China’s Tech Challenge and Opportunity

Can China become a global power in technology? China’s ambitious effort to build its own tech sector is poised to achieve success. China wants to improve its tech industry: first to advance its economic development and increase innovation, and second to increase national security. China wants its own tech sector. Its efforts towards this goal will have a big impact on global economic growth and US-China relations.

China’s Disruptive Rise

China is structuring its markets to give its’ domestic champions space to grow. In recent weeks antitrust actions against Qualcomm and Microsoft have come to a head, Cisco and IBM have faced persistent market access challenges in China, and Apple’s iPhone has appeared on CCTV as a potential national security threat. Global tech companies fear they are losing access to one of the most important tech markets. Meanwhile, governments are trading cyber security recriminations. Yet, China can accelerate growth and innovation in the global tech sector too.

China Tech is Different

This is not just a “trade issue.” It is systemic. China’s efforts to support its own technology sector are engineered into the very sinews of its economy, spanning tax, subsidies, antitrust, procurement, standards, localization, and technology transfer. The government shapes the tech market in deep and granular ways. Further, China is leveraging access to its large domestic market; whereas, Japan and Korea have emphasized global export-led strategies and had more incentive to accept global rules. From an American perspective, earlier economic disputes with Japan and Korea were contained within more developed political relationships and institutions.

Big Consequences

The Chinese market is often the largest source of growth for global tech companies and is the largest market for PCs, mobile phones, and e-commerce. The tech supply chain has migrated to China, increasing interdependence. Huawei, ZTE, Lenovo, Xiaomi, Inspur, Baidu, Alibaba, and Tencent have grown into major companies. They drive growth in the Chinese economy and their entrance into global markets will transform the competitive landscape.

Increasing Commercial Conflicts

It is critical that the worlds’ top two economies resolve these trade related issues:

• China has launched anti-trust investigations against tech giants Qualcomm, Microsoft, and is becoming more assertive in global mergers, e.g. pending review of Applied Materials and Tokyo Electron.
• Cross border investments: China’s Lenovo purchased IBM’s server business and Motorola. Yet, it is not clear whether foreign companies can purchase or fully own Chinese tech companies.
• IBM, CSCO, Oracle, EMC, and others fear they’re being shut out of large parts of the Chinese market. Huawei and ZTE have reciprocal concerns.
• Intellectual property enforcement and mandated technology transfer.
• The planned investments and policies of the Chinese government in the semiconductor industry.
• Internet governance, such as differing perspectives on domain names.

There are no easy answers, but the world’s two largest economies need to find ways to manage these differences. The success of America and China in addressing these issues will make the world richer or poorer, and safer or more insecure.

Chinese Companies Succeeding Across the Tech Sector