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The China Challenge: Enjoying Key Advantages, the Mainland May Soon Overtake the U.S.
Freer trade and faster communication encouraged more bad behavior from Beijing, and that’s helping it catch up
Will China become the world’s dominant economic power? The possibility is real, and it should be taken seriously. By a recent estimate, China may surpass the U.S. in gross domestic product by 2028. As of April, China was the largest producer and exporter of COVID-19 vaccines, despite their low efficacy. This year may mark China becoming the second country, after the U.S., to deploy a rover on Mars. When China’s top diplomats lectured their U.S. counterparts in Alaska in March, their message was: “We are equals.”
A country becoming more prosperous generally doesn’t pose a problem for other countries. But the reason we’re even having this conversation is because of the way China prospers. A chief factor propelling the country’s economic power is its impressive ability to emulate—legally and illegally—the successes of Western economies. Think reverse engineering, industrial espionage and cyber theft, which threaten the economic and security interests of the free world. Recent academic research suggests that this capability may well continue to grow, and it could be sooner than we think before the line between catching up and surpassing is blurred.
Indeed, it’s very likely that China will be able to cheat its way to the top, thanks to two unexpected developments. Instead of making China a good global citizen, the country’s accession to the World Trade Organization two decades ago reinforced many of the worst features of its system—and made it a much more ruthless player on the world stage. Second, the rise of the internet, the ever-quickening pace of innovation and today’s lightning-fast communications are ideally suited for China’s system of learning, copying and, yes, stealing the latest scientific and technological breakthroughs from the U.S. and throughout the West.
Joining the WTO Ended Up Entrenching Bad Policies
How did we get from China joining the WTO to here? When they decided to integrate China more thoroughly into the world economy, Western countries were well aware of the country’s heavy-handed industrial strategy, the lack of intellectual property protection and other bad policies. What turned out to be a surprise is that those policies not only didn’t give way to the rules-based international order, as the West had hoped, but have become even more entrenched.
This shouldn’t have been a surprise. Rather, the resilience of a country’s policymaking institutions after trade liberalization is a natural outcome. A 2017 paper by economists Marianna Belloc and Samuel Bowles illustrated the impact of expanding trade on a country’s institutions. When two countries trade, both sides increasingly specialize in what they do best—19th century economist David Ricardo’s theory of comparative advantage. But trade and specialization not only generate profits for the exporting and importing companies, they also make the institutions and policies that support each country’s comparative advantage more important. Indeed, each country has an incentive to strengthen those institutions and policies to enhance its comparative advantage.
China’s comparative advantage is manufacturing, and there’s no shortage of policies that support this, from forced labor and the lack of IP protection to the coddling of state-owned companies. As we can see from today’s vantage point, China was quick to double down on these policies after joining the WTO.
China has had forced labor (the laogai system) since the early years of the People’s Republic. Before its WTO accession, the forced labor was supplied primarily by criminals and political dissidents who “needed to be reformed” through hard work in factories, practically for free. But in the past two decades, the network of detention camps has drastically expanded to make room for practitioners of Falun Gong, a popular 1990s religious movement that became too popular for Beijing’s comfort; rural laborers in Tibet; Uyghurs from Xinjiang and many more.
The logic of the lack of IP protection is the same. In joining the WTO, China promised to increase transparency and protect intellectual property rights. Instead, encouraging various kinds of IP theft became an integral part of its industrial policy. This has meant more illegal reverse engineering, forced technology transfers, unfair joint ventures, and industrial and cyber espionage. When China launched its “Made in China 2025” industrial push in 2015, such government-directed IP theft was explicitly stated as a tactic.
Favoring state-owned and domestic companies over foreign ones is yet another policy that gained prominence as China became more integrated into the global economy. In the Policy Change Index Project, which tracks China’s domestic propaganda and makes inferences about its likely policy moves, my colleagues and I found that as early as 2004, state media started to emphasize the importance of the country’s state-owned sector and cheer for its national champions. A year later, those words were put into action by former Chinese President Hu Jintao’s “harmonious society” initiative, marking a sharp turn away from the pro-market policies of the early years of China’s economic reform.
Fast Communications Make Catching Up Easier
China may have strengthened these features of its system to help it close the gap with the U.S., but can this recipe lead to dominance? Perhaps so, combined with another trend. Modern communication is expanding the frontiers in science and technology at an ever-faster clip, and this plays to China’s unique strengths.
In 1963, sociologist Robert Merton introduced the concept of “multiples”—similar scientific discoveries that are made independently of each other. Among them are the well-known discoveries of calculus by Isaac Newton and others, the theory of evolution by Charles Darwin and Alfred Russel Wallace, and the periodic table of chemical elements by Dmitri Mendeleev and Lothar Meyer. The medical journal Anthroscopy made it a regular practice to publish innovative submissions in pairs, called “two of a kind.”
One easy explanation is that they are coincidences, but the long list of groundbreaking multiples seems too impressive to be random. One theory is that the same discoveries made by different scientists were not widely known because of the lack of or delay in communication. As an extreme example, Anaxagoras was the first person known to suggest that the sun was a star close to Earth and he did so roughly 2,000 years before Giordano Bruno was burned to death for, some claim, saying the same thing. In the days when communication was excruciatingly slow, knowledge was lost until it was rediscovered many years later. But today, it took me one minute on Google to learn about this. Consistent with this communication theory, discovery multiples in recent centuries have involved fewer scientists and have come with shorter delays between each breakthrough. Faster communication means faster discoveries.
This has profound implications for the U.S.-China technology race. When scientists learn more quickly about their peers’ discoveries, they can spend more of their time making new discoveries based on what is already known. So whether China can go from catching up to surpassing the U.S. may come down to how much scientific communication is working in China’s favor. There are signs that suggest it’s helping China a lot.
China’s entire education system is geared toward learning from the West, especially the U.S. English is a compulsory subject starting in elementary school. Many college textbooks are the same as in American colleges. And where students’ English proficiency is an issue, there’s a translated version of the textbook—probably a copyright infringement. Most top universities also have a center for American studies, as well as professors with doctorates from the U.S.
Today’s faster communications are on full display in artificial intelligence, a frontier of the technology race. China boasts at least two big advantages in AI development because its large population and lack of privacy protection produces reams of data that can help devise better algorithms. There’s also a language advantage that’s no less significant.
As pointed out by Andrew Ng, who was a co-founder of Google Brain and the former chief scientist at Chinese tech company Baidu, there are far more AI researchers in China who can read AI publications produced in the U.S. than the other way around. What happens when you’re more informed about your competitors than they are of you? Well, China has already surpassed the U.S. in publishing AI research papers and filing AI patents.
Two Bad Strategies for Competing with China
Another major variable is how Washington will respond to China’s rise. Some advocate for a degree of disengagement with China, including a recommendation to Congress in March by the National Security Commission on Artificial Intelligence. In theory, that would make what the U.S. sees as Beijing’s bad policies less productive as China’s gains from trade decline. But the highly interconnected Chinese and U.S. economies make adopting this strategy challenging. A limited disengagement would not change Chinese behavior, as we have seen in the U.S. tariff policy toward China in the past few years, while a disengagement thorough enough to change Chinese behavior may entail too high a cost to American businesses and consumers.
Another popular idea is to pursue an industrial policy like China’s protectionist, state-directed model. The security commission’s recommendations alluded to that in the context of the AI competition. There are many pitfalls with industrial policies, but even if such a government push is implemented flawlessly—and it won’t be—it’s still a misfit for the U.S. because the Chinese model is directed at catching up with nations on the frontiers. The challenge facing America is not how to get to the frontiers—it’s already there—but rather how to expand them.
It’s understandable to resort to protectionist policies when a nation’s competitiveness is threatened. But taking China’s rise seriously requires the U.S. to resist that temptation, or the debate about China overtaking the U.S. may soon become moot.
This is the second article in a series on “The China Challenge.” The first article takes the opposite position, arguing that authoritarian rule, interference in key industries and the legacy of the one-child policy will likely prevent China from overtaking the U.S. The third article explores China’s immense demographic problems. The fourth article is written by a mainlander who's working in Hong Kong and struggling with identity.