“A slew of policy arrangements will be made after the [third] plenum to nurture new productive forces, attract talents, support research and development and boost the commercialisation of the fruit of innovation,” said Zhao Xijun, an economist with Renmin University in Beijing.
“The deployment will be crucial to China’s transformation to an innovation-driven economy facing an increasingly complex international environment.”
The division is tasked with introducing and setting standards for smart manufacturing, next-generation telecoms, and future space, energy, material and healthcare technologies. It also aims to take the lead in emerging technologies such as quantum computing in the tech race with the US.
But the focus on innovation – while sharper than ever – is not new. Innovation has been a buzzword in China’s political discourse since Xi took office as party general secretary in late 2012, with a call for industrial upgrades to power the world’s manufacturing hub.
However, the quest has taken on added urgency as the US leads a drive to hobble China’s hi-tech access, citing what Washington calls Beijing’s civil-military fusion in seeking to make its military a “world-class” force by 2049, the centenary of the People’s Republic of China.
Beijing has vowed to fix “chokepoints” caused by US export and investment curbs on hi-tech products such as semiconductors and chip-making equipment – crucial for the development of artificial intelligence. It also aims to lead in “new racetracks” of technologies in Industry 4.0, the next phase of the industrial revolution driven by advanced manufacturing, robotics, big data and AI.
Observers widely expect the third plenum to double down on a “whole-nation system” – mobilising all resources to achieve specific goals and rely heavily on the state sector to realise them. But they have mixed views on the possible outcomes.
While the IT and other ministries rise to Xi’s call for a “new development philosophy” propelled by future industries, the party is also leading from the front.
The reforms aimed to “unify leadership” to “advance the establishment of the national innovation system and technology structural reforms”, the party and the central government said in releasing the details.
The commission coordinates an array of party organs and government departments, apart from the technology ministry and its R&D role in universities and research institutions. These include the military; planning body the National Development and Reform Commission, which connects companies with innovation projects; and the industry and IT ministry.
02:12
Inside a Chinese factory that makes humanoid robots with enhanced facial movements
Inside a Chinese factory that makes humanoid robots with enhanced facial movements
Little has been revealed to the public about the actions taken by the commission. Nonetheless, it is expected to play a bigger role after the plenum in identifying R&D direction and resource allocation, while continuing to maintain a low profile.
“The commission is the top body to take stock of China’s tech resources, to decide on the key R&D directions that are most critical to China, to coordinate the military and civilian technology development balances,” said Xie Maosong, a senior researcher at the National Institute of Strategic Studies, Tsinghua University.
“All this is highly sensitive information,” Xie said. “China is keeping a low profile because it wants to avoid unwanted attention. If China makes its science and tech development agenda clear, it will be very easy for the US to set up more targeted obstacles to undermine China’s goals.”
With the commission at the helm, China’s R&D will be more “policy-driven”, according to Zeng Liaoyuan, associate professor at the University of Electronic Science and Technology of China.
“We’ll see more government efforts to boost development of ‘bottleneck technologies’,” Zeng said. “Researchers will be pushed to work like crazy” to help China grasp the technology to produce advanced chips, he added.
China-made older-generation legacy chips, covering 28-nanometre and older technologies, command roughly one-third of the global market share. These are widely used in cars, home appliances and consumer electronics.
AI is seen as crucial for the revolutionary changes China envisages for its industry, services sector and military.
A pressing issue after the plenum would be deciding on a targeted AI strategy, according to Sun Ninghui, a computer scientist with the Chinese Academy of Sciences. The question was whether to integrate into a US-led system, introduce a specialised and closed system, or be a part of the world’s open-sourced system, Sun told a top legislative meeting in April.
At the end of May, Beijing announced the largest-ever outlay for its chip investment fund, underlining its resolve to build a self-sufficient semiconductor sector under a whole-nation system.
The size of the new fund is comparable to the US$53 billion in incentives for semiconductor research under US President Joe Biden’s 2022 Chips and Science Act.
Since its launch in 2014, China’s Big Fund has been channelled to tens of thousands of chip makers, from ministries, banks and state-owned enterprises (SOEs) to private companies. And despite corruption scandals and the collapse of most start-ups, the fund has succeeded in getting some national champions off the ground.
“While the US mainly relies on private companies to innovate, China favours the top-down approach,” Zeng said. “Inevitably the latter has an efficiency problem. Anyway, it’s the way to ensure China will make it.”
However, Tilly Zhang, an analyst with Gavekal Dragonomics, raised doubts over the ability of state funds to support real innovation.
“The ‘new productive forces’ are supposed to be about disruptive innovation, not incremental improvements, implying a high-risk, high-reward strategy of investing in small start-ups undertaking uncertain and futuristic projects,” Zhang wrote in a June 5 research note.
“Such a strategy will be hard for most state-backed funds to implement: they face political and operational constraints that push them toward a more conservative investment approach.”
SOEs are the pillar implementers in most major Chinese tech programmes, like the C919, China’s first home-grown passenger jet, and BeiDou, a Chinese global positioning system.
In green technology, the lead has been taken by non-state enterprises with a range of state support. But this has put makers of solar panels, wind turbines and electric vehicles at the centre of trade disputes with the US and European Union, which allege that massive Chinese state subsidies are undercutting overseas rivals.
Richard Suttmeier, a University of Oregon researcher looking at science and technology in the context of US-China relations, said China had studied the innovation systems of the US and other advanced countries, “but successful foreign experience has to be fit into China’s political economy”.
“Critical components of [this] are to maintain the political dominance of the [communist] party and the commitment to a state- owned and directed economy.”
The resulting “hybrid” has some distinctive strengths, such as the capacity to mobilise human and financial resources in support of national priorities. But notable weaknesses included red tape, corruption, and the absence of a liberal environment for creative initiatives and error correction, Suttmeier said.
“The mix in the United States clearly has much more of a decentralised, market-oriented approach to innovation … The mix in China clearly has different emphases. Note that these two institutional styles are characterised by different norms, with ‘freedom’ playing a much greater role in the former and ‘security’ in the latter,” he said.
Sourabh Gupta, a senior policy specialist with the Institute for China-America Studies in Washington, said that while there were parallels in the “mission mode” approach to scientific discovery and breakthroughs, China’s Central Science and Technology Commission and the US DARPA were “very different animals”.
The Defence Advanced Research Projects Agency (DARPA) is a R&D agency of the US Department of Defence and responsible for the development of emerging technologies.
“DARPA enjoys the luxury of staying in ‘mission mode’ and making pivotal investments that could incubate breakthrough technologies, primarily in the national security space, while the commission’s role is fundamentally far more encompassing – which is [to] confront and overcome the main structural bottlenecks to innovation in China domestically,” Gupta said.
In recognition of the chronic underfunding, China earmarked some 98 billion yuan (about US$13.5 billion) for basic research this year, up 13 per cent from 2023. In comparison, the US federal budget for basic research this year is US$48.6 billion, raised by US$1 billion from 2023.
Meanwhile, the top leadership appears to have realised the importance of the private sector. At a rare symposium with bosses of state-owned firms, private entrepreneurs and overseas investors in the eastern province of Shandong in May, Xi asked a guest speaker why the creation of unicorn companies had slowed in China.
A unicorn is a privately held start-up valued at over US$1 billion. The Hurun Research Institute’s Global Unicorn Index 2024 has China at No 2 with 340 unicorns, but far behind the US with over 700.
In 2019, when the Hurun list was launched, China led the US by 206 to 203, accounting for 83 per cent of all unicorns worldwide.
It also saw a net increase of just 15 unicorns in 2022 amid continued “zero-Covid” curbs and lingering pessimism among private business, partly due to Beijing’s emphasis on security and focus on SOEs, though that number edged up to 24 last year.
State media did not say what the delegate’s response was, but Xi reportedly called for deeper reforms and vowed to use an approach that was “both goal- and problem-oriented to solve problems … [and] focus on deep-seated institutional obstacles and structural issues.”
Gupta said: “If China is to ride the fourth Industrial Revolution wave, it will be the private sector that can only deliver the country to the promised land. Judging by President Xi’s more recent pronouncement, he is more or less aware of this reality.”
Additional reporting by William Zheng
