Technological development and economic policy are interlinked – absent U.S. action, China’s victory in the 4IR will allow it to become the new hegemon.

With respect to economic instruments, Beijing now sees technology as central to its ambitions to displace American order. A key component of China’s “great changes unseen in a century” is the belief that the world is experiencing a new wave of technological innovation sometimes referred to as the “Fourth Industrial Revolution” that offers an opportunity for China to overtake the West. This term, originally developed at the World Economic Forum in 2015, has now been adopted by Beijing and generally refers to a wide range of technologies: artificial intelligence (AI), quantum computing, smart manufacturing, biotechnology, and even sovereign digital currencies, among many others. Beijing believes that technology’s intersection with supply chains, trade patterns, financial power, and information flows has the potential to reshape order alongside traditional economic instruments more central to past eras of Chinese grand strategy. For that reason, economic instruments—and technology in particular—are increasingly at the center of the US-China contest over global order.

Most references to the “great changes unseen in a century” evoke the idea that waves of technological transformation have occasionally reshaped history. As Xi Jinping argued in a 2018 speech, “From the mechanization of the first industrial revolution in the 18th century, to the electrification of the second industrial rev- olution in the 19th century, to the informatization of the third industrial revo- lution in the 20th century,” each round of “disruptive technological innovation” has reshaped the world.49 Now, China was facing a fourth industrial revolution, and over the next decade, it had an opportunity to seize technology leadership. “The next ten years will be a key decade . . . for the world economy,” Xi argued. “A new round of technological revolution and industrial change, such as in artificial intelligence, big data, quantum information, and biotechnology, are gathering strength” and bringing “earth-shaking changes” while offering an “important opportunity to promote leapfrog development,” bypassing legacy systems and overtaking competitors.50

Technology leadership could help China realize the potential of the “great changes unseen in a century.” Indeed, most Chinese commentators have argued that the last three revolutions caused a “divergence” that allowed some countries to become geopolitical leaders and left others as geopolitical laggards. Beijing missed out on these revolutions, but now it hopes to ride the fourth industrial revolution to global leadership. In a passage typical of writing on the subject, two CASS scholars made this argument explicitly. “China did not participate in the steam engine and mechanical revolutions of the 18th century or the power and transportation revolution of the 19th century; China partially participated in the electrical and information revolution of the 20th century.” This time would be different, they argued, “in the current brewing of artificial intelligence, Internet of Things, energy Internet, biotechnology, China is ‘overtaking by curve.’”51 This seemingly inscrutable phrase—overtaking by curve—is rooted in some of the post-2009 debates about US power after the Global Financial Crisis, with “overtaking by curve” a reference to sprinting ahead as a competitor slows down or mishandles a turn around a racetrack and “overtaking by lane change” a refer- ence to innovating new methods to surpass a rival.

Chinese discourses on China’s grand strategy under the “great changes” often reinforce this technological and materialist view of power transition. For example, a typical and authoritative commentary on the subject posted online at the Study Times roughly two months after Xi’s 2018 address on the Fourth Industrial Revolution is clear on the geopolitical stakes of these technological changes. “The driving force for the great changes is the decisive role of produc- tivity,” it argued.52 “Britain seized the opportunity of the first industrial revo- lution” provided by coal and steam technology and “established an empire on which the sun never set.”53 Afterward, “the United States seized the dominant power of advanced productivity from Great Britain” by dominating the second industrial revolution of electrification and promptly “jumped into position as the world’s number one industrial power, laying a solid foundation for establishing global hegemony.”54 Then, “the third industrial revolution originated in the United States,” and by seizing this digital revolution, the United States boosted its “comprehensive strength” and extended American hegemony.55 The arrival of the Fourth Industrial Revolution now offers an opportunity to make up for lost time. For decades, China’s leaders have long employed phrases like “catch up and surpass” [赶超] to describe their technological ambitions, with the United States and the West seen as the critical benchmark.56 But now, Beijing believes that the goal of “surpassing” the West is not simply rhetorical but actually achiev- able. As China’s 2019 White Paper puts it, “China is catching up and getting ahead.”57

The “key” to stealing the march on these new waves of industrial revolution was a country’s “institutional advantages,” the Study Times commentary noted. “Britain replaced Spanish hegemony because the capitalist system was far supe- rior to the feudal system that bound farmers to the land. The great changes a hun- dred years ago stemmed from the establishment of a more thorough democratic republican system in the United States, which created a modern market system and a standardized large industrial production system [e.g., assembly lines] that were significantly different from the United Kingdom.”58 But now, the US system was seeing challenges. “The combined effects of governance dilemmas inside and outside the West have become more apparent . . . the century-old neolib- eral development standard and the Western-centered international hierarchical structure have been gradually broken,” it noted.59 China’s system looked better by comparison: “in the face of great changes, contradictions within the Western camp and contradictions among various political forces and social trends in some major powers are developing. There is a strong contrast between the rule of China and the chaos in the world . . . [and] the emergence of a new round of scientific and technological revolution and industrial transformation is condu- cive to China’s institutional advantages and to achieving ‘overtaking by curve.’ ”60 China had an opportunity given its supposedly superior system to follow in the footsteps of Britain and the United States, seize a new industrial revolution, and become the world’s leading state.

These sentiments appear to be shared by most prominent Chinese inter- national relations scholars and experts who argue that the relationship be- tween technology and power is at the core of the “great changes unseen in a century.” As Jin Canrong argues, “In the next decade . . . the competition for the Fourth Industrial Revolution will begin between China and the United States.”61 Jin Canrong sees this as a groundbreaking development: “This is a major change that has not occurred in the past 500 years. In the past 500 years, the industrial revolution has all involved the West, and this time the indus- trial revolution will involve both East and West. This is an opportunity for China and a huge challenge for the United States.”62 Others share this per- spective. Technology is in reality geopolitics, argues prominent Nanjing University scholar Zhu Feng: “Scientific and technological capabilities have become an important indicator of a country’s comprehensive strength, and it has also become the main battlefield for great power competition.”63 China’s tech industry has become a source of tension,” notes Zhang Yuyan. “Power politics mainly refers to any means among the great powers of the century to suppress their opponents, even at the expense of their own interests. The deep-seated reason for the change in the world today comes down to one thing: China’s rapid entry into the high-tech industry.”64 Yan Xuetong sees a bipolar world emerging with technology at the center of competition. “The core of the bipolar US-China strategic competition is over the competitive advantage of technological innovation,” he argues; “it is inevitable to adopt the strategy of technological decoupling to obtain technological advantage.”65 Yuan Peng argues that conflicts over “high tech are increasingly becoming the core disputes in international politics.”66

China is pursuing a robust, state-backed effort to dominate these technologies and to use them to erode various American advantages.

First, China has taken a page from American history and used the state to make enormous investments in basic science research that the market may oth- erwise shun. The National Science Foundation estimates that China’s total R&D spending is roughly equivalent to US spending, even though China’s economy is smaller.67 And in the technologies central to the Fourth Industrial Revolution, China may well spend more. For example, China spends at least ten times more than the United States does in quantum computing.68 Similarly, in artificial in- telligence, China spends at least as much as the United States and likely more, according to estimates from Georgetown’s Center for Security and Emerging Technology.69

Second, China believes its institutions are better designed to mobilize the state, society, and market to wield industrial policy to achieve the country’s tech- nological ambitions, particularly compared to the more polarized and short-term US political system.70 Beijing has identified specific industrial policies meant to support China’s efforts to secure the commanding heights of the Fourth Industrial Revolution, with over 100 Science and Technology plans and over $1 trillion spent toward this purpose.71 Key efforts include Made in China 2025, which targets ten high-tech industries, seeks to indigenize key technologies in them, and sets market share targets for foreign and domestic markets—all backed by tens of billions in state subsidies, technology transfer, market access restrictions, state-backed acquisitions, and other instruments.72 While Beijing formally deemphasized the initiative in its official discourses following backlash from the United States and Europe, the core of the initiative remains very much alive. And since 2016, Beijing has launched several similar and heavily resourced programs, including a plan to become a world leader in AI by 2030, a plan to dominate standard-setting by 2035, and a plan to invest $1.4 trillion in five years to build 5G networks across China.73

Third, Chinese sources see their role in supply chains as an enormous advantage worth preserving as technology competition intensifies. Even as countries around the world sought to diversify away from China following COVID-19, President Xi declared that protecting China’s role in global supply chains was one of his top national priorities. These chains are one reason some scholars like Jin Canrong argue that “China has a greater chance of winning” the Fourth Industrial Revolution.74 Although the United States does have “the best inno- vation capabilities,” he argues, the country now “has a major problem, which is the hollowing out of its industrial base.”75 This means it “cannot turn technology into a product acceptable to the market” without China’s factories. “China has just about every industry” and its “manufacturing industry will account for more than 50 percent of the world’s total by 2030.”76 The country’s superior numbers of engineers, its ability to reverse-engineer, and its factories’ centrality to global technology are “China’s real advantage in long-term industrial competition.”77

China should press this advantage. “Regardless of how the United States feels,” he argues, “China . . . must work hard to seize the Fourth Industrial Revolution” and become the “leader” of it.78 For now, China is retaining its hold on global supply chains despite foreign pressure. The European Chamber of Commerce in China found that only about 11 percent of its members were considering re- location out of China in 2020; similarly, the president of AmCham China noted that the majority of the group’s members are not planning on exiting China.79 For these firms, the rationale goes beyond cost alone. As the Paulson Institute scholar Damien Ma argues, it is hard for Americans to quit Amazon because it is the “everything store,” and it is hard for manufacturers to quit China because it is the “make everything country.”80

Fourth, China is increasingly focused on setting standards in technical bodies relative to the United States. China’s objectives include promoting its industries, earning lucrative royalties when its patents are used, and embedding its values and governance approaches in the architecture of technology. Even before its 2035 Standards Plan was announced, China had already grown influential in key bodies like the Third Generation Partnership Project (3GPP) and the International Telecommunication Union (ITU), and in some cases sought to shift standard-setting discussions to bodies where its influence was greater. With respect to governance, Chinese companies like ZTE have proposed standards for streetlight architecture that would allow video monitoring capabilities to be built in, for facial recognition that would require specific and extraneous dem- ographic and biometric data to be stored, and for a new Internet architecture that would advantage monitoring, censorship, and control.81 Beijing’s success in these bodies is in part a product of its successful investments in next-generation technologies like 5G but also the more “hands-on” approach the Party appears to take relative to the more industry-led and “hands-off ” approach that the United States takes. Although many standard-setting bodies are primarily composed of companies that are supposed to vote based on their own interests, at least in China’s case, companies like Lenovo that initially voted to endorse approaches backed by US companies were criticized by nationalists for doing so and pressured to instead endorse approaches backed by major Chinese companies like Huawei. As Lenovo’s leadership team noted in an apologetic message posted online, “We all unanimously believe that Chinese companies should unite and should not allow outsiders to play them against each other.”82 If China’s efforts continue to be successful, Beijing may be able to lock in its approaches and ex- tend its lead in certain key global technologies to the detriment of universal values and US interests.

Technology also intersects with other more conventional goals of Chinese economic statecraft. For example, China has largely struggled to reduce its vul- nerability to the dollar, but it clearly hopes that with the issuance of its own digital currency it might ride a disruptive wave of financial innovation to blunt US financial advantages and build its own at a global level. Chinese officials have long been worried about the possibility that Facebook’s plan for a digital cur- rency, Libra, would constitute the kind of epochal transformation that would once again bolster the US dollar system. Wang Xin, director of the People’s Bank of China’s research bureau, stated that “if the digital currency [Libra] is closely associated with the U.S. dollar . . . there would be in essence one boss, that is the U.S. dollar and the United States,” which would have geopolitical consequences.83 That concern led the People’s Bank of China to accelerate plans for its own digital sovereign currency, with hopes that it could help China reduce its reliance on the dollar and leapfrog ahead of enduring US advantages.

Finally, the coercive and consensual foundations of order-building very much remain a focus for Beijing. On the coercive side, over the last few years, China’s economic statecraft has become increasingly global, and it has expanded in both frequency and scope. Countries on virtually every continent—as wide-ranging as Brazil and the Czech Republic—have been threatened if they do not accede to China’s preferences not only over once familiar sovereignty issues but even on other questions too.84 This is not unusual behavior for a great power, but it does indicate a departure from past eras when China was more focused on consen- sual elements of order-building rather than punitive ones—particularly in the developing world it sees as its natural base. Moreover, Beijing has encouraged boycotts of various companies for perceived slights, most famously in the US National Basketball Association because one team manager posted a tweet in support of Hong Kong protesters. Of course, consensual elements of China’s order-building also remain and have been globalized too. Providing global “public goods” is now an official and high-level part of Chinese foreign policy, given its own special section in China’s 2019 White Paper. To that end, China has continued to globalize its Belt and Road, which now boasts at least 138 coun- tries.85 And China’s efforts to use aid and assistance to win favor have evolved, particularly following COVID-19 and Beijing’s pandemic diplomacy involving vaccines, masks, and other health goods.

The need for a grounded understanding of China’s intentions and strategy has never been more urgent. China now poses a challenge unlike any the United States has ever faced. For more than a century, no US adversary or coalition of adversaries has reached 60 percent of US GDP. Neither Wilhelmine Germany during the First World War, the combined might of Imperial Japan and Nazi Germany during the Second World War, nor the Soviet Union at the height of its economic power ever crossed this threshold.10 And yet, this is a milestone that China itself quietly reached as early as 2014. When one adjusts for the relative price of goods, China’s economy is already 25 percent larger than the US economy.11 It is clear, then, that China is the most significant competitor that the United States has faced and that the way Washington handles its emergence to superpower status will shape the course of the next century.