(Bloomberg) -- Xi Jinping renewed calls for China to step up the development of technology critical to national security, issuing a forceful reminder just as escalating US sanctions threaten Beijing’s efforts to become self-reliant in semiconductors.
Invoking the so-called “whole nation system” that propelled China’s space and nuclear weapons programs, Xi exhorted top officials to pool their resources and focus on breakthroughs critical to the country’s future. The government should play a more active role in orchestrating this process, he told a Party summit attended by senior policy-makers including Premier Li Keqiang.
Xi’s personal intervention suggests growing concern in Beijing about stepped-up US efforts to contain China’s advances in fields from artificial intelligence and biotech to the $600 billion global semiconductor arena. The statement, while scarce on details, could signal a desire to give the campaign greater standing in party policy, since it comes little more than a month before a twice-a-decade Communist Party congress.
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The US, after years of targeting specific companies like Huawei Technologies Co., is enacting a series of broader restrictions on the entire Chinese economy. The Biden administration implemented new controls over the sale of artificial intelligence chips to Chinese customers, a blow to the development of cutting-edge technologies, and is weighing an executive order that would curtail investment in the country.
In calling for direct government intervention, Xi is pursuing a playbook that in recent years has prioritized the role of state institutions over private giants such as Alibaba Group Holding Ltd. or Tencent Holdings Ltd. in spurring technological advancement. Since 2020, Beijing has cracked down on private tech giants, particularly in the consumer internet arena.
“This meeting readout is a signal that Xi is likely to double down on the state influencing the direction of the domestic chip industry, as opposed to increasing the influence market-drivers have on resource allocation,” said Jordan Schneider, a senior analyst at Rhodium Group and host of the China Talk podcast.
An escalation in US efforts would only stoke increasing frustration in Beijing with a years-long failure to develop semiconductors that can replace US circuitry.
China has launched a flurry of anti-graft probes into top chip industry figures in past months. Senior officials are angry at how tens of billions of dollars funneled into the sector over the past decade haven’t produced the sorts of breakthroughs that emerged from previous national-level scientific endeavors, Bloomberg News has reported. Instead, the perception is that Washington has managed to strong-arm Beijing and successfully contain its technological ambitions.
“Competitive advantages should be achieved in certain sectors to win strategic initiative opportunities,” state broadcaster Central China Television cited Xi as telling a high-level Communist Party committee he chairs. “Pool resources to get major undertakings done.”
Xi is expected to receive a third term as party chief at the congress next month, despite a slowing economy, geopolitical tensions and frustrations over his zero-tolerance Covid strategy. The precedent-breaking move will extend his mandate to pursue sweeping goals to overhaul the country’s technology sector.
“US competition strategy is leaning more blatantly towards containing China by blocking off access to the resources needed to develop advanced semiconductors,” said Kendra Schaefer, a partner at Beijing-based consultancy Trivium China. “Top leaders are seeking to make sci-tech not just an endeavor for the government, innovators, and researchers, but a whole-of-society effort not dissimilar to the Soviet-era space race.”
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First introduced under Mao Zedong to help the then-fledgling Communist China industrialize, the “whole nation” approach was crucial to helping Beijing attain a number of top national priorities, from developing its first atomic bomb in the early 1960s to achieving Olympic sporting success. After that it was largely set aside as officials shifted to focus on economic growth. But following a series of U.S. sanctions that exposed the vulnerabilities of China’s chip capabilities, Xi is once again reactivating the mechanism to achieve breakthroughs in advanced chip development and manufacturing.
About a trillion dollars of government funding have been set aside under the technology initiative, part of which will be used by central and local governments to jointly invest in a series of third-generation chip projects, Bloomberg News has reported. Top chipmakers and research institutes have submitted proposals to the ministries of science and information technology, all vying for a place in the national program and a share of the financing.
Beyond self-sufficiency in technology, Xi also stressed the importance of conserving energy, spurring health care advances and rural development -- familiar policy priorities for China’s leader. That includes more efficient use of resources from water and grain to minerals and raw materials, the official Xinhua News Agency reported, citing Xi. He called for lower carbon emissions in the production of goods and services, and opposed “extravagant consumption and over-consumption.”
Among other things, China should set up a pricing mechanism that reflects resource scarcity as well as the cost of ecological damage, Xinhua cited Xi as saying.
“It remains to be seen how much progress they can make. Unlike resources, it’s difficult for ‘innovation’ to be state-directed,” said Union Bancaire Privee analyst Vey-Sern Ling.
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(Updates with analyst’s comment from the fifth paragraph)
