Get PDF High Technology Manufacturing and U.S. Competitiveness (Technical Report)

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Pillar industries zhizhu qiye —those which the government has defined as important enough to merit support—can include those companies relevant to the national or local economy, to job creation, national defense, or technology acquisition. High technology industries described as pillar industries include aerospace, automobiles, bio-technology, computing, information technology, semiconductors, machinery, oil and petrochemicals, software, and telecommunications. Alan Wm. Central bureaucracies and local governments have long spent heavily to encourage the development of high-tech industries, but lacking scientific support and protected from competition, they often ended up inundating the market with companies that competed at the low ends of the technological value chain.

Much of the dynamism of the Chinese economy comes either from domestic Chinese companies outside of the state sector, or from foreign invested enterprises FIEs. FIEs still account for well over 80 percent of China's high-technology exports. It is also becoming clear, however, that the Chinese government consistently offers support for a wide array of firms, not just SOEs. In recent years, and especially after the MLP was released, government policy has undergone a shift.

Industrial policy and technology policy have become more integrated in order to enhance the innovation capacities of Chinese companies. February 25, Chinese statistics claim that this represented 6. An additional 49 billion RMB was provided for innovation activities through loans from financial institutions, including some state-owned banks.

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Additional sources of government funding for high tech enterprises—procurement measures, land grants, patenting support, and certain subsidies, investments, and loans— are potentially not included in these statistics, but have become more common in recent years. The initiative envisions mechanisms for spurring innovation on a grand scale. The seven sectors include some in which foreign companies do not hold insuperable advantages in technology, cost, or scale—the electric vehicle, new materials and clean energy technologies, for example. Other technologies have potential national security value, such as Internet technologies and large-scale machine industries.

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According to Chinese calculations, value-added in these seven sectors currently accounts for less than four percent of GDP, but China will strive to achieve value-added in these sectors of eight percent by and 15 percent by Experts involved with the plan say that the 15 percent corporate tax rate for certain high-tech companies will likely be cut in half. A former information engineering officer in the PLA, Ren Zhengfei, founded Huawei in to manufacture simple switches, often for military customers.

This policy harmed some existing manufacturers, but succeeded in stimulating public research institutes to develop and commercialize better products. For example, ZTE participated in 19 projects under the Plan by According to a scientist from CAS, China spends more money on microchip imports than it does importing oil. Nor have they succeeded in establishing high-end microchip manufacturers foundries to challenge efficient firms like Taiwan Semiconductor. Frontrunners have a wide advantage in the IC industry because innovations in the technology are constant and highly cumulative.

Afterwards, the government continued to provide aid through more targeted policies. The NDRC also provided project development funds for critical semiconductor facilities, and for the production of materials and consumables. Critics note, however, that by the time the project got off the ground, most advanced companies were already using inch wafers in semiconductor manufacturing. Chinese industry analysts believe that state programs meant to encourage catch-up in the semiconductor industry were often misconceived and too lumbering to keep pace with global innovation. Fierce price competition has strained the more than largely small Chinese design enterprises currently in operation, and foreign observers expect a shakeout.

Some design companies have already gone bankrupt.

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The advisory firm PricewaterhouseCoopers expects that no more than , and possibly fewer than 50, Chinese IC design companies will remain truly viable. Leading governmental actors are attempting to consolidate the semiconductor industry while directing it slowly towards higher-end production.

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Is U.S. high-technology manufacturing at risk? This report is part of the RAND Corporation technical report series. RAND technical reports may include. the PCAST report is the concern that a larger share of high-tech manufacturing formerly performed in the United States is increasingly being done overseas, with .

Local governments are particularly active in trying to attract research money and talent for these projects. The center has plans for a major personnel expansion in the coming years. The government intends to spend more money, consolidate firms, and support the launch of startups.

Rather than heralding an embrace of private firms, these policies suggest that the state sector may be advancing and consolidating its control over the market. The government plans to increase funding for the IC industry substantially in coming years. MIIT hoped to have design expand from Such policies have often involved the government consolidating its control of the industry, using state-backed firms to take over smaller industry players.

In an environment of fast-paced innovation, it is still unclear whether government policies will truly address bottlenecks in innovation rather than squander resources best used in other ways. Certain patterns have already emerged.

Technology Development Zones Having witnessed the success stories of Hsinchu Science Park in Taiwan and Silicon Valley in the United States, Chinese technocrats have tried to mimic these incubators in their own high-technology development zones through the Torch program, discussed on page It remains unclear the extent to which China will give foreign firms true access to the government purchasing market in the future.

These efforts have been particularly visible in the telecommunications industry. Other observers in China and abroad view TD-SCDMA as a costly failure that delayed the introduction of 3G service in China by several years, and which is now imposing additional costs on China Mobile, as it has had to develop new base stations and handsets for the standard.

Thus far, the record of standard-setting based on support for Chinese enterprises has not been very successful. The record is considerably better in cases where China has cooperated actively with international companies, following international norms of standardization.

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Funding sources and end-users are also described, as shown in the funding matrix provided in Figure 2 above. Substitutes for fossil energy used for industrial heat processes must be dispatchable, able to achieve minimum temperature thresholds depending on the operation , and located at or very close to the point of consumption. Seller Inventory IQ Reforms have also included attempts to strengthen civilian- military technology transfer facilities, build civil-military integration industrial zones, encourage civilian enterprise participation in weapons research and production, encourage civilian and foreign investment in the defense industry, and fund dual-use research programs. While China remains a long way off from challenging the US for leadership, the trajectories of the two countries warrant serious attention.

The implementation of these proposals has resulted in an incentive structure for Chinese companies, universities, and research institutes to file patents as a measure of success. It is not surprising, therefore, that there has been a steady growth in PRC patenting over the past five years, although the quality of many of these patents has been questioned. Enforcement of IPR by foreign companies is increasingly possible in large cities and against large companies, but still rare and difficult in most parts of the country.

Lax enforcement of IPR for foreign companies can deter these companies from providing their technologies to Chinese research and business partners.

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In many industries, though, such Scott Kennedy, Richard P. Each of these organizations seeks to promote its companies for its own prestige and benefit. MIIT policies are designed to enhance its guiding role over information technology industries.

As a result, many local governments and industrial bureaucracies favor protecting the interests of particular corporations over enhancing the innovation system—or attempt to select winning industries based on bureaucratic preferences and limited information. For example, state-owned companies won 70 percent of the bids for government solar energy projects in It was reported that they underbid their competition because they did not have to be concerned that their investments would not likely pay off for nearly two decades.

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This approach seems attractive for building the economies of scale Richard P. For example, Chinese researchers have accused China National Nuclear Corporation of preventing other companies from offering more advanced nuclear reactor designs to Chinese utilities. These tensions play out in the megaprojects, in which MOST has criticized local governments for not providing adequate investment in some centrally-sponsored innovation projects with longer time-frames. Between and , for instance, the number of research scientists and engineers in SOEs declined slightly, while those in the non-state sector increased markedly.

The Decision to Accelerate the Development of Strategic Emerging Industries raises the specter that a significant amount of government funds will be seriously misallocated. Chinese experts have already questioned whether the seven targeted industries can handle a sudden influx of cash. In the carbon fiber and lithium hexafluorophosphate industries, for example, Chinese experts said that many companies, including SOEs, are tapping into government support to invest in these products whether or not they possess the requisite technologies to succeed.

According to experts, many of these firms face troubled outlooks as they attempt to go up against foreign firms. For instance, in , MOST, the Ministry of Finance, and the State Administration of Taxation introduced the High-Tech Enterprise Certification Management Policy, which provided for the designation of firms as high-tech enterprises that would then be eligible for generous tax reductions and other policy privileges.

A recent investigation revealed widespread fraud in the certification process, with more than 70 percent of the 20, enterprises that had received certification having done so under questionable circumstances. An investigation involving a sample of enterprises revealed that 73 percent of them failed to meet the official standards for certification in spite of having received 3.

This is becoming evident to a number of policy elites in China, who are struggling to find the right role for the state in enterprise activities. At times, foreign science and technology has been seen largely in instrumental terms of serving Chinese cultural values and institutions. At the same time, the basis of scientific advancement must be placed on the ability to increase our indigenous innovation capability.

It can also represent a techno- nationalist approach to scientific and technological development in which contacts with outsiders are viewed instrumentally. Although US firms were not alone in transferring technology to China, in terms of scale and value of investments, levels of technology, and styles of technological management, US companies have been a leading source of foreign technology for China since the early s.

On one level, the value of foreign technology for Chinese economic transformation is indisputable.