China needs 'groundbreaking' policy changes to embrace disruptive technologies

China needs to adjust its industrial policymaking to brace for possible revolutionary changes to its economy by disruptive technologies, analysts said.

From artificial intelligence (AI) to quantum computing, and from room-temperature superconductivity to controllable nuclear fusion, disruptive technologies are set to significantly alter the way that consumers, industries and businesses operate.

China's economic miracle over the past four decades has been based on carefully crafted industrial policies and imported technologies to realise economies of scale and reduce production costs.

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This model has been adopted by other economies in East Asia during their development in the second half of 20th century.

"As frontier technologies, no one knows what technology truly has promising prospects, which could ultimately be screened out by the market through competition," Huang Shaoqing, a professor of economics at the Antai College of Economics and Management at Shanghai Jiao Tong University, said in a report.

"Therefore, in the early development stage of disruptive technologies, economies of scale are not important and even dangerous."

Huang said in the report published by the English-language Asian Review of Political Economy in October 2022 that the selective industrial policy regime, which led to China's economic success in the past, "may even lead to failure and become a trap in the future".

"How to achieve a shift from the selective industrial policy paradigm to the functional policy paradigm has become critical and urgent," he wrote in the report, which had earlier been published in Mandarin by the Journal of Comparative Studies in February 2022.

The urgency has become more prominent for Beijing, which views innovation and technological advancement as key to countering the heightened containment efforts by the United States, and also crucial for its ambition to become an economic and tech superpower by the middle of the century.

Peng Peng, executive chairman of the Guangdong Society of Reform, said China needs to plan areas where matured technologies can be applied, including sectors influenced by US export bans, and that involve more markets.

"China needs to make groundbreaking changes to its industrial policymaking, otherwise, it will never be a global technological and economic leader," Peng said.

"Decision makers need to listen more to private companies, give them enough funding for industrial research, and place them at the front role of disruptive industrial exploration."

But as it is impossible to determine in advance which technology would prevail, a country can gain an advantage only if it develops enough small and medium-sized enterprises (SMEs) to offer sufficient diversified technological routes, Huang added.

"Only by promoting innovation and entrepreneurship, relaxing market access, improving the business environment, and allowing as many as SMEs as possible to grow rapidly can these SMEs play an important role in economic development driven by innovation," he said.

In 2016 when mapping out a national scientific and technology plan, Beijing vowed to improve tracking revolutionary industrial development to be capable of prejudging "the turning point" of possible replacements for traditional industries.

At the time it added that it would make a timely plan for research into disruptive technologies, such as AI, quantum information, genome editing, unmanned driving, hydrogen power and nanotechnology.

Li Yangwei, a technical consultant in the computing sector in Shenzhen, said disruptive technologies may lead to bigger tech and economic gaps among regions within China, but when there are more participants, the cost of any potential failures can be lowered.

He also said small market players can offer advice to the central government about industrial policies, but amid hefty external pressure and geopolitical complications, Beijing may still allocate resources to big companies or state-owned enterprises.

"It also requires technocrats to be socially, economically and politically insightful, as well as having strong communication skills and being given central decision-making power," Li said.

China's basic research accounted for more than 6 per cent of its total research and development (R&D) expenditure in the last four years, lower than the 16 to 18 per cent in the US and 22 per cent in France over the last 10 years.

Basic research from enterprises only accounted for 0.78 per cent of China's overall R&D expenditure, behind over 6 per cent in developed countries, according to a report in February by the Science and Technology Daily, a newspaper backed by the Ministry of Science and Technology.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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