Xi calls for reviving China’s tech push after escalating US restrictions

(Bloomberg) — Xi Jinping reiterated calls for China to accelerate the development of technology critical to national security, a stark reminder at a time when escalating U.S. sanctions threaten Beijing’s efforts to become autonomous in semiconductors.

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Invoking the so-called “whole nation system” that has driven China’s space and nuclear weapons programs, Xi urged top officials to pool their resources and focus on breakthroughs important 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 policymakers, including Premier Li Keqiang.

While scarce on details, Xi’s personal intervention suggests Beijing is increasingly concerned about Washington’s intensifying efforts to curb China’s efforts to advance in areas from artificial intelligence and biotechnology to the $600 billion global semiconductor arena .

The U.S., after years of targeting specific companies such as Huawei Technologies Co., is enacting a series of broader restrictions across the entire Chinese economy. The Biden administration has implemented new controls on the sale of artificial intelligence chips to Chinese customers, a blow to the development of cutting-edge technologies, and is considering an executive order that would limit investment in the country.

“The U.S. competition strategy leans more blatantly toward containing China by blocking access to the resources needed to develop advanced semiconductors,” said Kendra Schaefer, a Beijing-based partner at Trivium China. “Top leaders are seeking to make science technology not just an endeavor for government, innovators and researchers, but a whole-of-society endeavor not unlike the Soviet-era space race.”

Read more: Biden weighs actions to curb US investment in China’s tech

An escalation of US efforts would only cause growing frustration in Beijing over the long-standing failure to develop semiconductors that can replace US circuits.

China has launched a series of anti-graft probes into top executives in the chip industry in recent months. Senior officials are angry at how the tens of billions of dollars poured into the field over the past decade have not produced the kinds of breakthroughs that have come from previous scientific efforts nationwide, Bloomberg News reported. Instead, the perception is that Washington has been able to strong-arm Beijing and successfully contain its technological ambitions.

In calling for 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. to promote technological progress.

“Competitive advantages should be achieved in some areas to win strategic initiative opportunities,” state broadcaster Central China Television quoted Xi as telling a high-level Communist Party committee he chairs. “Collect resources to complete major operations.”

Xi is expected to retain his top Party post at the twice-a-decade congress next month, despite a slowing economy, geopolitical tensions and frustrations over the zero-tolerance Covid strategy. That gives it a mandate to pursue sweeping goals, including a wide array of government-backed technology programs that often include billions of dollars in direct government funding.

“It remains to be seen how much progress they can make. Unlike resources, it is difficult for ‘innovation’ to be state-led,” said Union Bancaire Privee analyst Vey-Sern Ling.

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First introduced under Mao Zedong to help the then-nascent Communist China industrialize, the “whole nation” approach was crucial in helping Beijing achieve a number of top national priorities, from developing the first atomic of the bomb in the early 1960s to achieving Olympic sporting success. After that it was largely sidelined as officials shifted to focus on economic growth. However, after a series of US sanctions exposed the vulnerabilities of China’s chip capabilities, Xi is reactivating the mechanism to achieve innovations in advanced chip development and manufacturing.

About $1 trillion in government funding has been made available under the technology initiative, part of which will be used by central and local governments to jointly invest in a number of third-generation chip projects, Bloomberg News reported. Leading 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 funding.

Beyond self-sufficiency in technology, Xi also stressed the importance of energy conservation, boosting health care progress and rural development — familiar policy priorities for China’s leader. This includes more efficient use of resources from water and grain to minerals and raw materials, the official Xinhua news agency quoted Xi as saying. He called for lower carbon emissions in the production of goods and services and opposed “overconsumption and overconsumption”.

Among other things, China should create a pricing mechanism that reflects resource scarcity as well as the cost of ecological damage, Xi was quoted as saying by Xinhua.

Read more: China seeks game-changing chip-making breakthrough

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