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The China-US Geo-Tech Competition: State of Play 2022

Thursday, February 17, 2022

The ongoing China-US geo-technological competition is entering a phase where both countries will focus more attention on domestic priorities, including the digitalization of industry and digital technology industrialization. In this personal reflection on the state of play in the strategic rivalry, Chen Xi, president of the Institute of Smart City Planning and Design in Beijing, assesses the enormous challenges for the world’s two biggest economies as they focus on shoring up their global competitiveness.

The China-US Geo-Tech Competition: State of Play 2022

Virtual reality at a Shenzhen motor show, 2019:  China will be concentrating on the digitalization of industries and the building of urban infrastructure (Credit: Wang Sing / Shutterstock.com)

The main focus of the China-US geopolitical and technological (geo-tech) engagement is shifting from “fierce competition” to tending to domestic priorities. The reason: Both countries must cope with the impact of global challenges including the decline of economic growth, the continued spread of Covid-19, the slowdown in the development of advanced revolutionary technologies, the intensification of climate change, excessive wealth inequality and ensuing social turmoil. On the technology front, both countries are likely to see a wave of mergers of digital consumption-related applications, driven by shared interests, though they may continue to contend over trade, including in digital services. 

For its part, China will be concentrating on the digitalization of industries and the building of urban infrastructure. The growth of 5G and the expansion of optical fiber networks will drive digital transformation in communications, ultra-high voltage (UHV) transmission, smart new energy vehicles, shipbuilding and aeronautics, greatly boosting the efficiency of manufacturing and thus maintaining China’s global competitive advantages. The construction of smart city facilities that integrate considerations for public health, safety and emergency services, social equity and carbon neutrality will significantly improve the quality of life and governance and provide markets for numerous related tech applications.    

Biden builds: The US is focusing on improving its competitiveness with China by renewing aging infrastructure and constructing new facilities including communications and transport systems (Credit: @POTUS on Twitter)

Biden builds: The US is focusing on improving its competitiveness with China by renewing aging infrastructure and constructing new facilities including communications and transport systems (Credit: @POTUS on Twitter)

The United States, meanwhile, will be aiming to promote further digital technology industrialization and tech-supported reindustrialization. The country is the leader in artificial intelligence, human-machine interaction (HMI), virtual reality, brain science and satellite internet, among other technologies. These fields underpin the global digital services consumption market. Meanwhile, the US is also focusing on its economic competitiveness, aiming to renew aging infrastructure such as roads and bridges, build new facilities including communications and transport systems particularly rail, and invest in climate change mitigation. Besides, funding for public-private investment is likely to come from overseas capital, attracted by interest rates that are expected to rise this year as the Federal Reserve Bank seeks to tame inflation. These initiatives will create jobs at a time when US employment numbers have surged sharply with the easing of the pandemic, driving jobless claims to their lowest level in over five decades.  

In November 2021, President Joe Biden signed into law the US$1.2 trillion infrastructure bill, which passed through Congress with bipartisan support. Making their way through the legislature are two versions of the America Competes Act, which is largely inspired by the perceived need for the US to invest more in key sectors and use government measures to compete better against China. The America Competes Act drafts also include provisions for coordinating action to compete against China with US allies and partners such as Canada and Japan. 

But focusing on their domestic priorities does not mean that both China and the US will be either distracted from the global playing field or pursuing the decoupling game that marked the years of the previous US administration. On the contrary, expect capital, especially from the US, to take advantage of the strong dollar, rising interest rates and the devaluation of other currencies to pursue merger-and-acquisition deals. Chinese and American technology and financial giants including Microsoft, Facebook, Blackstone, Alibaba, Tencent and Ping An will lead a wave of mergers and acquisitions of global digital consumption applications that will be used in smartphones, home appliances and smart new energy vehicles. Microsoft’s takeover of gaming and entertainment company Activision Blizzard, announced on January 18, 2022, could be a harbinger of what is to come. Market demand for edge computing, cloud computing and virtual reality will continue to grow, accelerating the expansion of entertainment and virtualization products and services. 

Mergers and acquisitions in each other’s backyard, however, will likely face obstacles due to the continued China-US geo-tech competition. The Committee on Foreign Investment in the United States (CFIUS) will block Chinese investment, and the entity list maintained by the Bureau of Industry and Security (BIS) in the US Department of Commerce will only get longer.

Still coupled after all these years: In Jiujiang, China, robots produce glass fibers for export to the US (Credit: humphery / Shutterstock.com)

Still coupled after all these years: In Jiujiang, China, robots produce glass fibers for export to the US (Credit: humphery / Shutterstock.com)

China is responding counterintuitively – unilaterally pursuing market-opening measures. Take the policy published on January 26, 2022, that outlined plans to relax market access to the electronic components and integrated circuits, data factor transactions and cross-border data services, 5G and the Internet of Things (IoT), finance, medical treatment, culture, transportation and other sectors in Shenzhen. Part of efforts to promote the Guangdong-Hong Kong-Macau Greater Bay Area (GBA), this plan will deepen domestic reform and provide investment opportunities and economic benefits to the region, Southeast Asia and other neighboring economies. 

On the security side, using vehicles and mechanisms such as the AUKUS partnership (including Australia, the UK and the US) and the Quadrilateral Strategic Dialogue (Australia, India, Japan and the US), Washington can be expected to continue to hatch plans to hinder Chinese efforts to develop global value chains. These efforts to impede China’s digital trade globalization will also target flows of talent, capital, commodities and data by setting high standards for commodities and digital trading agreements.

Such calls may not be so effective. Some Asian economies have reckoned that digital trade agreements are incomplete without China. Beijing is in negotiations to join the Digital Economy Partnership Agreement (DEPA), which was launched in June 2020 by Singapore, Chile and New Zealand and will facilitate seamless end-to-end digital trade, enable trusted data flows, and build trust in digital systems. 

Indeed, China’s stressed relations with other countries could also ease as these governments, too, focus on domestic challenges during the post-pandemic period. For commercial reasons, they will want to improve ties with China. Friction will probably persist when it comes to global digital trade and standards. And to be sure, economies that are close to the US such as Australia, Canada and Japan will continue to worry about the geopolitical and geo-economic consequences of China’s rise. But over the long term – perhaps a decade – the benefits of their interaction with the Chinese economy will become clearer and tensions could be significantly reduced.

Beyond the need to manage its geo-tech relationship with the US, there is no downplaying the enormous challenges that confront China in the technology space and digitalization. Its micro, small and medium-sized enterprises (MSMEs) remain hampered by weak innovation systems. Although the capital markets have offered opportunities, the fundamental drivers of innovation are still insufficient, especially when ranged against the major state-owned and private platforms.

The energy and drive for furthering the digital revolution may come from cities such as Beijing, Shanghai, Shenzhen and Hong Kong. They need to promote cross-border collaboration in smart-city policy planning, construction and evaluation systems. These metropolises can work together to create data-based infrastructure and governance systems that will underpin China’s net zero carbon ambitions and efforts to achieve the Sustainable Development Goals by 2030. They can also drive digitalization initiatives that will address inequality between sectors, regions and people – and transform China into a modern, prosperous and sustainable economy. 


This article represents the author’s personal opinions and does not reflect the positions of any of the institutions with which he is connected.

Opinions expressed in articles published by AsiaGlobal Online reflect only those of the authors and do not necessarily represent the views of AsiaGlobal Online or the Asia Global Institute

Author

Chen Xi

Chen Xi

Institute of Smart City Planning and Design of Beijing Municipality

Chen Xi is president of Institute of Smart City Planning and Design of the Municipality of Beijing, a new agency charged with smart-city policy planning and reviews. An expert on geo-tech competition, global smart-city planning and policy making as well as ICT corporation strategy, he also serves as senior external advisor to the China Academy of Information and Communication Technology, an adjunct associate professor at Xi’an Jiaotong University, and an academic committee member at the Institute for Global Cooperation and Understanding of Peking University. Chen Xi was a visiting senior fellow at the S Rajaratnam School of International Studies (RSIS) at Nanyang Technological University (NTU) in Singapore. He served as president of the Institute of Smart City Research at the ZTE Corporation and an advisor to the ZTE strategy committee. He played a leading role in designing smart-city projects in Beijing Sub-Center, Nanjing, Shenzhen, Gwadar (Pakistan), and Frankfurt. Sponsored by the China Scholarship Council, he completed his PhD under a joint program between Dalian University of Technology and Cornell University. 


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