Xi Jinping is serious about securing tech, talent and a modern military for China in the next five years

Xi Jinping’s references to revolutionary spirit underlines his resolve to barter China’s vast capital and market for tech cooperation to break the US chip ban, and attract talent, including for military modernisation

Shirley Ze Yu

Published: 1:00am, 5 Nov 2022

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The first week of Xi Jinping’s third term speaks volumes about his vision for China’s next five years. The new standing committee visited Yanan city, the Communist Party’s revolutionary cradle. There, Xi proclaimed that “China’s socialism is won by hard work, struggles and even sacrifice of lives. This was not only true in the past but also true in the new era”.

The squad visited the Hongqi Canal, also known as the Red Flag Canal, where Xi paid tribute to the heroic spirit of those “who dare to fight to change their fate”. Xi’s visit suggested a brutal struggle was ahead, against both domestic dissent and foreign rivals.

Authoritarian leaders, from Vladimir Putin to Xi, deserve one credit. Their words become their deeds. In the next five years, China will evolve to validate Xi’s Chinese dream. He wishes to build an egalitarian society, empower the state to control the economy, command absolute power and offer an alternative model of modernisation.

Central to his vision is the breaking of the technological containment of the United States.

President Joe Biden’s blanket ban on China’s access to advanced chips made with US technology, software and equipment is intended to choke off China’s tech rise. Biden’s chip war is no less significant than former president Ronald Reagan’s “Star Wars”.

In response to Biden’s effective declaration of an economic war, Xi has resorted not to “wolf warriors” but to action.

For a start, Germany is set to approve the acquisition of the microchip-making arm of German company Elmos by its Chinese-owned competitor Silex, despite US security warnings, ahead of Chancellor Olaf Scholz’s visit to China.

Meanwhile, Biden has not secured commitments from US allies to join its chip war on China. From Germany to South Korea, carmakers are still smarting from his decision to grant tax credits to US electric vehicle (EV) makers, a move South Korean officials view as a US “betrayal”.

Biden’s tech policy is fundamentally an America-first policy – if successful, US companies will be triumphant, likely at the expense of allies and foes alike.

But when China accounts for 40 per cent of global chip demand, non-US chip makers are in a dilemma. Although restructuring is painful, global chip makers may find a strong incentive to remove US technology from their supply chains to keep China as a customer.

The first mover will win big. China may strategically invoke such competition by offering quick-moving countries wider access to the lucrative Chinese technology market. In the next five years, China’s attempt to partner technologically with Europe and the rest of Asia is only logical.

Chinese EV makers envision that as much as 80 per cent of vehicles in China can be driven autonomously by 2040. This aspiration has faced a setback with the US ban on Chinese access to GPU, an essential chip for machine learning. Chinese carmaker Nio now has a factory in Hungary, with plans to expand in Europe. Other Chinese EV makers should follow suit.

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Unlike with Soviet Russia in the Cold War, Chinese talent and capital can reach virtually any corner of the world. In the next five years, Chinese hi-tech manufacturers will venture overseas and deepen their supply roots in the European Union, East Asia and other markets where access to US technology and talent remains open. Biden’s chip ban applies only to those on Chinese territory, not to Chinese companies overseas.

It remains inconceivable that the US would go so far as to, say, ban Dutch companies from selling chip equipment to Chinese subsidiaries legally incorporated in the Netherlands and run by Dutch employees. If it did, humanity will enter uncharted territories. Attempts have been made to stop the global diffusion of technology over the past centuries; none was successful. At best, it is no more than a delaying tactic.

China’s global talent strategy lies at the heart of Xi’s five-year vision. In the 20th party congress report, Xi highlighted talent as China’s top resource. Xi will order his technocrats to spare no effort in luring global tech talent. The Trump-era “China Initiative”, which targeted ethnic Chinese scientists and academics, may have been scrapped, but at least 1,400 ethnic Chinese scientists have left the US for China.

US-trained talents from other developing countries may find China’s enormous industrial funding for semiconductor start-ups alluring. Before the pandemic, about 37 per cent of US-trained graduates who majored in STEM (science, technology, engineering and mathematics) were international students. There is no default winner in a global chip talent war.

China’s talent campaign extends far beyond technology. Xi’s military modernisation relies not on an army of human shields but an army of machines. China has recruited as many as 30 retired British air force pilots to deliver sophisticated training, dangling salaries of more than US$20,000 a month. French pilots are also sought after to teach the technique of catapulting take-offs and landings on aircraft carriers. A South African academy was even used as the interlocutor, reportedly.

Monetary incentives oil the wheels of capitalism. In the talent war, China seems to be in the driver’s seat for now.

The pillars of Xi’s economic vision are technology, talent and the military. He is ready to get his way by trading on China’s capital and markets. Xi’s gamble with China’s fate is of global consequence. If the first week of his third term says anything at all, it might be that where there is a will, there is a way.

Shirley Ze Yu is a political economist and a senior practitioner fellow with the Ash Center of Harvard Kennedy School