Why China can't afford a trade war

Central planning keeps Chinese technology a step behind. In a strident two-hour talk given last month to the National People’s Congress in Beijing, Chinese Premier Li Keqiang repeatedly stressed industrial policies, emphasizing the “Made in China 2025” plan that emerged not long ago from the National Development and Reform Commission, the country’s planning agency. The plan intends to “speed up work to build China into a leader in manufacturing” by investing billions in “big data” and “robotics,” as well as “semi-conductors” and “aircraft engines.” Li gave special mention to “clean cars.”

But China has no tradition of technological innovation. In fact, China insists on technology transfers from Western and Japanese partners, and has likely engaged in industrial espionage to steal the intellectual property of foreign firms and governments. These activities no doubt have kept China closer to the technological edge than it otherwise might be. As with other projects, central government planning has created impressive applications, most recently in robotics and artificial intelligence. But all this transfer and theft keeps China dependent on others for each upgrade. And because applications always wait until after the initial breakthrough, the practice ensures that China will remain behind the West.