China Power | Economy | East Asia

China’s Technoindustrial Policy Is More Soviet Retro Than Japan Innovation

In science and technology innovation, closed markets, proprietary standards, and ideologized scientific research policy are a recipe for retrogradation.

Tristan Kenderdine
China’s Technoindustrial Policy Is More Soviet Retro Than Japan Innovation
Credit: Illustration by Catherine Putz.

Following from the Fifth Plenum Communique, which sketched the form of the coming 14th Five-Year Plan, the China Communist Party released two more major technoindustrial plans, a fuller Central Committee proposal on the 14th Five-Year Plan and 2035 Long-term Goal, and Xi Jinping’s interpretation of the proposals. This should be the blueprint for China’s technoindustrial policy for the 2022-2035 period. However in substance, the policy proposals are more rhetoric than robots.

While United States policmakers have shunned industrial policy for the past two decades, Senator Marco Rubio has argued for countering China’s industrial policy with a new U.S. industrial policy. The European Union has long utilized industrial policy principles for its economic development plans, given the uneven economic development among member states. And 2020 is seeing an acceptance that neoliberalism has failed to economically develop any new states this century, while hollowing out the structural bases of the industrialized economies.

However industrial policy and technoindustrial policy are better tools for catch-up economic development than for leading innovation. In science and technology innovation, closed markets, proprietary standards, and ideologized scientific research policy are a recipe for retrogradation. China now in 2020 is more like a hybrid form of what Japan and the Soviet Union were in 1986 – a real-estate investment driven bubble economy, which has defied the odds to become a world leader in some technology areas; alongside a creaking, massively geographically distributed, industrial command economy production model that is policy-prioritizing high-technology breakthroughs but still dependent on unreliable or inefficient energy and labor inputs.

Where Japan used technoindustrial policy to economically develop and then to converge with the global economy, the Soviet Union’s industro- and techno-nationalist policies led it into a domestically-dependent planned economy dead-end. But where Japan and South Korea at comparable stages of development opened to the world more, and gradually eased off their techno-industrial policy and let zaibatsu and chaebol firms compete in the global market, China is now closing off more and becoming more internally dependent, like the late-stage Soviet Union.

For the Soviet Union, Japan, and now China, industrial policy is always technology policy. In the Northeast Asian development model, industrial policy was not simply steel and cement but the development of institutions such as Fujitsu, Samsung, or TSMC that could bridge technology systems into the integrated systems of aircraft and the technoindustrial infrastructure of semiconductor foundries. It is a continuous, iterative process of developing known paths in industrial systems.

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While the science and technology goals change, the economic structural determinism does not. Japan, South Korea, and Taiwan all followed non-Marxist historically-determined economic development agendas. Their economic development strategies overcame known historical path-dependencies in economic development. It was this historical school of industrial policy as economic development that has lifted people out of poverty in China too, not the Chinese Communist Party.

China’s economy is now undergoing a structural process of introducing a dual circulation model to rely more on domestic consumption while still keeping a window open to foreign markets. For technoindustrial policy this means reconfiguring the same institutional structures that were utilized for trade and industrial policy in the reform era. China’s 2035 Vision problems are going to face the same path-dependency issues that resulted in productivity drop-offs in Japan in the 1980s and the Soviet Union in the 1970s, with institutions that failed to wholly solve the social, economic, and political problems of the growth period.

China’s persistent economic institutional problems include an over-reliance on real estate to maintain growth, poorly formed capital markets (meaning that allocation of capital is skewed toward state-owned or state-supported enterprises), a huge reliance on coal and a dirty industrial base, and reliance on a state-owned enterprise sector for most actual service provision.

China’s 14th Five-Year Plan is a challenge to global economic and technology systems, but its technoindustrial policy is misdirected. It should be turned toward its rural poor, its undeveloped internal markets, its poor logistics system, its environmental systems, and other areas where catch-up, remediation, or known path-dependencies are used.

China’s reliance on technoindustrial policy in the 14th Five-Year Plan is not bad policy because it is industrial policy. It is bad policy because it shuts off the institutional avenues to economic growth and technological innovation, while turning to a reliance on domestic institutions, which have historically yielded industro-nationalism, techno-nationalism, and in the case of the Soviet Union, eventual economic collapse.

Industro-nationalism and techno-nationalism are political institutions built on economic institutions, and they have poor aggregate outcomes for both individuals and for global peace and prosperity. The political risks of maintaining these industro-nationalist economic institutions into a new phase of techno-nationalism will outweigh any economic benefits in the nationalist “new era.”

Unfortunately for the economic aspirations of the people of China, the Party’s 14th Five-Year Plan policies of domestic dependence and shunning of global markets, capital, and technology look more like the Soviet Union’s 1920s economic policy than even the best-case scenario for China of a 1990s Japan of low to no growth and an acceptance of the limitations of technoindustrial policy.