chip Photo:VCG

As China takes action to improve a new system to mobilize national resources to achieve breakthroughs in core technologies, mostly chip development, software and industrial materials, experts said the country is sending a clear message as to how it is preparing to cope with the intensifying crackdown from the US and its allies as they attempt to choke China's chip and other high-tech industries.  

While presiding over the 27th meeting of the Central Commission for Comprehensively Deepening Reform, Chinese President Xi Jinping said the country should leverage the marked advantages of socialism which has the ability to mobilize resources to accomplish major initiatives, strengthen the leadership of the Communist Party of China and the government on major scientific and technological innovation, and give full play to the role of the market, a Xinhua News Agency report noted on Wednesday. 

China should optimize the allocation of innovation resources based on the country's strategic needs, strengthen the country's strategic scientific and technological strength, greatly improve the systematic ability to tackle key scientific and technological problems, cultivate competitive advantages and seize the strategic initiative in a number of important areas, Xi said.

At the meeting, the commission reviewed and adopted the guideline on improving a new system to mobilize resources from all over the country to achieve breakthroughs in core technologies in key fields under the socialist market economy.

China is counting on its institutional advantages to speed up breaking through blockages in upstream technologies at a time when the US and its allies are toughening measures to isolate China from global high-tech supply chains, especially semiconductor products. 

"As the US is pushing its allies to decouple from China's supply chains, China's window to solve technological bottlenecks is becoming narrower. If we only count on the market mechanism to fuel technological innovation, it will not be enough at the current stage," Hu Qimu, chief research fellow at the Sinosteel Economic Research Institute, told the Global Times on Wednesday. 

China used state system resources to break through technological bottlenecks in aerospace and other strategic sectors, but it left the majority of civil industries, including chips, to market forces, said experts. 

Chip technology breakthroughs 

Recent US moves indicate the Biden administration wants to speed up its crackdown on China's chip industry. These include passing the CHIPS Act in early August that lures companies to set up chip factories in the US instead of in China, as well as forming "Chip 4," a so-called chip alliance in Asia, a prelude to talking Japanese and South Korean chip-making giants into shrinking or even canceling business partnerships with China.

On Tuesday, the US Department of Commerce released its strategy outlining how it will implement the $50 billion from the recently signed CHIPS Act. Guidance for companies to apply for supportive funds will be released next February. 

The US is also expected to host an Indo-Pacific Economic Framework for Prosperity (IPEF) Ministerial, in Los Angeles, California from Thursday to Friday. The initiative is widely seen as countering China's influence in the Asia-Pacific region, 

With such methods launched, the US intends to exclude China's supply chains and nurture new markets, something experts said is not a hundred percent infeasible as the US has a firm grip on many chip making technologies.

As a result, China could no longer count solely on market mechanisms for breakthroughs in chip technologies, as it takes a relatively long time for the market to complete allocation of research and development (R&D) resources, they noted.

"Sometimes it takes three to five years for two companies to strike a deal in technological cooperation. This is too long considering the pressing external pressure China is facing," Hu said.

It is very difficult to make breakthroughs in some technologies with assistance of only market forces, said Fu Liang, an independent tech analyst, citing the example of the lithography machine, the critical machine for mass production of chips. According to Fu, small firms in China have no capital, research competence or risk control abilities to make breakthroughs in lithography machine technologies. Only when the government mobilizes the whole industrial chain can such technology be verified.

"A national system allows China to channel capital and resources to critical technologies in a top-down manner. By using it, China would enhance the efficiency [of research] and speed up breakthroughs in core technologies," he told the Global Times on Wednesday. 

On the other hand, experts stressed that market mechanisms have some disadvantages. For one thing, private investors often prioritize profits instead of technological results. Thus some people might make use of chip research as a way of collecting windfalls.

According to analysts, using a system to mobilize national resources does not mean excluding market mechanisms. In fact, China would use the two systems flexibly in a mixed way, instead of rigid adherence to one or the other.

"China could count on the functions of the state system more in terms of technological breakthroughs, but let the market decide in chip manufacturing and other links," Hu said. 

Inclusive system 

Although China has adopted similar state-led systems in scientific industries in the past, experts said the new system should be much more inclusive. 

Tian Yun, an independent macroeconomist, said that in the era of the planned economy, a national system often meant nationalization of the private economy. But today's state system means coexistence and cooperation between multiple entities including state-owned companies, the private economy and even foreign companies.

"For example, China might incorporate global talents, like overseas experts and Chinese citizens residing abroad into the new national innovation system to jointly contribute to China's technological industries," Tian told the Global Times on Wednesday. 

In terms of capital, sources of social investment, like donation funds and company investment, could be introduced to supplement government fiscal support, Tian said.

Hu also said that China should introduce a capital market incentive mechanism into technological fields, such as conducting mixed-ownership reforms of R&D institutions and allowing staff to become shareholders in their companies.

Besides, the government could launch a mixture of favorable policies to stimulate R&D, including setting up industrial parks, launching preferential tax policies and issuing industrial funds to encourage certain industries' development, he noted. 

According to experts, in the first step, China should focus resources on making technological breakthroughs in areas like chips, core software, industrial materials and important equipment.