned to improve its local industries given its successful containment of the pandemic and its accelerating economic recovery.

China’s gross domestic product grew 4.9 per cent in the third quarter compared to a year earlier, up from 3.2 per cent in the second quarter and contraction of 6.8 per cent in the first. The economy expanded 0.7 per cent between January and September and China is expected to be the only G20 country to record positive growth this year.

Liu, who is known to support supply-side structural reform, said China is shifting toward consumption-driven growth, but China must ensure it prevented wasteful construction, improved market concentration and strengthened the core competitiveness of market entities.

A rush of Chinese companies pivoting to semiconductor manufacturing, many of which have little or no experience in the sector, has stirred worry that resources will be wasted without supervision.

The National Development and Reform Commission, China’s top economic planning agency, said it would strengthen supervision of new entrants into its “chaotic” semiconductor industry.

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