Subnational powerhouses or setbacks? The roles of Chinese local governments in U.S.-China technological competition

Abstract

In lieu of an abstract, here is a brief excerpt of the content: With the visits of four U.S. cabinet officials to China between June and December 2023, both China and the United States are actively seeking to stabilize their relations even as they recognize that this will not reduce technological competition, particularly in the development of critical technologies. The Biden administration has taken a prudent approach to imposing new restrictions, acknowledging their escalatory nature but adhering to a “small yard, high fence” strategy. The United States aims to safeguard its technological development and innovation edge through collaboration with its allies. Shortly following Treasury Secretary Janet Yellen’s visit to China in July, U.S. president Joe Biden issued an executive order that implemented restrictions on U.S. investments in China’s semiconductors, quantum information technologies, and artificial intelligence. Subsequently, following Commerce Secretary Gina Raimondo’s visit to China in early September, the U.S. government further fortified these restrictions. They specifically prohibited chip makers benefiting from U.S. grants from transferring technology, business knowledge, or other technological benefits to China. The U.S. Department of Commerce’s Entity List (its blacklist of firms under export control restrictions) now includes over six hundred Chinese entities, underscoring the increasing scrutiny and regulatory measures in place. In its competition with the United States, the Chinese government is adopting a whole-nation approach to expedite its development of state-of-the-art technologies, while at the same time also signaling its willingness to engage with the global market and Western technologies. In August 2023, China’s State Council issued guidelines to optimize the country’s foreign investment environment. China’s foreign spokesperson has consistently criticized U.S. export control measures, deeming them as the politicization and securitization of science and technology (S&T) in contravention of market principles. Nevertheless, despite these efforts, foreign direct investment in China has reached a historic low. As foreign capital and technology investment recede, how is China maneuvering to sustain its technological growth? One such way is through business support at the local level. This essay shifts the focus from the prevalent apprehension surrounding foreign investment to the roles that local governments play in supporting domestic innovation and technology development. Despite a global atmosphere of skepticism, the proactive measures by these local entities offer a contrasting perspective on China’s technological resilience. An examination of local policies and initiatives reveals how they are counteracting the downturn in foreign investment and sheds light on China’s capabilities and challenges in fostering indigenous innovation.