The competition between the United States and China is increasing the convergence between their economic policies, at least the industrial ones. USA, with more central planning and impulse from the government; the Chinese regime recovering some big businessmen because it needs them to guarantee technological innovation in the country.
To ensure its dominance over its strategic rival, the Joe Biden administration’s industrial policy is moving ever closer to China; to a system driven from above (top down) and centrally planned, although different from the regime in Beijing. At the same time, China is becoming Americanized. The return to the spotlight of some big businessmen – after being ostracized for a while – indicates that Xi Jinping has understood that he needs them to guarantee innovation in high technology (bottom upalthough at the same time reinforcing control and vertical decision).
If Washington has taken measures to limit the export of high technology to China and slow down its development, Beijing is also limiting some of its exports of various kinds. high tech and essential raw materials, such as rare earths. Are we facing a clash between capitalisms, as described years ago branko milanovic? Competition causes more convergence, but convergence in turn leads to more competition. Careful.
Two years ago, both in the US and in China and Europe, there were attempts of a different nature to limit the power of big tech (bigtech). Now it remains to be seen how these new defensive measures will result in the face of the growing competition between these three poles.
Defining more objectives than choosing winners – national champions – the Biden administration has fully immersed itself in a central and multi-year planning system, not so distant from communist China, to guarantee supplies and technological hegemony in at least three fields: clean energy , advanced semiconductors and artificial intelligence. The Chips Act and the Inflation Reduction Act (IRA), passed in August 2022, came with more than $400 billion in tax credits, grants and loans to ensure American sovereignty and jobs in these fields, and they seem to be having success. According to calculations of Financial Times, these budget injections and tax exemptions have triggered private investments of more than 200,0000 million dollars. It is not entirely new. The Pentagon has been inducing it for years. But now the US government, instead of acting essentially through public purchases, as it has been doing for a long time and Biden has reinforced through executive orders and public contracting programs, it also sets targets and subsidizes in enormous amounts. I mean, plan. The US has decided on more State. Also Europe. And China was already on it. Is it the end of neoliberalism, as Gary Gerstle points out (The rise and fall of the neoliberal order, 2022), or at least of a certain neoliberalism? Are we going back to important doses of mercantilism?
While this is happening in the US, Xin Jinping is showing signs of flexibility, getting closer to the US system, bringing back big business to improve innovation. Everyone has realized that the State in our times does not reach projects launched by private companies. For example, the war in Ukraine would not be the same without the support provided to the communications of the Ukrainians through Elon Musk’s Starlink satellite internet system.
After a few years of growing presence, the businessmen had passed into the background, or disappeared. This was confirmed in the last Congress of the Chinese Communist Party (in October 2022) and in the People’s Assembly, which last March made Xi’s third term official. In recent weeks, however, a great Chinese businessman like Jack Ma (Alibaba) has publicly resurfaced, although not as an executive, although he is still installed as a professor in Tokyo and others continue to disappear, such as Bao Fan of China Renaissance last February . Prime Minister Li Qiang recently announced that the government would relax crackdowns on businesses, real estate, and internet platforms. Beijing is easing its crackdown on tech and other companies.
Xi had long ago given a change of direction when he saw that the control of large private companies was slipping away from the Chinese Communist Party. Now there is a twist pro business, a certain truce with Big Tech (also in the US). In China, however, the State is becoming increasingly stronger as a shareholder, and in the US, as a client.
Despite its great advances – in some areas it is ahead of the US – China has some technological innovation problems. In two of the latest advances, it has lagged behind: this is the case of messenger RNA vaccines against Covid-19 and generative artificial intelligence (AI) in natural language, such as GPT Chat. However, AI is expected to progress very quickly. Baidu, the Chinese Google, has already launched a test version of Ernie, although it raises information control and censorship problems. In other technologies, such as renewable energy, 5G communications, electric vehicles, China is ahead. For example, it is transforming the Ministry of Science and Technology, and has established a Central Commission for Science and Technology of the Communist Party.
In a special report on the competition between China and the West to drive innovation, the British weekly The Economist recently recalled that in addition to comparing the public and private effort in R&D between the two superpowers -800,000 million dollars in the US, compared to 600,000 million in China in 2020, before the latest injections of funds (in 2008 Chinese spending for these purposes was a third of that of the US) – other dimensions also had to be addressed: such as fact-finding missions in the US, as opposed to Chinese “guidance funds”, in which the State joins with private investors to direct money to new companies of AI and chips. Among other technologies, and especially those necessary for the new space race. Or the attempt by the governments of both superpowers to have their economies benefit from their own innovation.
And Europe? She also tries. But he continues to debate between “inciting or prohibiting” (Jean Dominique Giuliani), as we are seeing with ChatGPT and the like, for copyright and privacy rights protection reasons. And more. Europe, a defender of fair competition, is upset with US state aid (and always with China), but it has also injected money with the NextGeneration Fund, and relaxed internal rules to allow more state aid. The EU has decided to subsidize chip production with 43,000 million euros, a much lower amount than the US or China, even when adding what the States or the recovery fund contribute. Important Projects of Common European Interest (IPCEI) and other national aid come to subvert the orthodoxy of limiting state aid in EU industrial policy. Commissioner and Vice President Margrethe Vestager has lost her battle. But the EU does not place as much trust in its industrial entrepreneurs and researchers as the US. Nor has it yet achieved a true European industrial policy, but rather a sum of national ones, even if they are partly with European money.
As for the European obsession with regulation, despite the myth, the US regulates as much or more, although Brussels is often ahead and has a more global effect. The last step is the proposals of the American regulators of the Financial Stability Oversight Council, to limit the activities of “non-banks”. China is also a hyper-regulatory country. In this regulation, the three models are more similar than what is usually said.
Then there is the other dimension that is often not sufficiently taken into consideration: time. Politics in Washington are always in a hurry. Democrats need results before the November 2024 election. Sometimes they have visionary entrepreneur-researchers like Steve Jobs (Apple), Gordon Moore and Andrew Grove (Intel) or Elon Musk. The Chinese plan for the longer term. And Europe is in a permanent exercise of prospective. But it never quite came.
This is all part of the step of the decoupling (decoupling) that the US proposed against China, de-risking (risk reduction) promoted by Europe, and even China, betting more on its own internal market. The question is how it is going to be managed on a global scale. The South looks at him with concern. And the danger of economic wars lurks without the international institutions having the necessary springs.
