Allen began with an anecdote about a conversation with the governor of one of China's poorest agricultural provinces. When asked about his economic priorities, the governor cited advanced technologies such as semiconductors and biotechnology, mirroring the sectors highlighted in the Made in China 2025 plan. This response underscored China's government's relentless focus on technological advancement across all levels of government, which Allen described as a "techno-utopian quest."

Allen traced the roots of China's techno-utopianism back over a century ago to the May 4th Movement, which called for a new culture based on science and democracy. He argued that this vision aligns perfectly with Marxist ideology and the Communist Party's current policies. "China’s leaders have long believed in the transformative power of technology," Allen noted, "a belief that is deeply embedded in their political and ideological fabric."

Allen emphasized that China is not just an "innovation sponge" but has also become a leader in its own right. "China’s definition of innovation is tailored to its needs," he said, "differing significantly from the Silicon Valley model." He outlined five key points about the new productive forces that may distinguish Shenzhen from Silicon Valley:

1. China recognizes that it is facing an acute labor shortage and is thus focusing on factory automation and efficient production in mature industries.
2. China wants to spur innovation and create new industries at almost any cost.
3. There is an overwhelming mandate for self-reliance and import substitution. 
4. There is plenty of government money.  
5. China plans to turn “data” into the “fifth factor of production”, behind – land, capital, labor, and entrepreneurship. 
    

China’s innovation is evident in its ambitious industrial policies, which are supported by substantial government funding and a strategic focus on self-reliance and import substitution.

Allen continued to discuss the implications of the U.S. export controls aimed at decoupling from China, highlighting the unintended consequences for American companies. He pointed out that unilateral export controls often harm U.S. firms more than their intended targets by reducing their customer base and long-term competitiveness. "We must recognize that these controls can backfire, hurting our own industries while China accelerates its push for technological independence," Allen warned.

Another critical issue raised by Allen was the regulation of data flows. China's Cyber Administration has introduced stringent controls over cross-border data transfers. "The regulatory environment is becoming increasingly complex," Allen explained, "making it challenging for companies to maintain operational connectivity and compliance across borders."

From a corporate perspective, Allen urged companies to recognize the political realities and prepare for potential conflicts that could disrupt international trade. Many American firms are already scenario planning for severe sanctions, similar to those imposed on Russia, to ensure business continuity. "Strategic foresight is essential," he advised, "as geopolitical tensions between the U.S. and China show no signs of abating."

Craig Allen's remarks were a reminder of the far-reaching implications of the competition for technology leadership between the U.S. and China. His insights underscored the need for a nuanced understanding of China's ambitions and the strategic adjustments required for American businesses to navigate this complex landscape. As the world witnesses unprecedented techno-economic competition, the stakes for both nations and the global economy could not be higher.

All views Craig Allen shared are his own and do not reflect the positions of the US-China Business Council.
 

Watch the Recorded Event   

Discover more from the inaugural SCCEI China Conference which brought together over 20 expert panelists from around the world and from across Stanford’s schools and disciplines, as well as experts and business leaders from Silicon Valley and the Bay Area to share insights on China's economic prospects. 
 

In July 2023, Professor Rozelle joined a group of ten academics from the US, including both professors and think tank professionals, and traveled to China where they met with 12 scholars from China. The group spent three days at Peking University in discussion and went on several site visits around Beijing (to the Foreign Ministry; Xinhua New Agency; American Chamber of Commerce in Beijing; the US Embassy) where they furthered dialogue on the current state of scholarly exchange and how to improve it.

There were several key takeaways from the meetings:

Scholarly exchange is still occurring but at a much lower level compared with 5 to 10 years ago. 
Scholarly exchange is suffering collateral damage from the deteriorating US-China relations.

Challenges to scholarly exchange exist within both countries.
Rozelle remarked, “when we [the 10 academics from the US] got together with our academic colleagues from China, we immediately bonded and opened up with a sense of camaraderie, we almost immediately knew we were facing the same challenges on both sides of the Pacific.”

Through discussion, Rozelle documented 15 different issues that are inhibiting research efforts within China, (such as increased privacy laws, shutting off access to public databases, putting strict limits on access to archives, and more,) and 10 things in the US hindering research (such as, not issuing visas to engineering/biomedicine/science Ph.D students and post-docs from China). 

The biggest issue both sides face is the perception that scholarly exchange may compromise national security.
A small fraction of scholarly exchange is related to national security issues, the other share of scholarly exchange is much more related to positive outcomes in research, technology, and national growth. A secular decline of scholarly exchange is going to have large negative impacts on growth, equity and happiness in both countries as well as around the world.

Leaders in both countries need to define what types of scholarly exchange concern national security.
What can be done to improve scholarly exchange? Both countries have stated that scholarly exchange is related to national security, which is what has led to the decline (and prohibition, in some cases,) of scholarly exchange.

The challenge is that there has been no definition or clarification given of what types of scholarly exchange are sensitive to this matter. As a result, lower-level bureaucrats both in the United States and in China have taken risk-averse approaches in implementing these efforts by making it difficult to do almost all research. The two groups of scholars almost unanimously agreed that what is urgently needed is for upper-level leaders in the two countries to officially define what specific topic areas are national security concerns, and which are not.

In early October 2023 the delegation from China will join the US delegation in Washington DC to continue the conversation and strategize on how to foster more scholarly exchange between the two nations.

Rozelle is currently working on producing a brief that will seek to demonstrate both the benefits of US-China scholarly exchange as well as the cost of the disruption. Once published, the brief will be part of the overall effort as well as being linked here.