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December 10, 2022

Can China Outrun the U.S. in Science and Technology?

The Economist of October 13 analyzed whether China can surpass the United States in science and technology. While the article states that the U.S. has an overall advantage over China, it does not draw any articulate conclusions. It merely cites the following points

1) According to an August estimate by a Japanese research institute (Note: This may be a report by the National Institute of Science and Technology Policy of the Ministry of Education and Science, as reported by Nikkei on August 8), Chinese scientists produce more papers that are cited by others than the U.S. scientists do.

2) In responding to the challenge by China ,the U.S. imposed new severe restrictions on exports of advanced technology to China on October 7. What is more, the U.S. Congress adopted the Chips and Science Act, which authorizes expending $52 billion on microchips.
In China, the state plays a major role in innovation. The state provides 30% of start-up funding. However, state-funded R&D is effective only in extending and developing existing technologies; it is less efficient in unknown areas. Moreover, funds directed to basic technologies account for only 6% of all R&D expenditures. In the U.S., this is 17%.

3) To overcome its shortcomings, China has increased its budget for basic science by 16% by 2021. And in July, China made a decision to prevent excessive centralization in science and to value the independent decisions of scientists.
From 2015-19, joint publications by U.S.-China researchers increased at an annual rate of 10%. In 2020, however, this academic collaboration suddenly came to a halt; the rate of Chinese students returning home rose from 25% in 2004 to 65% in 2019, and in the first half of 2022 the number of Chinese students abroad fell to less than half of the number in the same period in 2019.

4) The United States holds 60% of the world's best AI professionals are active. Two-thirds of them are foreigners and a quarter are Chinese. In a stark contrast China relies on domestic talent. Almost all of the best AI experts in China are Chinese, 70% of whom have never studied abroad.

Just as China's scientific and technological progress has begun to look unstoppable over the past few years, the outlook is suddenly troubled.

To the argument above I would like to add the following facts.

(1) Strong dependence on the West
 China is highly dependent on foreign countries for the manufacture of microchips, which are now built into almost every industrial product. According to the China Semiconductor Industry Association, China's imports of microchips in 2020 amount to about $350 billion. The majority of the "domestically produced" microchips are manufactured by Taiwan and South Korean companies operating in China. In addition, more than 70% of microchip manufacturing equipment in China is foreign-made. Huge investments have been made in the construction of microchip manufacturing "factories," but some of them are not in operation because imports of machinery have been stopped by the West.
(2) The "badkside" of the numbers
 We are often overwhelmed by the impressive "numbers" about the Chinese economy. However, some of the numbers are contrived. For example, while the Economist article says that more and more papers by Chinese researchers are being published and cited in peer-reviewed journals, Newsweek Japan on June 12, 2018 reported that 1) many Chinese scientific journals contain less than groundbreaking research, plagiarized papers 2) Clinical trial data are often fabricated 3) the dominant trend is to comply with conventional views without presenting original ones (i.e., paying excessive tribute to the big names in academia, etc.).
 In addition, Economisuto (Mainichi) magazine of March 20, 2018 noted that Chinese researchers cite each other to build a track record for obtaining R&D funding, and the Economist magazine of January 12, 2019 noted that Chinese researchers are "writing" articles by plagiarizing and falsifying to meet quotas, and that there are many malicious journals that will publish their work if they pay them, etc.

3) Distortion created by subsidies
In China, the number of venture companies and the number of electric vehicles (EVs) depend on subsidies. Many EVs are built as a platform to receive subsidies.
Public funds, equivalent to 75 billion U.S. dollars, have been spent on EVs so far, and at least 60 or so new EV makers have sprouted. However, some of them, like Shanghai Ullai Automobile (NIO), have had EV ignition accidents (Nikkei, May 19, 2020). And when government subsidies for EVs were cut almost in half starting in June 2019, sales plummeted (Nikkei, November 26, 2019).
Ventures, too, are dependent on state funding: the number of startups has increased significantly since the government launched its venture support program "Everyone for Start-Up and Innovation" in 2014 (2018 White Paper on Trade).
 AI seems to be the main focus now. Funding by local governments presents a bubble situation, and excessive competition among localities could cause a fragmentation of the AI market (Nikkei, January 10, 2020).
Patents are also a favorite platform for obtaining subsidies. 96% of patents held by the Chinese are only domestic, as some applications are merely filed for the subsidies they receive.

(4) Waste and Embezzlement
Excessive government intervention leads to waste and embezzlement. Although about 130 billion dollars has been spent to strengthen the microchip industry, the self-sufficiency rate has barely increased. Some of the funds may have been diverted.
Shenzhen is synonymous with the vitality of the private sector. However, it has been pointed out that Shenzhen is quick to start production of lucrative products, but has difficulties in quality and other aspects.
Another problem is that in state-run enterprises and joint ventures with foreign countries, the mindset of lining the pockets of executives remains deep-rooted, a vestige of socialist enterprises. In Chinese companies, everyone steals, from the accountant to the warehouseman. Just like in the Soviet Union, the company and managers' interests are different. This is probably because they do not have lifetime employment. Foreign companies have lost a lot of money because of their employees.