China to Invest $1.4 Trillion in Domestic Technology by 2025

To gain global leadership, Chinese president Xi Jinping plans to invest $1.4 trillion dollars by 2025 in key technology areas, including 5G wireless networks, cameras and sensors, and AI for autonomous vehicles, automated factories and mass surveillance among other sectors. Chinese companies such as Alibaba, Huawei Technologies and SenseTime Group will likely benefit, as China reduces its reliance on U.S. companies. The Trump administration is leveraging its relationship with Taiwan as one way to fight back.

Bloomberg reports that, as Digital China Holdings chief operating officer Maria Kwok put it, “this is China’s gambit to win the global tech race.” China’s legislature is expected to sign off on “infrastructure funding of as much as $563 billion this year” even as the country is experiencing its “worst economic performance since the Mao era.”

China relies on Huawei to further its 5G dominance goals, and Alibaba Group and Tencent Holdings, both China’s “biggest purveyors of cloud computing and data analysis,” are “linchpins of the upcoming endeavor.”

According to Bloomberg,“China’s new stimulus plan will likely lead to a consolidation of industrial Internet providers and could lead to the emergence of some larger companies able to compete with global leaders such as GE and Siemens.” Morgan Stanley estimated [the plan] breaks down into “around $180 billion each year for the next 11 years — or $1.98 trillion in total,” an annual figure that is “almost double the past three-year average.” In many cases, the money will go to swap out foreign technology for home-grown versions.

The New York Times reports that Taiwan Semiconductor Manufacturing Company (TSMC) will build a factory in Arizona, “a move heralded by American officials as a first step toward relocating a vital supply chain to the United States.” Then the Department of Commerce issued a new rule that would prevent Huawei Technologies from using TSMC chips.

The result “is a one-two punch of industrial policy that would have been unthinkable only a few years ago, one that raises the prospect of a more serious conflict between China and the United States.” Cornell University professor Eswar Prasad noted that the Trump administration seems bent on “hitting at targets that are both economically and politically sensitive for Beijing.”

Sources reported that, “some administration officials were already discussing ways to strengthen the rule,” to plug any loopholes. “The future of at least a major portion of Huawei’s business is now firmly in the hands of the Commerce Department,” said Eurasia Group technology policy analyst Paul Triolo. According to Commerce Department secretary Wilbur Ross, “any collusion with Huawei or its affiliates to willfully violate this rule is prohibited, and any party found to be in violation will be barred from further access to U.S. equipment or software.”

The Wall Street Journal reports that Chinese semiconductor stocks have skyrocketed in the wake of “Beijing’s quest for high-tech self-reliance.” Shares of Semiconductor Manufacturing International Corporation have risen 50+ percent this year. Other data showed that, “an index of Chinese semiconductor stocks that are traded in Shanghai and Shenzhen has gained more than a third this year.”