Global Corporations and Economy
Security and Interdependence: How to Avoid Negative Spillover Effect of Sino-US Tech Competition?

The decoupling strategy driven by the “security” of the United States is still restricted by structural factors. There are still significant doubts as to how far it can last: since the end of the Cold War, China and the United States have been in high-tech relationship between various fields. The industrial chain formed by China and the United States in the high-tech field is beneficial to both China and the United States, writes Professor Shen Yi, Director of the International Institution of Cyberspace Governance at Fudan University.

Science and technology are the commanding heights of strategic competition among major powers. Since 2017, the Trump administration has insisted and accelerated the high-tech export control with “decoupling” as its core orientation. As the Sino-US trade friction has entered a relatively stable or even limited easing phase, the issue of chips is the iconic issue. The intensification of Sino-US competition in the high-tech field has become a key issue area that will influence and even dominate the future direction of Sino-US relations.

The US is worried that China will obtain high-tech technologies from developed countries in Europe and the United States through various methods, using what the US considers to be “unjustified,” and use them to enhance national capabilities represented primarily by military capabilities, so as to fight against them in the international system. The overall challenge to the dominant position of the United States is the main factor that drove the relationship between China and the United States in the high-tech field from “cooperation” to “competition.” What needs to be explained is that in this process, “cognitive factors”, that is, the subjective judgment of Washington’s decision-making elites on the relative strength of China and the United States, are the most important driving force that promotes US strategic changes and policy adjustments.

Looking back on the history of the exchanges between China and the United States since 1949, we can roughly divide the exchanges between China and the United States in the field of technology into three stages:

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The first stage, which lasted roughly from 1949 to before the formal establishment of diplomatic relations between China and the United States in 1979, was based on treating China as a major member of the Soviet camp during the Cold War, and the United States imposed strict technology export controls on China.

The second stage, roughly from the establishment of diplomatic relations between China and the United States in 1979 to the first term of the Obama administration, was marked by the disintegration of the Soviet Union in 1991 and the end of the Cold War. It can be subdivided into two stages, namely 1979-1989 and from 1989 to 2012. From 1979 to 1989, based on cooperation against the threat of the Soviet Union and the basic understanding of significant US advantages in the overall strength of China and the United States, the United States adopted a relatively loose technology export policy towards China. During his visit to the United States in January 1979, Deng Xiaoping signed the Sino-US Intergovernmental Science and Technology Cooperation Agreement with US President Carter, and more than 30 agreements plus more than 60 subsidiary agreements signed on the basis of this document were the main results of this stage.

From 1989 to 2012, the Sino-US intergovernmental cooperation in the high-tech field showed a relatively obvious regression. The US reinforced its technology export control to China, focusing on related technologies in the military field, as well as high-tech products with a significant dual-use nature. This control has also had a significant impact on the trade imbalance between China and the United States, accelerating the United States’ current account deficit with China. At the same time, during this period, with the acceleration of China’s reform and opening up process and after China’s accession to the World Trade Organization in 2001, the non-governmental exchanges between China and the United States showed a significant improvement. In the process of consuming Cold War dividends, American capital actively promoted the global layout of the manufacturing industry chain, and China and the United States gradually formed an industrial cooperation chain. Active interaction in the private sector also promoted cooperation at the government level. In October 2010, in accordance with the consensus reached in the Sino-US Strategic and Economic Dialogue, the two countries established the Sino-US Innovation Dialogue under the framework of the Sino-US Joint Committee on Science and Technology Cooperation to strengthen their scientific and technological relations.

The third stage started roughly in 2013 and continues to the present. Amid the rapid rise of China’s overall strength, the United States was trapped by the financial crisis and the negative effects of the wars in Afghanistan and Iraq, and the gap between the overall strength of the two countries grew faster than expected. The shrinkage has thus induced the systemic strategic anxiety of the US decision-makers about China. On the premise of minimizing US costs, implementing the necessary suppression of China’s high-tech development and comprehensively and systematically consolidating the strategic advantage of the United States has become the first choice for the United States. During this period, with the in-depth development of the information technology revolution, the competition between China and the United States in the high-tech field has further focused on the frontiers of communication and information technology such as chip manufacturing, artificial intelligence, big data, and quantum computing. There has been widespread use of export control and “entity list” methods to accurately suppress China’s leading companies in related fields and block the upward movement of Chinese companies in the global industrial chain. As long as the leading companies in related industries in the United States do not pay a huge price, it may delay China’s technological upgrading and become the first choice for the US.

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According to the existing practice, strengthening technology export control, cross-border data flow control, investment control, industrial chain adjustment, and talent flow control have become the main choice for the United States. On the whole, the core feature of the US control measures is “security.” In practice, it usually means the broad application of WTO “national security” provisions. A basic fact is that most, technologies and products in high-tech fields have, to varying degrees, typical “military and civilian use” characteristics. Based on this, the United States attempts to build a new paradigm of security management and control that basically encompasses all activities in high-tech fields by enlarging the description and interpretation of the national security threats posed by China. During the Trump administration, this meant not only the strengthening of CIFUS, the foreign investment security review mechanism under the US Treasury Department, but also the substantial strengthening of the relevant regulations of the original Export Administration Regulations of the Bureau of Industrial Security of the Ministry of Commerce. Among them, Section 744.21 concerning the export restrictions on military end-uses and end-users in China strengthens the identification of end-users. Any individual or entity that intends to participate in or support activities related to “end-military use” will be regarded as a military end-user. The final military use also goes beyond the original regulations to directly participate in military production, assembly, use, and research and development, and includes the production of specific items.

In terms of cross-border data flow, the US basically follows the principle of “presumption of guilt” and tries to minimize the flow of US-related data to Chinese companies, even if this flow mainly involves entertainment applications, such as TikTok, etc. The normal Sino-US talent exchange has also received a significant negative impact.

However, the decoupling strategy driven by the “security” of the United States is still restricted by structural factors. There are still significant doubts as to how far it can last: on the whole, since the end of the Cold War, China and the United States have been in high-tech relationship in a number of areas. It is, in general, the product of natural development based on the principles of market law following the comparative advantage of resources. In other words, the industrial chain formed by China and the United States in the high-tech field is beneficial to both China and the United States, and the benefits of the United States in particular are still dominant until today. In terms of perception, the US’s overall judgment on the China threat theory has so far not been supported by any substantive evidence. On the contrary, Chinese President Xi Jinping, Foreign Minister Wang Yi, and Chinese Ambassador to the United States Cui Tiankai have said on different occasions that China has no intention of impacting and challenging the United States in the sense of a major power strategic competition. In terms of short-term goals, the Trump administration’s basic policy concept, which is to put pressure on China through the high-tech sector to force high-tech manufacturing to bring jobs back to the United States, is essentially an impossible task, and it has been confirmed by statistics and basic facts from 2018 to 2020.

Objectively speaking, the existence of competitive relations between major powers is a normal state. But the problem lies in the need to avoid a competitive relationship that is dominated by false perceptions, and that produces negative spillover effects. Taking into account the objective size of China and the United States, if this negative spillover occurs, it will obviously cause the overall global business environment to face huge uncertainties and challenges. As the world continues to face the risk of an epidemic caused by the Covd-19 virus, and is facing the demand for global economic recovery and sustainable and stable development after the arduous epidemic, the United States should correct its excessive security anxiety as soon as possible to prompt China and the United States in various fields, including high-tech fields, return to the track of benign cooperation, so as to make more positive contributions to the stability and prosperity of the world.

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Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.