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China is losing the tech race

Chinese workers making laptops. Ryan Pyle/Corbis/Getty

Now that the Zero Covid debacle has punctured the “popular myth of Chinese inevitability and invincibility”, says Noah Smith in his Substack newsletter, it’s about time we considered Beijing’s “less-heralded” failures in another important area: industrial policy. Since 2015, when it launched its “Made in China 2025” initiative, the Chinese government has poured cash into several strategic sectors in a high-profile bid to “seize the technological lead” from the West. But things “haven’t worked out as planned”. Yes, China is doing well in two of its targeted industries: electric vehicles and railway equipment. But it still lags in aerospace, robot-making and tech. In AI, its best researchers “continue to go work in the US”.

More important is its failure to dominate the semiconductor industry, which is of “unique strategic importance” because chips are used in absolutely everything. America played its part, enacting stringent export controls that have strangled China’s efforts. But most of the big issues actually predated those restrictions. The truth is that showering money on entire industries simply isn’t an effective approach: it makes companies less efficient, and much of the cash winds up “in the pockets of corrupt grifters”. This is not to say China should be discounted. Its ability to “mobilise resources on a scale that dwarfs America” still gives it huge sway, and no doubt Beijing will learn from its recent failures and redouble its efforts. But it’s an important lesson: quantity doesn’t always result in quality.