China's Innovation Methodology

What Washington Can Learn From Beijing When It Comes to Technology Investing.

Many Americans have mocked China for decades as a nation of copycats incapable of creativity, let alone breakthrough invention. Fresh ideas were supposed to be naturally hostile to authoritarianism and central planning. Many in the United States believed that rapid technological advancement necessitated the kind of brave, "disruptive" thinking that belonged in a freewheeling, democratic society.

However, the narrative has evolved in recent years, and any confidence in US technological superiority has vanished. Business pieces justifying China's seeming incapacity to innovate have given way to op-eds warning that the country is on the verge of surpassing the US in vital technologies like artificial intelligence and 5G. Washington policymakers, who had previously been willing to leave technology to Silicon Valley, are suddenly scrambling to discover methods to strengthen American technological strengths and offset Chinese growth. Making good technology policy, however, necessitates a comprehensive knowledge of how both countries arrived at this point and what it means for the future.

Traditional arguments for China's ascent have largely focused on intellectual property theft. Although this has played a part in allowing Chinese manufacturers to mass-produce knockoffs of certain products, it is unduly simplistic to believe that intellectual property theft is the sole cause of China's rapid development. In fact, that misunderstanding leads American policymakers to believe that cutting off China's access to developing technology is all that is required to maintain the US technological lead. The roots of China's technological rise are more complicated, and formulating an effective U.S. policy response necessitates a solid understanding of emerging technologies as well as a degree of projective empathy—understanding how an ambitious Chinese bureaucrat is likely to view innovation and the range of tools available to encourage it.

INTERVENTION BY THE STATE

Any unique Chinese innovation is the result of hard-working technologists' creative thought. At the micro level, these innovative processes in China are extremely similar to those in other countries. However, understanding the efforts taken by the Chinese government to support the development of one of the world's most active innovation ecosystems is required to explain China's technological rise at a macro level.

From a Chinese perspective, innovation is not a delicate or mysterious process that can only be achieved by a select few, and it is certainly not something that should be protected from government interference. Instead, innovation is understood as a social and economic process that can be steered and accelerated with the correct combination of physical resources and bureaucratic willpower. Despite the fact that China's strategy runs against to Silicon Valley's deeply ingrained notions about the importance of free markets and free expression, it has resulted in more technological advancements and commercial success than most American experts anticipated. Three important steps were included in China's method.

The first step in that process, which occurred between 2000 and 2010, was for China to establish a big, semi-protected market. Fostering a young innovation ecosystem necessitated markets that were profitable enough to drive robust rivalry, but it also necessitated some protection to ensure that established Silicon Valley juggernauts did not rush in and steamroll local businesses before they could get off the ground. China attained this equilibrium by combining decades of rapid economic expansion with the establishment of the Great Firewall, which restricts access to major Western web platforms like Facebook and Google. The lure of conquering China's large domestic market drew massive capital investments from overseas and sparked fierce competition, but the Firewall also provided local startups a fighting chance against their foreign rivals.

Crucially, the Great Firewall was never completely impenetrable. The Firewall has always been somewhat porous, protecting the Chinese market from international competition but never completely isolating it from new ideas, for the better part of the last two decades. For years, Google, Facebook, and Twitter battled in China before being shut down. Consumer platforms that are less politically sensitive, such as Airbnb, Uber, Amazon, and LinkedIn, were never completely barred; instead, scrappy local entrepreneurs beat them out. Because of the Great Firewall's porous nature, Chinese entrepreneurs, engineers, and scientists were able to keep up with the latest technology trends and products without allowing them to dominate the Chinese market. Simultaneously, the sheer scale of China's market kept foreign IT companies on their toes while dealing with the Chinese government, in the hopes of one day gaining access to a billion new clients.

COLLABORATION BETWEEN THE UNITED STATES AND CHINA

Those connections were crucial to the process's second, and most contentious, step. China has maintained scientific and commercial relationships with top Western corporations, colleges, and labs, particularly those in the United States, for decades. Professors at American institutions have collaborated with Chinese counterparts on public AI research, and Chinese venture capitalists have invested in Silicon Valley startups, among other things. Critics see these ties as a conduit for intellectual property theft, as a way for Chinese spies to steal the "crown jewels of American ingenuity," as a 2018 Pentagon assessment put it. Although industrial and scientific espionage has been a big issue, the greatest influence of these transpacific links has come from learning rather than stealing. Exposure to world-class inventive processes provided China with the intellectual fuel it needed to kickstart its young digital ecosystem—ideas, best practices, and operating models.

Around 2008, Chinese engineers who had previously worked at Google began returning to China to start their own businesses, bringing with them part of Silicon Valley's culture. Researchers at Chinese universities began collaborating more with colleagues from other countries, exposing them to new ideas. Chinese tech firms researched their competitors in the United States and Europe, absorbing the most recent technological advances and adapting them to the Chinese context. The majority of these encounters were initiated from the ground up by technologists from both countries who wished to collaborate and learn from one another. However, the Chinese government took a significant role in the management of these relationships. It pushed for more academic collaboration and dangled the carrot of market access in front of American technology corporations to entice them to set up research centers in China.

China took the third stage after the market conditions and international links were in place, unleashing a flood of resources including investment funds, physical infrastructure, trained engineers, and bureaucratic energy. This investment appeared inefficient and even harmful from an American perspective, as it violated the sacrosanct rule that governments should never pick winners. However, on the ground in China, it proved to be a successful approach for expediting technological dissemination and commercialization.

For example, the Chinese government's 2017 artificial intelligence plan set a lofty target of making China the world's leading AI centre by 2030. But it had the most significant impact on the Chinese bureaucracy and private sector, resulting in a flurry of experimentation and activity. In their cities, mayors have constructed gleaming new AI startup incubators. A trial program for smart fertilizer drones was devised by agricultural experts. Medical AI research institutions were established in collaboration with public hospitals and universities. And police forces all around the country have spent a lot of money on surveillance equipment.

Many of these projects appeared to be embarrassingly wasteful when seen separately. For years, startup incubators in small towns lay empty. However, these sporadic government attempts aided an AI boom in the private sector, spurring even more venture capital and company formation. China, overtaking the United States, accounted for roughly half of all global funding for AI companies in 2018. These funding fueled AI adoption across the economy by allowing Chinese enterprises and scientists to experiment with novel products, services, and techniques.

China expedited its own development of crucial technologies by creating and safeguarding its markets while learning from global innovation ecosystems. That achievement wasn't entirely due to a flawlessly executed master plan. Instead, it was the result of ideological paranoia, meticulous preparation, a great deal of hard effort, and a little luck. China established the Great Firewall to defend its heavily restricted information environment, and it was only afterwards that the benefits of innovation became apparent. Despite China's ambiguous and even contradictory aims, the country's final results exceeded practically everyone's expectations.

AN OVERREACTION IN THE UNITED STATES OF AMERICA

Over the last four years, Washington has focused on severing China's technology ties with the United States. Some of these programs, such as targeted controls that have kept China from manufacturing cutting-edge semiconductors, have had significant strategic benefit. However, many of these attempts have been strategic miscalculations that have harmed American innovation and aided China's ascent. Misguided indictments of Chinese-born scientists at American colleges have sent shivers through the international scientific community, prompting some of its greatest minds to flee to China. Fundamentally, the period in which the US could halt China's rise by simply cutting it off has basically passed. If the US had severed technological links with China in 2005, global innovation would have slowed and the US' own capabilities would have been impeded, but China would have suffered more. China did not have a self-sustaining domestic technical ecosystem at the time, and bootstrapping one would have taken significantly longer.

Cutting bilateral connections haphazardly would likely be unproductive, as China already has most of the basic ingredients for technological success. Instead, the US should take specific steps to keep China's reliance on foreign technology while continuing to encourage and engage Chinese inventors. The biggest source of leverage for sustaining that dependence is semiconductors, notably the highly specialized manufacturing equipment made by only a few US allies. America's colleges are a great attraction for high-end researchers in China, but immigration reform in the United States is urgently needed to keep such people in the country after graduation.

Is there anything the US can learn from China in terms of boosting its own innovation ecosystem? Because the two countries' governments are so unlike, it is impossible to just duplicate the Chinese model. The courts have halted the Trump administration's attempt to restrict the Chinese applications WeChat and TikTok. On the other hand, mayors across the country are unlikely to create autonomous drone pilot programs on the federal government's orders. However, there is a more important lesson to be learned. If the United States is to maintain its competitive advantage over China, it must be willing to try novel means of rewarding technological growth, even if some projects squander money or fail completely. Innovation policy will grind to a standstill if every failing endeavor becomes a politicized bludgeon.

The proposal by Congress to create a "technology directorate" inside the National Science Foundation—a new organization charged with connecting academics, government, and business to speed commercial technology deployment—offers a promising start for this type of experimentation. The technology directorate's resources and scope have been hotly debated in Congress, and will be resolved in the months ahead as the House and Senate try to reconcile their opposing proposals. China's "flood the zone" approach to accelerating technological development is a long cry from the planned directorate. However, its existence indicates that the US government is realizing that it can no longer afford to support basic research and leave the rest to the marketplace.

There will be no single measure or creative strategy that will be sufficient to assure that the United States maintains its technological lead. If China's path teaches American policymakers anything, it's that fostering technical innovation can be a complex, complicated, and frequently conflicting process. Given the stakes of this rivalry, the US cannot afford to be paralyzed by its own messiness.

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