If China wants to wean itself off foreign technology, does it have the ability to do so?
That’s the question several people asked after reading my column last week on why China’s reaction to the NSA’s Prism surveillance program gives Microsoft reasons to worry. Here’s my answer – not in the short-term, but don’t underestimate the ability of the Chinese government to marshal its resources to achieve technological self-reliance in the long run.
TechinAsia’s Charlie Custer tackled this topic in a June 19 column titled “Spying or No, China is Stuck with American Technology.” Custer’s claim is simple – China is dependent on American technology and this reality is not likely to change anytime soon. American servers run many of the country’s networks, American software is dominant in the desktop computer realm, and American mobile operating systems have a near monopoly in China’s quickly growing smartphone and tablet market.
If we’re considering only the near future, say the next three to five years, I completely agree with Custer. American technology is simply too embedded in the Chinese tech realm to be quickly extricated.
Just how embedded is it? We can answer this question by looking at one of China’s fastest growing tech markets – smartphones. There are now more smartphones in China than anywhere else in the world and the number of people buying them is growing rapidly. Despite this fact, though, China has no relevant domestic smartphone operating system. Google’s Android dominates the market, Apple’s iOS has a chunk, and the use of Microsoft Windows Phone is growing faster in China than anywhere else in the world. Even Xiaomi’s popular devices — China’s homegrown competitor to iPhone — run on a modified Android platform. Several major Chinese companies are developing and attempting to popularize their mobile operating systems, most notably Alibaba, but the current status quo is not one which can be changed quickly.
So China isn’t going to kick its addiction for American tech anytime soon. In the long run, though, I wouldn’t underestimate the ability of the Chinese government to create conditions favorable for the development of domestic technology that breaks the country’s dependence on foreign products. Think about the impressive array of tools at its disposal:
The Chinese government has the funds to invest heavily in national programs aimed at developing new technologies. It can also create tax breaks and subsidies for private actors seeking the same end.
2) Preferential procurement policies
The Chinese government is a leviathan – it employs tens of millions of people and controls state-owned enterprises that employ tens of millions more. Needless to say, this makes it a powerful purchasing force. By tweaking government procurement policies to favor domestic producers, the government can nurture their development, providing them with a massive ready-made consumer market for their goods.
3) Recruiting talent
China has set up special initiatives, such as the Thousand Talents Program, to lure highly-skilled foreigners to the country. It is also benefiting from the increasing number of haigui (“sea turtles”), the Chinese term for citizens who seek educational and professional experience abroad and then return to China to work. Many of these citizens have attained advanced degrees from top universities and worked at leading tech companies before returning home.
4) Forced tech transfer
By creating market entry barriers, the government can require companies to turn over certain components of their design and product blueprints in exchange for access to the country’s many consumers. These components can then be used to foster the creation of domestic competitors.
5) Cyber espionage
The news has been replete with tales of “cyber enabled economic theft” in recent months. Just this week the New York Times published an article on Chinese hackers who target American universities. Many of these instances of attacks and espionage are aimed at procuring valuable intellectual property.
Put together, this array of tools is formidable. Each of these methods of inspiring innovation has also been employed before by the Chinese government, many under the auspices of the country’s “indigenous innovation” program — a key part of China’s plans to move away from manufacturing cheap goods and toward manufacturing more valuable products.
Will this sort of approach to innovation lead to quick success? No. Will it lead China to leapfrog the U.S. in terms of the maturation and innovative capacity of its tech industry? Not likely.
But keep in mind that there’s a difference between China breaking its dependence on foreign technology and China boasting the sort of companies that lead the field in their respective industries. Most of China’s tech users don’t need the most cutting edge technology to do what they want. An unidentified senior official at a Chinese software company told Sina Tech that current domestic software meets 90 percent of the needs of the vast majority of Chinese companies. Doing away with its dependence on foreign technology doesn’t mean matching American technological capabilities; it means producing tech products that can get the job done and convincing consumers of this fact.
Even if Chinese consumers balk at buying a product with more limited functionality than the foreign alternatives, there’s at least one major customer who is likely to select China’s homegrown tech – the government, which is, incidentally, a major purchaser of American technology.