SSU Forum “US-China conflict and changes in China’s industrial policy”

On October 3, the Security Studies Unit of the Institute for Future Initiatives at the University of Tokyo welcomed Senior Research Fellow Ding Ke (Institute of Developing Economies) to deliver a keynote lecture on the latest developments in China in terms of industrial policy in light of the US-China rivalry in the high-tech sector. Following the lecture, Ding Ke was joined by Mr. Junichi Sugawara (Owls Consulting Group) and Professor Seungjoo Lee (Chung-Ang University, Korea) for a discussion, after which questions were solicited from the audience. Associate Professor Ryo Sahashi moderated the forum.

Keynote Lecture
The keynote began with Senior Research Fellow Ding Ke explaining the history of how China experienced remarkable advances from 2010 in its industrial sophistication, emerging as the world’s premier manufacturing power, in terms of the data. He also pointed out the industrial policy that underpinned these developments, including large-scale subsidies, and that the goal of these policies was not so much to catch up to the rest of the world as to leap frog it. He then touched on the measures that have been adopted by both the U.S. and China in the context of the recent U.S.-China conflict. In particular, Ding covered Chinese measures to (1) independently develop advanced technologies and improve its innovation systems to pursue those ends, (2) implement advanced technologies in society, particularly in the manufacturing industry, and (3) promote the development of “new quality production capacity”. Regarding (1) in particular, Ding explained how inter-regional competition in China has led to intense competition among firms, and while the winning firms have experienced growth, this process has resulted in overproduction and serious local debt problems. Regarding (2), Ding explained how Chinese IoT systems have been implemented in society as part of Made in China 2025 and the Belt and Road Initiative. Regarding (3), Ding discussed the Chinese government’s emphasis on fostering emerging and future industries.
Ding then touched on issues on the horizon from the Chinese perspective, such as whether they can see prospects for cooperation amidst mounting competition, and the potential to involve the Global South in their initiatives. Finally, Ding stated that if China succeeds in developing its own core technologies and spreading its own ecosystems and solutions to the Global South, a “one world, two systems” scenario may emerge in terms of advanced technologies. If this were to transpire, both the U.S. and China could be freed from the anxieties and panics that have been born of the weaponization of interdependence, even if only partially.

Discussion and Q&A
In response to Ding’s lecture, Mr. Sugawara asked the following questions: 1) What is the difference between China’s industrial policy and that of Western countries; 2) Is overproduction in China a deliberate strategy by the regime and has it been successful; and 3) How should Japanese companies respond to these developments? In response to (1), Ding explained that both countries are alike in seeking to ensure economic security through a combination of “protection” (technology regulation), “promotion” (industrial policy), and “collaboration” (with like-minded countries). In terms of industrial policy, both the Biden administration and the Japanese government provided large subsidies for semiconductor R&D and manufacturing. Ding also explained his thoughts in response to (2), covering the structural causes of the overproduction and how global society in the form of things like the G7 have responded to this, and in response to (3), covering the issues facing businesses in light of U.S.-China divisions and how to address them.
Next, Professor Lee explained the factors that lay behind the spread of these industrial policies around the world (WTO dysfunction, limitations of FTAs, growing alarm over excessive globalization due to the financial crisis, geopolitical factors, etc.), and asked how China’s recent industrial policies differ from traditional industrial policies (pursuit of economic efficiency, whether they are sector-specific or industry-wide, the relationship with science and technology policies, contribution to solving social issues, etc.). This was followed by an explanation of South Korean industrial policy, touching on its relative passivity and the special characteristics of Korean domestic industrial policy.
In response, Senior Research Fellow Ding pointed out the similarities and differences between China’s industrial policies and those of Western countries. He explained that China’s overproduction is influenced by government policies to a limited extent, but that it is, in essence, largely down to the structure of inter-regional competition within the country. Ding explained that Western countries are expected to adopt high tariff policies in the future, but inward investment by Chinese companies may be welcomed. What this means for Japanese companies is, if they are operating in China, they should pursue activities that are fully completed in China under the “in China for China” philosophy, and if they are operating in third countries, competition with Chinese companies advancing into the same areas could provide healthy pressure, so should not necessarily be taken as a bad thing.
Questions were then taken from the floor, with audience members asking whether subsidies in China, including local subsidies, were sustainable, how subsidies now differ from those in the past, given that, 20 years ago, China provided subsidies for carbon fiber and other technologies without success, how seriously China is dealing with the problem of overproduction, and how the incoming US administration will affect Chinese industrial policy. Senior Research Fellow Ding stated that current subsidies in China will not be sustainable as long as the key source for those subsidies remains local government revenue from land sales, that subsidies for cumulative innovation, where innovation and technological change take a long time, may not succeed in China, that overproduction could continue to be an issue as long as the structure of inter-regional competition remains in place, and that the Trump Administration will likely adopt a high tariff policy, but may allow Chinese companies to invest in the U.S.

-This event was organized by subsidies from the Ministry of Foreign Affairs.
-The video is available in original language only.

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