SSU Forum “Current and Future of US-China Competitions over the Development of Critical Technologies: How Much Government-led Approaches Matter?”

On the morning of December 9, 2021, the Security Studies Unit (SSU) of The University of Tokyo Institute for Future Initiatives held a public webinar, inviting Dr. Jacqueline Deal (President and CEO of the Long Term Strategy Group), Dr. Jaehwan Lim (the School of International Politics, Economics and Communication, Aoyama Gakuin University) and Dr. Satoru Mori (Faculty of Law, Hosei University) as guest speakers. Dr. Ryo Sahashi of the Institute for Advanced Studies on Asia, The University of Tokyo served as the moderator. This symposium was organized as part of “US-China Competition and Securitization of Critical and Emerging Technologies: Evaluating Policy-making Process and Impacts on Globalized Economy” a project subsidized by the Ministry of Foreign Affairs.
The outline was as follows.

1. Keynote speeches

The symposium opened with keynote speeches from Dr. Jacqueline Deal and Dr. Jaehwan Lim on how the international community should perceive China’s “military-civil fusion” policy. The outline of the speeches was as follows.

Keynote speech 1: Dr. Jacqueline Deal, President and CEO of the Long Term Strategy Group

China’s military-civil fusion strategy is a very distinct concept, unfamiliar to the U.S. or Japan. The Chinese concept of military-civil fusion is based on the perspective of the Chinese Communist Party (CCP) which has long controlled China under a one-party rule; it is meant as an approach for the CCP to control the economy, society, military, and industry of China, further enhance the nation’s wealth and military power, and for different sectors to mutually strengthen each other. Neither the U.S. nor Japan conceive things in this way. In other words, the current situation between U.S.-Japan and China can be described as a competition between different national governance philosophies. Understanding military-civil fusion from the viewpoint of the CCP and the dynamic relation between different sectors in the background is important for the U.S. and Japan to cooperatively respond to China. In considering the competitive relationship, it is important that the U.S. and Japan go beyond the conventional alliance framework and bring the bilateral cooperation to a new level in light of the difference in the governance systems between U.S.-Japan and China.

When the issue is observed from the viewpoint of competition between different governance systems, it can be said that China is proposing an alternative option to the international community. China wants to make a point that if a nation wishes to increase its wealth and power, there is an alternative option, a better way to govern the nation than the Western world’s governance system. This is a new form of competition different from the kind we knew in the past. When we say competition and alternatives, it may seem there are two systems each with its own strengths, but that is not the case here. The two systems are in an asymmetric relation. Even if China can be the workshop of the world, it won’t last long unless it continues to create innovations of its own. If China loses access to cutting-edge technologies developed by Western developed countries, it will no longer be able to function as the workshop of the world.

This year, the Chinese government announced a medium-to-long-term plan on science and technology policy developed by the CCP based on discussions of policy makers convened by the Chinese Academy of Sciences. The plan sets out their policy to develop a self-sufficient system and home-grown technological innovations, setting a target of around 20 years to achieve that goal. Meanwhile, it also lays out how to strategically fill the gap areas China is lacking and how to earn and accumulate wealth as the workshop of the world. In the Western developed countries, do not fundamentally think in that manner. Western states have built national wealth by providing an innovative environment to facilitate growth of the private sector, rather than developing a medium-to-long-term plan for accumulating national wealth. Western governments usually do not build plans for the development of science and technology or industries at least not during normal times. The goals set by the Xi Jinping regime imply China’s aims to show the world that their home-grown innovations and the alternative model to the capitalist embodied by China are superior to the world’s China, however, has to rely on Western technologies in such areas as semiconductors as creation of its own innovation is yet difficult.

Dr. Deal emphasized that the current competition is asymmetric, and China is taking advantage of that asymmetry. While China is striving to enhance its competitiveness, their technologies are not yet as valuable at this point in time. China’s military-civil fusion policy involves the Ministry of Industry and Information Technology (MIIT), Innovation Committee, Central Commission for Military-Civil Fusion Development, and various other organizations related to science and technology development, both large and small and across military and industrial sectors. They are trying to concentrate military-civil fusion, technological development sections, the academia, and military-related technologies all in one field. People educated in the highest education institutions overseas are also being drawn into this initiative. These people educated overseas are utilized by the CCP because they have access to overseas research institutions. At the same time, the CCP is controlling external access to its standards and data. This access control plays an important role in terms of input to China. Against this background, China is trying to enable home-grown innovations through the efforts of Chinese human resources. A former prime minister of Japan participated in a Chinese human resource development program held in Australia. Japanese ventures and leading companies seemed to have funded this Chinese program, which implies that some Japanese companies are trying to obtain input from Chinese research findings in cutting-edge technologies such as chemical films. Amidst this situation, close cooperation between the U.S. and Japan beyond missile and other military sectors will become critical.

Considering Xi Jinping’s age, he seems to be in a rush to achieve something while still in power. This year represented an important memorial year for China, as the CCP celebrated its 100th anniversary this July. With technologies constantly changing, China is impatient to establish its superiority in science and technology as soon as possible. If it forces other nations to respect its new status of national power, it will surely invite resistance, leading to a vicious cycle. If the Western countries try to protect their technologies in awareness of China’s vision, China will feel further pressed to rush thereby resulting in an impact on other countries.

Dr. Deal concluded her keynote speech by emphasizing the following points. Now is a time when U.S.-Japan cooperation is more important than ever. Cooperation must go beyond just maintaining deterrent military force and avoiding instability in the region; it is important that we cooperate in countering China’s ambitious policies. China is trying to take advantage of the desires of foreign countries to access the Chinese market. In fact, China takes this as an opportunity to spread Chinese products to the global market. It is trying to prove that capitalism is inferior to socialism, which makes it clear that Japan and the U.S. will need to cooperate in areas where the two countries have not cooperated in the past.

Keynote speech 2: Professor Jaehwan Lim (Aoyama Gakuin University)

Dr. Lim raised and answered the following four questions on government-led competition over critical technologies. Question 1: What is the essence of U.S.-China competition over technology development? Question 2: While Chinese state capitalism is defined as mobilizing resources in a more innovative form, how has it actually evolved into the current form? Question 3: What specifically constitutes the military-civil fusion policy promoted by the Chinese government? Question 4: What plans have China developed for the future of its military-civil fusion policy and how far have they already been implemented?

Concerning Question 1, Dr. Lim pointed out that U.S.-China competition over technology is now taking on a new dimension, a competition between different state regimes or systems. The U.S. will also need to establish a self-sufficient ecosystem. How will the state be positioned in building the relationship between the state and the market? How the state will approach the market and redistribute the wealth gained will become important factors.

Concerning Question 2, Dr. Lim analyzed the changes in how resources are mobilized. Incentives of the Chinese government played a central role in the 1980s. Economic growth of individual enterprises was allowed, in other words, the private sector was freed from restrictions. This was indispensable for China’s economic growth. As China entered the 2000’s, there was a renewed recognition of the importance of the state sector. This meant that state-owned enterprises would play the leading roles in economic development and function as China Inc. The CCP carried out a systematization of the economic and trade sectors and this cooperation between the government and private sector created a new hybrid capitalism economy. Not only does the state own private enterprises but it also invests in private enterprises as the investor, thereby managing the entire economy. This process of how China established its state capitalism needs to be further verified and is worth discussing.

Concerning Question 3, Dr. Lim argued that Chinese state capitalism is an ambitious new form of capitalism with a particular focus on improving the capability of high-tech industries. Therefore, the military is not necessarily positioned as the main actor in China’s military-civil fusion policy. It aims to accelerate the flow of various resources including technologies, capital, knowledge, and human resources between the military and civil sectors to promote and evolve the existing fusion of the two to a new level. In this sense, the China’s military-civil fusion policy should be seen as an ambitious new type of industrial policy. The goal set by the Chinese government is to enhance the innovative capabilities of the high-tech and strategic industries.

Concerning Question 4, Dr. Lim stated that, as mentioned above, China’s military-civil fusion policy is an ambitious industrial policy. Their ambition, however, does not ensure that everything will be implemented exactly as planned. We need to verify how far their plans have been realized. There are two fields in which the policies are implemented. One is in the defense industry, where continuity can be seen from the previous regime to the Xi Jinping regime. The other is to break the closed and monopolistic structure built within each sector, particularly the breakdown of the national defense conglomerate. This is essential for removing the barriers between sectors and accelerating the intersectoral flow of resources but has not seen much progress to date. The current regime has succeeded the previous regime’s policy to advance the defense industry as a key sector in military-civil fusion. In fact, it continues to make further advancements in this area. In the regional sectors, a new financial scheme is being prepared to incentivize regional governments to utilize private funding for promoting regional industries. This plan, which has been attracting attention, is now being introduced. However, since the regional governments are skeptical about this new scheme, it will likely be managed by the CCP and state-owned enterprises.

It can be concluded that, in light of the current implementation status of the military-civil fusion policy, China is striving to enhance its innovative capabilities and introducing new adjustments to achieve this goal, but the costs for this initiative will be high. The defense industry may not go as far as resisting this change, but has an autonomous attitude in the first place, and some even say that the industry should be restricted from the outside. It is necessary to build a nationwide innovative system to build long-term innovation. The success of China’s ambition relies on whether China itself can build such a system, which needs to be assessed based on a wide range of aspects.

2. Panel discussion and Q&A session

　In response to the above keynote speeches given by Dr. Jacqueline Deal and Dr. Jaehwan Lim, Dr. Satoru Mori and Associate Professor Ryo Sahashi respectively shared their views, then moved on to a discussion among the panel. The outline of the discussion was as follows.

Discussant 1: Professor Satoru Mori (Hosei University)

Dr. Mori asked two questions to Dr. Deal. First, did she think China’s attempt to move away from dependence on foreign critical technologies will succeed? At present, China is still dependent on foreign countries in terms of critical technologies, but it is facing criticism from the international community on issues regarding the South China Sea, Hong Kong, and Xinjiang Uygur, which is only restricting their access to foreign critical technologies. Some say that China will succeed more and more in developing home-grown critical technologies. While this view may be true to a certain extent, is it be really possible for China to achieve breakthroughs on its own in all areas of critical technologies amid mounting protests from the Western world? Or will China eventually decide that it cannot achieve complete independence from foreign technologies and shift its diplomatic policies to a more moderate stance?

Secondly, Dr. Mori asked Dr. Deal how she thinks the U.S. and Japan can cooperate. While the number of enterprises taking part in China’s military-civil fusion initiative is still limited, more and more enterprises are expected to participate in the future. Then it would become difficult for Japanese and U.S. businesses and research institutions to tell which enterprises or organizations are involved in military-civil fusion and accordingly adjust how they cooperate with their Chinese counterparts. If that happens, we may need to step up our protection measures from making cooperation decisions based on the Chinese entity to restricting cooperation based on the sector or technological field. Dr. Mori also asked what Dr. Deal thinks about Japan and the U.S. taking concerted action in terms of cooperation with China in science and technology fields.

Finally, Dr. Mori asked Dr. Lim the following questions. China‘s military-civil fusion is not a new idea, but one that can be traced back to the Deng Xiaoping era. The idea used to be called “military-civil integration.” Some see the recent military-civil fusion as a sign that China is stepping up its efforts to reinvigorate the idea of military-civil integration. From this perspective, we may be able to say that, while their ambitions may also be a driver, China is pushing military-civil fusion out of dissatisfaction and concern for the insufficient outcome of the policy in the past. In short, China needs military-civil fusion because the barriers between military and civil sectors could not be eliminated. What are the barriers to military-civil fusion in the first place? Why is progress slow even under the state-led approach? Why is the policy not producing significant results when Xi Jinping himself is assuming leadership? If conversely, China was to make progress, what conditions would be necessary? Is it ultimately a matter of how powerful the leadership is, is it the political dynamics of the bureaucratic organization, or is a hostile security environment the key?

Discussant 2: Associate Professor Ryo Sahashi (The University of Tokyo)
Academic

Dr. Sahashi asked Dr. Deal the following questions. What is necessary to protect the academic ecosystem? The academic community is criticizing the government of excessively regulating academic research, thereby creating discrimination. What would be the optimum approach to protect the academic ecosystem? There are various international cooperation frameworks such as EU, G7, OECD, and the U.S.-Japan alliance. What are the roles of such international frameworks? How can we utilize them amid the Fourth Industrial Revolution?

Dr. Lim asked the following questions. Why can’t the Xi Jinping regime realize the military-civil fusion policy? What are the keys to building an effective and workable military-civil fusion system? How much time would it require? Would it be possible while Xi Jinping is in power, or would it take place under the next regime?

Dr. Jacqueline Deal (President and CEO of the Long Term Strategy Group)

With regard to whether the military-civil fusion policy will succeed or not, the balance becomes critical, from the perspectives of international relations and politics. When one state in a competitive relationship becomes aggressive, the other competing state would recognize that as a threat and try to counter the threat, in cooperation with other countries. One would try to maintain the status quo when the other state is poised to launch an attack on it. When the attack becomes too great, that will incite a reaction. To what extent will China succeed? How will it try to change its international obligations and the status quo? The current problem we are facing is that China is already starting to change the status quo before its competitors have brought their forces together to form a coordinated and cohesive counterbalancing power.

The counterbalancing forces have not yet been sufficiently gathered at present. Perhaps they will in the near future, since too much attack will only create backlash. Japan, the U.S., the EU, Australia, and other states will respectively make their policy decisions. However, even if we make efforts to build coordinated cooperation, China may succeed in breaking down the cooperative chain. Even if we build a cooperative relation out of the backlash against China, China may be able to break down the cooperation. Whatever the case, the effect will depend on the nature of the backlash to China’s actions. China’s military-civil fusion is like a small cosmos, where enterprises with ambitions in the field of national security despite claiming to be a private enterprise have emerged by driving telecom and 5G. Is this a success or a failure? Although we have succeeded in preventing a Chinese enterprise from designing everything about 5G, the situation would have been quite different if we had started earlier. The response by competitor companies in other countries seems to have been a little too late.
As to the question of which key technologies will be subject to protection, this will need to be determined through careful assessment. If we allow China to acquire critical technologies, it will likely try to run up to the top of the food chain right away and reach for further advanced technologies, leveraging market dominance and funding. Therefore, it is important that we keep the most sensitive areas under control.

The response by universities and research institutions is also an important issue. Academic researchers in the U.S. are more of an international public asset and should fundamentally not be subject to national security review. But on the other hand, China is sending students to study in Japan, the U.S., and Europe and encouraging them to return by providing incentives to return. This is another part of the China’s military-civil fusion policy. A face recognition system is used in Xinjiang Uygur utilizing technologies brought home by researchers who had returned from overseas. Companies and research institutions in liberal countries should be more sensitive about such technologies and need to scrutinize the background of students they accept. At the same time, we also need to provide them with more incentive to remain in liberal countries. Those related to the military usually study abroad solely on the condition that they will return to China, and therefore should be particularly scrutinized before being accepted.

Professor Jaehwan Lim (Aoyama Gakuin University)

Dr. Lim explained why reforming the national defense sector is difficult. This is a long-standing problem. State-owned enterprises have gained success in missiles-related business and thus have significant influence on the sector. There are also divisions within the national defense sector, making it quite difficult to reform national defense enterprises based solely on political intentions. National defense conglomerate enterprises have grown too large to dismantle. Against this background, reform of the defense sector is inevitable for China to become capable of creating home-grown innovations. Therein lies the dilemma.

Concerning mechanisms for coordinating policies surrounding military-civil fusion, a Coordination Committee has been established since the previous Hu Jintao regime. This committee functions to coordinate policies in the central government and develops funding and financial schemes as part of the efforts to build incentives for military-civil fusion. Dr. Lim said he is not being pessimistic, but he thinks China’s military-civil fusion will eventually develop to a certain level.

Dr. Jacqueline Deal (President and CEO of the Long Term Strategy Group)

　[In response to a question from the audience, asking how far the Chinese government has succeeded in attracting Western companies to China] Dr. Deal replied that they have been quite successful. Already in the 1990s, the model of western companies expanding to China was established due to China’s low-cost labor and high productivity. A U.S. IT giant expanded to China and is training a large number of people there. Their human resource development in China is producing far greater results than human resource development within the United States. China is not only physically bringing in Western companies but is also sending Chinese human resources abroad for training. They are mobilizing all kinds of methods including stealing data from Western companies using cyber means. Looking at the distribution of research and development spending of Chinese enterprises, more funding is allocated to the field of application than basic fields. this clearly implies that they are stealing technology through cyber means. It is no surprise that China has achieved a certain level of success, since they have been focused on fiercely catching up with the advanced Western companies without giving thought to the risks involved. It is clear that we must prevent this asymmetric situation from having a negative impact on the national security environment of Japan and the U.S.

NOTE: this outcome summary is translated from the Japanese original text (https://ifi.u-tokyo.ac.jp/event/11661/) . The responsibility for editing the text belongs to the SSU Secretariat.

The whole webinar movie is available here.